Featured Story – Focus on trends and tech disruption

According to McKinsey’s research, top performing flow-control companies were not necessarily the largest nor the richest. Successful companies were focussing on quality of revenue on three dimensions: operational excellence, product innovation, and business model innovation (see box text ).

However, in the recent years, there is concern, so McKinsey states, that the sector’s ability to create value has somewhat eroded as top performers are seeing flat to declining EP/R (economic profit as share of revenue), while their lower performing peers are experiencing negative EP/R. Furthermore, fewer companies (35 percent from 2015 to 2017 versus 45 percent from 2002 to 2015) are delivering above-average EP/R.

McKinsey however remains optimistic. “We strongly believe that the best days for the sector are still ahead. Our optimism is driven by the accelerating demand growth and by the advent of disruptive technologies that will help the sector capture value from this growth. Demand growth is underpinned by secular trends around rising demand for infrastructure driven by rapid urbanization in emerging markets and overhaul of aging infrastructure in developed markets. We expect those tailwinds to accelerate sector demand growth up to 4 percent CAGR, up from the average of 2 to 3 percent from 2012 to 2017.”

The consultancy expects further growth in revenues through value creation coming from disruptive technologies, such as Industrial Internet of Things (IIoT), artificial intelligence (AI), machine learning (ML), and augmented and virtual reality (AR and VR). “These technologies will provide companies with new opportunities to improve the economics of their existing markets and drive higher-quality revenue.”

These technologies will help companies further innovate across the three dimensions of quality of revenue: operational excellence, product innovation, and new business models. “The companies that embrace and appropriately deploy these technologies will find new revenue streams, sidestep competition, and break through the sector’s current value-generation plateau.”

McKinsey states that capturing this future value and subsequent growth is far from easy. The agency says the industry needs to embrace ‘new ways of working’. “The sector, however, is ill-prepared for change; less than one-third of executives feel that they have made significant progress in developing a playbook fit for the future”. As disruptive technologies and significant secular trends take hold, flow control companies have an opportunity to embrace a new frontier of products, business models, and operational excellence. The companies that pull ahead will be the organizations willing to embrace change and focus on achieving a stronger quality of revenue.

Control valves seem to lend themselves for production innovation. Not so much on the valve itself but in the area around it. Take for example the positioner. Smart valve positioners provide more flexibility for setup, plus they make it easier to get diagnostics that can be used to extend the life of the control valve, reducing maintenance and unscheduled downtime.

According to an article in Process Automation (Industry trends in control valve automation), the control valve industry does innovate but not as quickly as other technology-centric fields. Instead of major breakthroughs, designers “slowly adapt and improve products over time, providing a slow but constant rate of progression.”

However, in the field of smart and digital valve positioners, the industry apparently has outpaced performance capabilities of mechanical and electro-pneumatic systems. Digital communications protocol advancements allow smart controller technology to make progress and integrate more sophisticated functionalities such as predictive analytics.

Improved diagnostic capabilities facilitate the transition from traditional corrective and schedule-based maintenance to predictive maintenance. Diagnostics with valve positioners are already more sophisticated and allow valve testing to determine if maintenance or replacement is required.

Enhanced control valve automation facilitates the improvement of process efficiency and product quality. At the same time, it safeguards people, plants and the environment. The latest generation of smart control valve positioners also enables industrial organizations to do more diagnostics locally and better understand overall valve performance at a lower cost.

Besides cost efficiency, value creation is the key for suppliers to tie into industry demand. Better product quality and higher yields increase the competitiveness levels of companies that are active in mature markets. Helping these companies to thrive (or survive a difficult spell) is of course not only the matter of control valves but it can be an integral part of the puzzle.