Smart grid strategy: S&C leadership change sets the stage for new opportunities

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By: SGN Staff

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Earlier this year, S&C Electric brought in a new CEO, Kyle Seymour. This makes it an ideal time to get a sense of S&C's strategic directions. As always with such examinations, my goal is to help utilities decide if a company is a good fit as a long-term partner.

 

If I were forced to sum up S&C in a single phrase, I'd borrow one of Barack Obama's favorite terms. S&C Electric "punches above its weight." Although it is a mid-size player in terms of sales (roughly $700 million) and employees, it has had heavyweight influence on the smart grid due to its innovations.

 

That influence is made stronger by S&C's "balance." Some grid companies are too slow and stodgy. Their customers risk missing out on important, valuable innovations. Other companies -- startups in particular -- are too far out in front, putting their customers at risk with unproven concepts. S&C Electric avoids both extremes. The company is definitely at the leading edge. Yet its sober engineering heritage restrains it from releasing new products before they are ready for prime time.

 

I spent time with Kyle Seymour and with outgoing CEO John Estey to get a look ahead. - Jesse Berst

 

Now more than 100 years old, employee-owned and Chicago-based S&C Electric provides electric power equipment and services, competing with the likes of ABB, Eaton/Cooper, General Electric and Siemens.

 

On paper, Kyle Seymour makes sense to lead S&C Electric in its next phase. First, he is already familiar with S&C from serving on its Board since 2010. Second, he has experience both with industrial manufacturing and with an employee-owned business as the President and CEO of XTEK, a maker of heavy-duty mechanical components. Third, he has both an engineering degree plus an MBA from Harvard.

 

His transition will be made easier by the continued involvement of previous CEO John Estey. He will continue as Executive Chairman, where he will focus on the company's outside relations with customers, stakeholders and regulators.

 

Where next for S&C?

S&C prides itself on what it calls "customer-centered innovation." Yes, they innovate, but they point that effort toward real-world problems. Seymour told me the company is currently focused on three issues:

·         Self-healing. S&C Electric's IntelliRupter product line is already the thought leader in self-healing circuit reclosers. They have achieved some very visible successes at places such as Chattanooga, where S&C gear has brought significant and measurable improvements in reliability. In some cases, payback is as quick as a year or two.

·         Efficiency (including volt/VAR optimization)

·         Storage. Although S&C doesn't make batteries, it acts as a storage integrator, both for grid-scale storage and for community energy storage

Challenges ahead

It's easy to root for S&C, but the free market doesn't care if that S&C is a bunch of nice guys sincerely doing their best. And it doesn't care if they have an equitable, employee-owned culture. It only cares about results. As I look at the next few years, I have these questions about S&C's prospects.

 

Can they master the CEO sell? S&C has typically sold to mid-level managers using a tactical, technical story. That's not sufficient anymore. Can S&C get good at slick CEO presentations that include a heavy dose of strategy?

 

Can they counter the financial muscle of the big boys? Rivals such as ABB and Siemens have been on an acquisitions spree, snapping up small and mid-size companies to round out their portfolios. As an employee-owned firm, S&C doesn't have publicly traded stock it can use to lubricate transactions. It will have to finance its acquisitions internally.

 

Will the market come around to the distributed intelligence approach? My technical friends tell me that distributed intelligence is not only the best way but perhaps the only way to manage the grid of the future. But the utility industry has a long history of living in the past as long as possible. S&C could be ahead of the market.

                                                           

Can it truly master storage? Many energy storage pilots -- from S&C and from others -- have suffered from the "blahs." They haven't been failures, but neither have they been smashing successes. Will this category show solid growth, or will it remain stuck in pilot phase? Surprisingly, the energy storage market is quite crowded. On one end are giants like ABB. On the other a plethora of startups such as Demand Energy, GreenSmith, 1Energy and many others. All fighting over a very small pie. My guess: renewables integration will be the only storage application that really accelerates for the next two years.

 

Can it attract the talent it needs to stay ahead? This problem is not unique to S&C by any means. Indeed, we recently saw General Electric open a huge software center in Silicon Valley to improve its access to software talent. S&C can't throw that kind of money at the problem (though it does have a small Silicon Valley operation). On the other hand, employee-owned companies have their own special benefits that a GE can't offer.

 

Can it play the "frenemies" game with the big industrials? S&C competes with the likes of ABB, Siemens and GE. As Seymour admits, "if they put it all together they could give us a problem because they have so much horsepower." The solution, he says, is to "run fast and learn to work with them as partners." A tough balancing act.

 

Opportunities abound

If S&C can find its way around the obstacles, it faces a landscape full of possibilities. One opportunity is the growing cry for reliability in storm-beset regions such as the Northeast and Midwest United States. S&C's smart protection gear plays perfectly to that story. Distributed intelligence is very valuable in big storms, where it can minimize cascading outages (and do so even if the central intelligence has been disabled or can't communicate).

 

Microgrids are another opportunity area. If microgrids start popping up in quantity, utilities will badly need S&C protection gear and S&C storage know-how to cope with the problems they bring along. The company is closely involved with the Galvin Electricity Initiative and the Illinois Institute of Technology in microgrid testing. Estey and Seymour told me that microgrids "are not ready for investor-owned utilities," so they expect the action to come from campuses and military bases and other institutions that need to keep the power flowing even if the grid goes down.

 

How do you see S&C Electric's strengths and weaknesses? Can a mid-size company continue to compete against giant industrials that are 10 to 100 times its size? Use the Talk Back form to share your insights.

 

Jesse Berst is the founder and Chief Analyst of SGN and Chairman of the Smart Cities Council, an industry coalition.

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