Johnson Controls Talks about Tyco Security Merger

CE Pro sister publication Security Sales & Integration talks to Tyco execs about the merger with Johnson Controls.

Scott Goldfine

Few industry observers could have predicted that two of the best known and largest security systems integrators — Johnson Controls Inc. (JCI) and Tyco Integrated Security — would merge into a single global powerhouse, but last year that is just what they did.

That historic deal also included the SimplexGrinnell fire contracting business and what fewer still could have fathomed: that in a flash Johnson Controls would also become one of security’s top product manufacturers by integrating Tyco’s Security Products division.

The tidy price tag for it all was reportedly $20 billion — a bargain, say some analysts.Having decided to shed its automotive business and more heavily focus on its strong competencies and footprint in tech-centric commercial and industrial building solutions, Tyco Johnson Controls obtained what had been called the world’s largest pure-play security/fire protection company following its 2012 spinoff separating it from ADT North America and flow control business.

With $30 billion in annual revenue and 120,000 employees spanning 2,000 locations serving 150+ countries, this combination brings together best-in-class product, technology and service capabilities across controls, fire, security, HVAC and energy storage to serve a spectrum of markets including large institutions, government, commercial buildings, retail, industrial, small business and residential.

With operations still based in Milwaukee (as part of the merger global headquarters are now in Cork, Ireland) where inventor and founder Warren Johnson established the firm as Johnson Electric Service Co. in 1885, Johnson Controls has spent more than 130 years dedicated to customer-focused innovation.

Johnson was a quintessential inventor as his pneumatic tower clocks, electric storage batteries, wireless telegraph business and steam-powered luxury cars and postal service trucks anticipated and shaped the future. Post-merger the company continues to look ahead.

“Our combined insights and world-class technologies will help build even smarter, more secure and more sustainable environments that help our customers win and broadly move the world forward,” said Johnson Controls Chairman and CEO Alex Molinaroli when the deal closed September 2016.

That’s all well and good for Johnson Controls and its customer base but what does the monumental combination mean for the security dealer and integrator community, and the industry at large? How will the company be organized and branded, and what will be the strategic vision?

While its integrated services business model is of competitive interest, of particularly keen concern for dealers/integrators is what becomes of top product brands like Software House, American Dynamics, DSC, Exacq, Kantech, Sur-Gard and Visonic, among others.

The firm has been understandably mum during the massive transition and businesses integration process — until now. SSI has eagerly stood by waiting for the dust to settle so as to bring the new Johnson Controls into sharper focus.

At last, through in-depth interviews with Vice President & General Manager of Security Products David Grinstead and Vice President of Global Centers and Sales Support Daryl Haga, the picture is made clear. The two executives discuss synergies, operations, challenges, technologies, R&D, markets, recurring revenue, personnel, partnerships and more.

Where are we today with the Tyco merger transition, how has the integration unfolded? Any hiccups?

DAVID GRINSTEAD: It’s gone pretty smoothly overall. The confluence in the organizations has worked very well, it’s entirely complementary. On the products side, the piece I’m responsible for, it’s opened up significant new channel opportunities because clearly one of the objectives of the merger was to create an opportunity in the marketplace greater than the sum of the parts.

The technology delivery, the service delivery platforms that both Tyco and Johnson Controls had in development or in commercial deployment prior to the merger have come together very nicely. One of the opportunities for our customers and channels is ultimately going to be a ubiquitous service delivery platform that will allow for much greater value to be derived from the solutions those platforms support.

We’ll see the ability for a building owner or tenant to access and leverage the capabilities of building management, HVAC and security solutions across a single platform. The vision that the respective JCI and Tyco leadership teams and board had when they created this merger are really starting to come to fruition, and will evolve as they continue to deliver significant value to our customers and the organization.

DARYL HAGA: When you look at the opportunities created by the merger, not only does it provide the HVAC, sprinkler, fire detection and suppression in a single building, but eventually the security follows on after that. There’s a tremendous amount of synergy to be able to pull more experts together when you talk about smart buildings and integration of different systems.

How we can drive efficiencies not only in HVAC but in integrating access control into the HVAC systems to know the number of people in the building, when the air should be on and the heat should be on or turned off. We have a lot of information,and when we share that it creates huge advantages for our customers.

What about the personnel piece, is the integration side looking to add or shed? Have positional redundancies been pared as a result of the merger?

HAGA: Our leadership has done a tremendous job communicating the strategy, vision, future and synergies. If you look at the touchpoints to the customers, it becomes stronger. You look at the ability Tyco had just in the fire and security space; the same Johnson Controls had ability in the commercial and industrial building space.

We’re stronger because of that now. Then you look at the layers on top of that, at program management with the ability to manage projects and large customers, you bring those teams and expertise together. It’s created excitement inside our organization.

We see investment in things like innovation and the CoE [Center of Excellence] network, which is the tip of the spear when it comes to getting new innovation out to the organization, to our customers, and making sure as technologies change very rapidly we’re positioned to support those.

Can you explain how the product brands are aligned now, how that may be changing over the next couple of years?

GRINSTEAD: There’s certainly a difference between the company brand, Johnson Controls, and the products brands. The customers and channel partners want to work with people and products they trust. The Johnson Controls brand represents our people and our organization in that context.

At the product level, and specifically security products level, we’ve got trusted product brands that have significant equity with our customers, both globally and in specific markets. We’re going to continue to manage and deliver those brands as we work to create further value for our customers.

While at the organizational level Johnson Controls is the brand, our customers, our channels, our systems integrator partners who place great store and value in the products delivered under brands like Software House, American Dynamics and DSC will continue to see those brands active in the marketplace.

Will there be something that says “By JCI” or some kind of tweak?

As you might expect, that’s one of the areas where there’s a lot of work going on in the organization. In terms of the actual brand structure, that’s still a work-in-progress. We are continuing to invest or in fact seeking to expand our investment in the technologies behind those brands.

We expect to build on the capability and brand equity that’s been established to this point, and expand both the value we deliver to our channels and the opportunities that the products under those brands create in the market going forward. It may be the case that there’s a Johnson Controls-related tagline in one way, shape or form, but it’s really too early in the process to determine.

Tyco as a brand is going to be used within the security product portfolio. The organization and the customer-facing organization is going to be branded as Johnson Controls.

Some of those product lines, in particular DSC, have a very big legacy in residential. How does that juxtapose with the JCI buildings mission?

GRINSTEAD: The development part that particularly the DSC solution offers is going to continue. One of the areas of significant development for the DSC product lines over the past couple of years has been in the IoT space. And the learnings from that activity are certainly going to translate into the broader building management solutions side.

We’re also continuing to evolve or extend the DSC platform into the commercial space. Over the coming months, there’s going to be more communication with regard to commercial intrusion security solutions under the DSC brand, not just as a standalone but as an integrated solution with other Johnson Controls offerings.

Any concern about channel conflicts, given now you’ve got the installation and integration side combined with the products manufacturing?

GRINSTEAD: Frankly, I don’t think from a channel management perspective it very much changes from the premerger solution. Obviously, the security products organization existed in an eco-system with the Tyco installation and services business. And so really, I don’t think from an organizational construct or a channel management perspective very much is going to change.

Obviously, the internal or Johnson Controls installation and service business is expanded with combined organizations on the installation and service side, but in terms of how we manage that channel versus the relationship with our external channel partners, I don’t think very much will change.

What about products R&D, how do you see that changing or developing post-acquisition?

GRINSTEAD: We are certainly seeking to accelerate our R&D activities. We believe there’s growth opportunity in a number of segments, both from a geography and vertical perspective. Our intention over the coming years is to accelerate or expand our investment in R&D from a products perspective, and accelerate the delivery of new solutions to the marketplace.

Is there any particular technology on the integration side that you’re keen on?

HAGA: We have innovation centers working hard to bring that next greatest thing, that disrupter to the security industry. We’re doing a lot of stuff with drone technology. One of the big things is the ability to do watch tours, to replace the standing guard service through technology, and provide a more flexible and more complete service.

A leading customer interest is the ability to move from standing guards to let technology take the place of those guards and drive a better quality service, and drive efficiencies and lower costs. We’re working hard on that through drones and other technologies.

Looking at a bigger picture for Tyco-branded products, what do you view as some of the top challenges?

GRINSTEAD: Our biggest challenge is ensuring we accelerate our time to market. Channel expectations for new products are at a higher level of frequency than may have previously been the case, particularly in areas like intrusion and the IoT home and building automation spaces. The product development and delivery cycles are increasingly more akin to the expectations of the consumer electronics market.

The other challenge I would view as an opportunity, which is the expansion of our markets beyond North America. We’ve got to align our resources and develop our channels to leverage that capability. We will unequivocally continue to evolve, develop and support the North American market and take that from strength to strength.

As an organization we have to work out how to leverage that capability and learnings we’ve developed in the North American market to create value in other geographies.

What would you identify as the top two challenges facing you on the security integration side?

HAGA: The one that comes to mind first is technology changes very rapidly now. It’s very difficult to keep our teams developed and trained around that new technology. We’re working to find new ways to do that, such as through a personal device that helps walk you through new technology and manage certain situations.

The CoE model is based around providing information to our teams that are going out to execute projects. The strategy is in training and development, and managing that through the web as technology rapidly changes.The second one is as technology changes, the characteristics of the team will need to change.

If you look at the Millennials and their ability to change with the technology, to adjust and adapt, we’ve got to make sure we’re nimble and can do that too. That’s difficult, but not impossible, in a large organization. You have to think outside the box and find ways to recruit and attract talent.

Then the challenge is the talent you have, getting them to change and look at things a new way. These are challenges that depending on who solves and finds a way to be quicker and nimble will turn it into an opportunity to do better in the marketplace.There’s a big push for integrators to attach recurring revenue services to products.

Are you developing recurring revenue hooks to address that?

GRINSTEAD: Absolutely. We are always looking for opportunities to create high levels of value for our channel partners, the systems integrators, and the installers. Over the coming year we will be deploying new solutions that allow our systems integrator partners to create recurring revenue opportunities for themselves. Certainly in the video and access control spaces, and we’re looking at opportunities to do that in the intrusion space as well.

How much emphasis is there on recurring revenue on the integration side? Is a recurring revenue component being folded into every project?

HAGA: We would want that recurring revenue folded into every project but the reality is it’s not available at the beginning of every project. It may come when the building is turned over to the new owner. We still provide traditional services such as monitoring and maintenance services to facilities, fire alarm inspections, audits, those types of services.

But we’re working to bring more services that would help that recurring model from what we now call our professional services team. On many of the enterprise, high-level systems we are managing the customer’s server, managing the software pushes out to devices in the field, the upgrade of the server software, any IT or related issues for the customer.

We’re trying to expand those services, and as technology and the marketplace changes we’re trying to be thoughtful and see what new services our customers need.

As part of that, are you leveraging technology to diagnose and fix issues without having to roll trucks as often?

We’re absolutely going to focus on that. There’s more accessibility to everything from security to video to fire panels remotely, we see huge value in that. We think our customer sees huge value. If they have an issue with their access system or intrusion system, and we can remotely diagnose and correct that, No. 1 it’s the speed.

They don’t have the disruption of a technician interrupting their day-to-day operation. We have a group in the U.S. of about 60 people who are dedicated to that. They take the first-line calls from our customers, go through triage, try to connect and repair remotely. When our service technicians are dispatched, they have more information about what the actual problem could be. I see that gaining momentum in the future.

Similarly, from a data management perspective, we will provide an unparalleled or unprecedented portfolio of data-gathering sensors across a building. The input from that capability is going to provide the opportunity to deliver and develop new services for our channels, building owners, building tenants that really no one else has to the same level of capability.

HAGA: The No. 1 advantage we have is the number of touchpoints we would have in that facility. As we look at what we would provide to a customer, let’s say if it’s a hospital, from the HVAC to the fire and sprinkler to the video and security; we can go in as an organized group, consolidated group, and bring value by being able to offer even a more complete service, a more competitive price.

We can use the same teams to execute the installation of that project, from program managers to project managers to people who are actually pulling the wire or installing the sprinkler system or HVAC. That gives us a competitive advantage.

What about competing against regional or local companies that maybe have more intimate touchpoints with the customer?

No doubt about it if you look at the smaller regional organizations, they have a very intimate relationship with their customers. But if you look at the way we’re organized we have that as well. We have our branches with probably more density in the marketplace than other providers. We have local service and installation technicians.

We have the local sales team. We have the local management. You can still be a large company and have that local touch and local face-time with your customers.

Are plans in place to splash a lot of high-profile marketing to make everyone aware of the new JCI?

GRINSTEAD: Marketing is a big opportunity for our business. It would be true to say we have not been a marketing organization to this point, certainly, from a security products perspective. You can expect to see us seeking to expand the knowledge and presence of our brands and capabilities in the market, and an increased spend in digital marketing and digital properties.

One of the areas there still needs to be some fairly significant work is our online and digital identity as an organization. That’s another area where we’re going to make significant investment over the months to come. From a corporate culture standpoint, what kind of commitment is there to be involved in the security industry through trade groups, standards, visibility at events, etc. as part of the community?

GRINSTEAD: We’re a committed member of the security community both in North America and globally. We participate actively on most if not all of the related trade organizations. That’s important both in terms of ensuring we stay connected to the industry and to our customers, and that wherever we can we participate actively in influencing the direction of the segment as well. We’re committed to the organization, not just to the segment, not just in terms of the products and solutions we deliver, but we believe it’s incumbent upon us to be an active participant in the industry bodies.