2017 Global Automation Solutions and Services Customer Value Leadership Award

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Background and Company Performance

Industry Challenges

The primary global trends that are disrupting, collapsing, and transforming the process automation markets include Industrial Internet of Things (IIoT), uncertainty in operations/commodity prices, impact of advanced software technology, shifts in demographics and demand. These trends are driving the need for sustainable business performance with certainty in operations (e.g., business, production, manufacturing, supplychain). This is especially true of process automation industries, which are at an interesting juncture. There are four major shifts happening in this market that are challenging global
process automation end users:

  • An aging workforce and need for reliability: Nearly 35% to 40% of the process automation workforce is eligible for retirement over the next 5 years.
  • Digitization and cybersecurity: End users are willing to connect assets over the Internet in order to realize better asset performance, but are restrained by the security threats.
  • Operational efficiency: Volatile commodity price swings are forcing companies to take drastic measures to maintain baseline performance efficiency.
  • Asset reliability: Competitive pressure and an acute focus on margins have driven end users to shift from traditional reactive asset management models to predictive and preventative asset management models.

These challenges are driving a state of uncertainty in the end-user mindset, as they are often not aware of a solutions roadmap, implementation strategy, and possible outcomes. The market is also shifting from request for quote (RFQ) projects to proactively shaping and creating new market opportunities/demand. This market shift is driving a change in the sales-to-cash cycle for automation solution providers. Typically, automation companies (like Yokogawa) were selling tangible products such as control systems, safety systems, sensors, flow meters, plant management software, and associated services. However, the digital shift signals the need for automation solution providers to educate end users on areas of opportunities and will thereby drive new market development. Automation companies usually use a consultative approach, utilizing a team of consultants to discover and advise on plant operations-related issues and advise customers on the best approaches that can be taken by them.


Yokogawa, one of the few independent automation companies, is primarily focused on the energy value chain (oil and gas—upstream, midstream, and downstream chemicals, petrochemicals, refining, and power generation). Keeping with the market trends, the company is also transforming in order to drive incremental business value to its global customer base. One of the ways that the company has transformed is through strategic acquisitions (e.g., Industrial Evolution, Inc.; KBC Advanced Technologies plc; Soteica Visual Mesa, LLC). Further, Yokogawa is looking to intensify market participation in existing and near-adjacent industry verticals, primarily in areas where it currently has minimal presence (e.g., mining and power transmission).

 

Customer Impact and Business Impact

Customer Ownership Experience  

Because process and hybrid end users (end users include oil and gas, chemicals, refining, food and beverages, and life sciences) are faced with shrinking CAPEX investments, they now have to optimize their lifecycle operations expenditure. Further, a cross section of end users (mentioned above) also face other critical issues such as digitization, security threats, competitive pressures, and margin security. At this point, it is imperative for solution providers to reposition themselves from a product supplier to solutions and service supplier. Automation companies will need to offer value-added services such as human capital management, asset management services, plant design services, simulation, and production analytics. Further, end users are looking for trusted industry solution partners that can continuously diffuse best practices learned from near-adjacent industry verticals and evolve with maturing technology landscapes.


Competition in the process automation market is driving companies to increase solution service capabilities. Several companies are inorganically growing this capability while a few are using an organic model to bolster solution capabilities, initiating a race to become the anchor in the industrial markets. Although there are multiple solutions available in the market to address the customer/end-user challenges, it is important to structure an endto-end solution that comprehensively addresses the value-delivery model from the phases of plant design, engineering, commissioning, asset management, human capital management, and lifecycle operational sustainment.


Yokogawa, one of the few independent automation solution providers, differentiates itself in this market in many different aspects. The company recently made a series of strategic acquisitions to differentiate its breadth and depth of capabilities. The acquisitions were:

  • Industrial Evolution, Inc. (acquired in December 2015): This Company is a pioneer of secure cloud-based data sharing services in energy and chemical industries, since the year 2000. It is one of the most well-known companies in the market and services a number of Fortune 100 companies who leverage its data collection and sharing services. This acquisition helps strengthen and expand Yokogawa’s advanced solutions portfolio for process industries. Yokogawa’s advanced solutions portfolio already includes solutions such as advanced process control, simulation, and process information management system. Further, the acquisition will allow Yokogawa to deliver Data-as-a-Service platform capabilities to its existing installed base. Yokogawa is enhancing its cloud-based advanced solution business based on the technology of Industrial Evolution. In February 2016 Industrial Knowledge was established as a business unit to enhance the cloud-based advanced solutions business based on the technology of Industrial Evolution.
  • KBC Advanced Technologies Limited (acquired in April 2016): This company has been focused on improving operational excellence and profitability in the upstream and downstream segments of oil and gas. The acquisition allows Yokogawa to gain a differentiated blend of advanced software and operational consulting capabilities. This fills a gap in the portfolio, which positions Yokogawa as a comprehensive solution provider from the C-suite office to the plant-level operator. 
  • Soteica Visual Mesa, LLC (SVM) (acquired in October 2016): This acquisition allows Yokogawa to gain energy management capabilities, production accounting, and scheduling for process industries.


Yokogawa’s current solutions and service are technologically unparalleled offerings, and these are further amplified by its acquisition of KBC Advanced Technologies Limited and Industrial Knowledge, as explained above. These strategic acquisitions help Yokogawa drive differentiated customer value by discovering areas of improvement, automating the manufacturing processes, sustaining these benefits, and driving continuous improvement. The primary objective of Yokogawa’s comprehensive solution and service offering is to increase the return on capital employed (ROCE)
while reducing operational performance variability. The adoption of a comprehensive solution, like the one provided by Yokogawa, helps process automation end users drive smarter, faster, more responsive, and more profitable operations.


Best Practices Example: As per Yokogawa’s Transformation 2017 plan, it aims to leverage its best-in-class measurement, control, and information technologies with KBC’s advanced software and Industrial Evolution’s data sharing capability to drive strategic business value and facilitate the realization of potential synergies for its customer base. The customercentric experience created by Yokogawa is already being well received by customers, according to the company.


Customer Service Experience


As of 2017, technology refresh cycles have been halved when compared to the past decade. This trend has forced many large-, mid-, and small-sized companies to tactically look at using outsourced services/managed service offerings. This is driven by the fact that technology investments made by end users are not on par with the market movements. End-user companies look for harmony between operational technology (OT), information technology (IT), and lifecycle management. Because of this, solution providers are expected to demonstrate excellence across these three areas in order to achieve a preferred vendor status with end users. While maturity levels of process automation end users vary, Yokogawa’s ability to understand the industry-specific needs of these customers/end users helps it deliver customized solution offerings.


Best-practice: Yokogawa developed a solution called Process Data Analytics to detect process quality issues early on in the manufacturing process through analysis of process data, material quality data, operations history, and resources used. The solution’s strength is proven by the fact that Yokogawa has over 100 contracts to date and continues to improve on the solution capabilities. The ability to comprehensively analyze the inter-dependencies between man, material, and machines, demonstrates the customer service capability of Yokogawa. The process data analytics solution can be used to monitor and maintain production quality control across industries such as oil and gas, petrochemicals, chemicals, iron, steel, pharmaceuticals, and food and beverages.


Another solution that speaks volumes of Yokogawa’s customer-centricity, innovative capability and technology ingenuity is the industry-leading distributed fiber optic sensing solution. It provides thousands temperature measurement points in minutes which is ideal for well monitoring, pipeline leak detection, fire detection, power cable monitoring, or other large production facilities. Thus improves operational safety, availability and efficiency. This solution currently includes two main products - DTSX200 and DTSX3000. The differentiation is its integrated industrial modular design with longest distance, up to
50 km and highest performance. Such capabilities are beneficial to facilitate reliable measurement in harsh environment which was never realized in the past. Oil and Gas, and other customers continue to adopt these cutting-edge distributed fiber optic sensing solutions in various applications.


Brand Equity


Yokogawa recently celebrated its 100-year anniversary. The company is one of the few independent automation companies primarily focused on the energy and chemical value chain. While the company is aggressively building its presence in the United States, it is one of the top 3 companies in Asia-Pacific, Middle East, and Europe. Yokogawa has successfully created a strong brand in the process automation market that is based around its proven MAC (Main Automation Contractor) capability, project execution and technology prowess, and focus on the customer. This is evident from the fact that several large integrated oil and gas companies like Shell, Gazprom Neft continue to renew longterm contracts. Case in point, Yokogawa recently signed an agreement to start an International Center for Innovation in Russia. This is primarily to drive the development of advanced solutions for Gazprom’s refineries. This particular example showcases end-users perception towards Yokogawa’s technology and brand.


To further amplify its brand awareness, Yokogawa has collaborated with Microsoft Corporation; FogHorn Systems, Inc.; Bayshore Networks, Inc.; and Telit IoT Platforms, LLC to synergize market offerings with combined technology platform offerings. Yokogawa also setup its IIoT architecture development division on the West Coast of the United States to create a robust, next-generation, and flexible architecture. Yokogawa will use this division to collaborate more closely with its partners and subsequently develop innovative solution offerings.


Customer Acquisition and Operational Efficiency


Providing a blend of technology excellence and services is required in current industrial markets. While many competitors have strengths in specific value-chain segments, Yokogawa’s integrated value proposition allows it to effectively serve end users from an end-to-end perspective. For example, KBC Advanced Technologies Limited is able to offer facility simulation, reactor models, pipeline simulations, flow modeling, and fluid modeling in addition to value-added consulting services designed specifically around the end user’s business to improve operational and employee performance. In order to provide more value to customers, KBC has introduced a new solution – KBC Co-Pilot ProgramTM. The solution takes a drivers-seat approach to help plant owners and operators achieve optimum performance. It is a secure cloud-based remote unit performance monitoring and optimization service that constantly measures plant performance against planned KPI’s.

This helps plant operators in identifying and implementing opportunities to improve performance and reduce performance variability. As customers look to scale and connect multiple plants globally, solutions like KBC Co-Pilot ProgramTM will help them benchmark plant performance and drive optimal business performance. The roadmap of the KBC Co-Pilot ProgramTM solution is two-fold. Today, it offers remote monitoring and production optimization. 2018 and beyond, the plan is to offer energy management, supply-chain and operator effectiveness.


Further, local service centers are strategically located in areas throughout Europe, Asia-Pacific, Latin America, and the United States so the company can quickly meet client requirements. Yokogawa has about 4,000 project engineers, 2,000 service engineers, and 1,200 software consultants across 59 countries across the world. It has managed over 44,000 projects worldwide since the start of the company. The global reach of the company, with local delivery capabilities, is a standard requirement within the automation market.


The comprehensive ability to single-handedly drive step changes in operational efficiency parameters by using class-leading technology solutions and service capabilities has given Yokogawa the potential to become an industry standard.


Growth Potential


The Industry Automation (IA) business vision of Yokogawa is to become the most trusted partner and drive sustained operational performance improvements for customers in the energy and chemicals value chain. This vision statement from IA is very timely, because it is poised to deliver solutions to customers who are currently confused by several technology convergences and volatility issues. The customer opportunities are across two specific areas:

 

  • Shift from site-level optimization to enterprise-scale optimization: End users are faced with shrinking workforces and are thereby driven to standardize solution deployment across their enterprises. Leading companies are quickly shifting focus from site-specific pilot implementation to enterprise-scale predictive performance optimization. Frost & Sullivan has observed that several companies (e.g., large integrated oil companies, chemical majors, specialty chemical manufacturers, power generation utilities) are adopting long-term solutions and service agreements with one unified solution provider. This offers a strong growth potential for Yokogawa, as it is positioning itself as a trusted partner that can address all these challenges.

 

  • Open standards use: Many of the energy and chemical end users are drastically changing their operational models due to their frustration with traditional hardlined relationships with solutions and service providers. A leading integrated oil company has embarked on a journey to use standards-based hardware for control systems operations. This has severe implications to the process automation industry, as it has typically used proprietary protocols. However, Yokogawa stands to significantly benefit from this trend because the company’s long-standing focus has been on open standards. This is further resonated by the fact that Yokogawa has already taken its first step towards developing an open-architecture, which allows systems to be interfaced without the need for a Vnet/IP card. Additionally, the Vnet/IP which is a real-time plant network system for process automation based on the 1-Gbps Ethernet communications system is in accordance with IEC 62405 to ensure compliance with security requirements. Yokogawa is also developing open architecture-based solutions to achieve optimization in the process industry. Further, the organization is also actively pursuing the development of comprehensive security management solutions for mission critical control systems by forming strong partnerships with IT companies like Cisco and McAfee. This isfurther strengthened by the development of the SecurePlant initiative. This is a comprehensive security management solution to be deployed in over 50 Shell plants globally.


As the market steers towards change, Yokogawa is well positioned to capitalize on the growth opportunities provided.

Conclusion


Yokogawa’s vision has not wavered for the past 100 years, and that is its focus on customer excellence. This has been further amplified by strategic acquisitions (Industrial Evolution, Inc.; KBC Advanced Technologies plc; Soteica Visual Mesa, LLC), which position the company as a global leader in the advanced solutions market for the process automation industry. As industrial architectures shift from layered/hierarchical to networked/flat architectures, the ability to innovate and reduce performance variability is further enhanced. However, customers will not be able to do it all by themselves due to the aging workforce, limited technical capability, and cost pressures. This is where Yokogawa is able to seamlessly deliver profit-impacting solutions and services while addressing the aspects of operational safety, stability, productivity, and enterprise resilience. With its strong overall performance, Yokogawa Electric Corporation has earned Frost & Sullivan’s 2017 Customer Value Leadership Award for Automation Solutions and Services market.

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