imark now summer leds and the future

VOLUME 7 • NUMBER 2 SUMMER 2016www.imarkgroup.com

PLUS

Preparing the Sales Execs of Tomorrow

Advances In Wiring Devices

Co-op Marketing Yields Results with Proper Planning

Bring Back Old-School Service

52 I M A R K N O W S U M M E R 2 0 1 6

By Ted Konnerth

FEATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LEDs & THE FUTURE OF LIGHTING

LEADERSHIP STRESSORS

Age

Globally, we are experiencing a talent

shortage in the majority of countries

around the world, with the largest

losses occurring in China, Germany,

Japan, Korea, Singapore, Italy and

much of the Euro zone. The major

contributing factors to the loss of

talent are global aging, as well as

global slowing of population growth

rates. The percentage share of the

over-60 demographic is accelerating

in all of the referenced countries and

is a significant concern about access

to labor to support economic growth.

China has the added burden of its

decades-long one-child rule and

will be saddled with labor shortages

beginning as early as 2030 and well

beyond 2050. In fact, China’s total

population is projected to decline by

more than 200 million citizens.

The United States has seen an

increase of 8 million recently retired

citizens due to the Baby Boomer effect.

Coupled with the Great Recession,

many Boomers opted to retire early

with a subsequent impact on social

programs such as Social Security,

Medicare, Medicaid, etc.

The United States is actually well-

positioned to largely mitigate the

aging effect due to its relatively

young average age and ability

to quickly increase immigration

(depending on the current political

climate, of course). However, its

short-term challenges will be the

Baby Boomers as they increasingly

become eligible for retirement. The

biggest challenges for the United

States is to replace 30-40 years of

seniority and expertise and to hand

that off to a populace that is poten-

tially two generations younger and

therefore less experienced, due to

the relative paucity of the following

GenX population with a deficit of

approximately 10 million people.

LED represents a unique dynamic to

the United States market; it attracts

young, culturally diverse people at a

pace that exceeds the traditional draw

into a relatively staid electrical mar-

ket. We have seen significant growth

in diversity hiring and an interest to

attract “young” people to replace an

aging company leadership structure.

As LED becomes more of a software

and tech market, the population

dynamics will change rapidly, bring-

ing with that an interest in changing

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LEADERSHIP IN A STORM

The attributes of Light-Emitting Diodes (LEDs) are remarkable—from efficacy, optical

control, weight, color rendering index (CRI), color flexibility and dimming performance to

their environmental and global impact on energy, carbon reduction and oil reliance. And

accretive to those impressive attributes is LEDs’ future as a Trojan Horse of Big Data and

the Internet of Things (IoT). It’s difficult to imagine a technology with a broader impact

on the world than LEDs. And with the weight of massive expectations resting on the

shoulders of LED manufacturers, it’s easy to see that leadership talent will be greatly tested

over the next couple of decades.

w w w . i m a r k g r o u p . c o m 53

continued on page 55


our traditional business

practices of legacy

relationships, legacy

work hours and legacy

expectations for dress and

attitude. The past history of

“paying your dues” and slowly

climbing a corporate ladder will be

redrawn into a picture of innovation,

fast career movement and flexible

approaches to working for a living.

The lighting leaders of the future will be

forced to embrace diversity, innovation,

retention and training in aggressive and

novel ways.

Technology

In less than 10 years, lighting manu-

facturers have adapted to a complete

renaissance in manufacturing and

operations practices, engineering tal-

ent, marketing concepts and channel

relationships. Remarkably, most have

survived the transition, although many

have incurred margin declines. The next

evolution for lighting will be software,

previously an anathema to lighting

manufacturers who have never had

software engineers for anything other

than IT infrastructure and controls (and

the vast majority of lighting fixture

manufacturers didn’t build their own

controls). Let’s review each discipline:

From an operational standpoint, the

shift to LEDs introduced manufacturers

to clean manufacturing environments

with anti-static assemblies, clean air

filtration and reverse barometric rooms

for certain operations. The legacy prac-

tices of a press room with 1,000-ton

presses stamping out steel bodies have

changed dramatically as the reliance

on old form factors has changed. Addi-

tionally, the changes impacted balance

sheets, with the declining reliance on

large, massive pieces of tooling and

the increase in extending long-term

warranties. The talent for these changes

required training and an emphasis on

documentation and lean processes.

In addition, the operations side had

to identify new vendors with new

specifications that represented new

technologies and new terminology (CRI,

binning, LD-70, Department of Energy

(DOE) requirements, etc.)

As LED enters the next phase of software,

the engineering talent will change

anew; as quickly as manufacturers

changed from mechanical engineers to

electrical engineers, the changes will

now require more expertise in software

and wireless communica-

tions and IP protection.

LED has changed the legacy

channel relationships. Electrical

distributors are optimized when

they supply products to their cus-

tomers that their customers want

and need. When the LED was new, the

opportunity to train electrical contractors

and industrial MRO customers required

significant training and expertise to

embrace LED. Electrical distributors

represented one of the last bastions of

change in accepting the LED. As the

manufacturers were producing LED

equipment, they needed an outlet for

that production and the market for ren-

ovation and energy reduction exploded,

which meant a rush to end-user pre-

sentations. The end-user market was

the earliest adopter of LED technology

and represented a significant launching

pad for many manufacturers’ product

innovations. Sales and marketing teams

have struggled with the conflicts of new

technology, new customers and declin-

ing margins. The LED is redefining the

roles for channel partners.

New channels

The LED unearthed the energy reduction

market, which has resulted in the

renovation emphasis by most LED

manufacturers. The renovation market

was never fully developed in the legacy


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LEDs and the Future of Lighting - continued from page 53

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56 I M A R K N O W S U M M E R 2 0 1 6

days, largely because there wasn’t

a well-defined energy story for metal

halide versus high pressure sodium

(HPS). The T-8 introduction helped

strengthen the energy service company

(ESCO) channel to change out T-12

lamps, but that was never an emphasis

by the fixture manufacturers and even

most distributors ignored it unless their

local ESCO was a customer. As such,

energy reduction was never a clearly

defined channel role for

any channel player. In fact, it

was largely abdicated by the

manufacturer to the distrib-

utor and the distributor abdi-

cated it to an ESCO or asked

their maintenance, repair and

operations (MRO) sales team

to focus on selling T-8 lamps

by optimizing the value of the

utility rebates.

The new LED leaders will

have a robust sales and mar-

keting organization focused

on relighting the existing

manufacturing and com-

mercial office footprint of

the entire country. It’s a huge

market and ripe for the taking.

There are estimates that the

retrofit market in the United

States is 10 times the new construction

market. But it has to be done in a man-

ner that doesn’t conflict with the legacy

partnerships, which means a lot of

tough conversations. Legacy practices

came with well-defined rules of engage-

ment and layers of incentives. That

market was also characterized by high

barriers to entry. As a “closed society” it

was profitable for all the players. That

market has changed forever.

Look at the newest channel partners

available to most lighting manufacturers:

Amazon, business-to-consumer (B2C)

and business-to-business (B2B) direct

internet strategy, ESCOs, HVAC dealers,

data/com dealers, security installers,

solar installers, Custom Electronic

Design and Installation Association

(CEDIA) dealers, electrical contractors,

etc. The opportunity to partner with

novel and innovative companies that

have a direct relationship to a customer

base is unlimited. There are sign dis-

tributors selling lighting packages from

one of the largest manufacturers in the

world on an exclusive basis. The growth

of new channels is expanding as rapidly

as cable channels did in the 1990s.

New ideas

LEDs will spur a new business climate

that includes: IP rights (and fights),

software solutions with new revenue

streams (software as a service (SaaS),

licensing, service, etc.), Blue Ocean

markets and new entrants into lighting.

The talent challenges are immense and

they start at the top. The current leader-

ship structure in lighting is largely made

up of Baby Boomers. And Boomers

believe and know everything that they

know, but are not prone to volunteering

what they don’t know. They have a ten-

dency to be reflexive in their

approach to management and

risk-averse since they’ve had

plenty of experience with new

ideas that failed.

New markets are risky. IP

fights are risky and expensive.

And now the challenge is the

intimidation of software that

is largely out of the scope of a

Boomer’s concepts if he/she’s

spent his/her career in legacy

lighting equipment. The lead-

ership talent of the future will

require an understanding of

the processes, complexities

and cultural requirements of

software development and

implementation.

New entrants

Anyone that has ever been to a Light-

fair convention has recognized the

incredible growth in the number of LED

suppliers available to U.S. customers.

In fact, the U.S. LED market has created

more than 600 new startups in the past

10 to 12 years alone. Many of these were

venture capital or private equity financed

companies that were rushing to enter a

new market and capture a foothold in a



FEATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

large market that had been difficult to

enter due to the legacy channel support

systems. Many of those 600-plus new

companies have failed or reorganized

or changed strategies. All have had an

impact on the U.S. lighting market in

the sense that the U.S. lighting market

has materially changed forever.

Leaders of lighting companies today

face a barrage of competitors that never

existed before. The channel partnership

strategies have weakened; the breadth

and pace of innovation has enabled

small companies to carve out small

niches and succeed profitably. When

hundreds of manufacturers have been

created and enjoy success of anywhere

from $5 million to $50 million, the mar-

ket share claims are suspect for any

company to substantiate. In the legacy

days, market share was estimated

based on the shipment of ballasts to

the fixture manufacturers; since there

were very few ballast manufacturers

and all were required to report to the

U.S. government, “share” was a reason-

able topic. Those days are gone. The

sourcing of components is no longer

a reliable metric since most LED com-

ponents are sourced offshore and the

complexity of what is even deemed

“lighting” has grown exponentially

(modules, assemblies, arrays, linear

arrays, replacement modules, packages,

etc.) The market size expressed in

dollars has changed dramatically due

to the price points of LED versus legacy

equipment. The U.S. lighting market is

largely an undefined morass of players

competing for unique solutions to old

problems.

Five years ago there were fewer than

12 lighting manufacturers with revenues

in excess of $100 million. That number

may now be closer to 25.

Alternative entrants

And then there’s the newest threat.

With the LED being recognized as a

tech product and with its geographic

hegemony, it is now positioned as the

premier control point to enable the new

technology of IoT, Big Data and security.

While this will elevate lighting to levels

never before experienced, it will also

enable a litany of new industries to

enter the lighting market.

HVAC manufacturers, sensor manufac-

turers, building automation, security,

access control and even pure tech

players like Cisco are analyzing their

approach to a lighting value proposi-

tion. It is inevitable that many of these

industries will participate in lighting in

the near future.

But how does a lighting leader define

the company sales strategy when the

offerings are bewildering, recognizing

that selling lighting requires technical

training? Does a lighting manufacturer

have the resources to train 150 HVAC

dealers, Amazon buyers and Johnson

Controls’ 200 sales offices?

The new entrants are ignorant about

lighting and the key reason why

lighting exists; i.e. to enable sight.

How does the lighting industry garner

control over the quality of light as a

professional practice? And what role

will the 1,500-plus lighting manufactur-

ers take to ensure that their products

are properly deployed? We are rapidly

approaching the day when an electrical

distributor will call a lighting manu-

facturer and demand that the lighting

system be controlled by a proprietary

communication protocol inside of an

industrial environment, and then there

are security clearances that require the

security installer to install the lighting.

It’s a brave new world, with tremendous

potential… but potential is realized

through talent.

SUMMARY

Lighting is in transition. What we

identify as lighting in the future may

be significantly different than we know

now. The challenges facing lighting

leaders over the next few years can be

summarized as follows:

1. Profit and loss changes. Margins

will likely decline as tech consumes

more research and design expenses

and niche players compete aggres-

sively for their share. Legal costs will

rise as IP battles increase. Marketing

dollars will grow as the breadth of

channel strategies expands. Sales

expenses will grow in tandem with the

expansion of channel participation.

58 I M A R K N O W S U M M E R 2 0 1 6

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2. Balance sheet changes. Warranty costs

will rise, tooling and research and

design capital expenses will increase

and IP valuations will grow. Write-offs

of legacy equipment will accelerate.

3. Channel partnerships will change.

New rules of engagement will need

to be written and adopted as the new

code of behavior unfolds.

4. Innovation will evolve at a furious

pace, requiring investment in talent

to create software solutions and IP

assets.

5. The lighting market will splinter into

dozens of channel strategies. The rate

of success for small companies to

enter and dominate a small niche will

increase.

6. Acquisitions will increase as the

historically dominant legacy manu-

facturers acquire niche

players to maintain

their growth.

7. Talent will become more and more

reflective of the tech world, with the

young, smart and upwardly mobile

eager to move on. Retention strate-

gies and engagement recruitment

strategies will grow rapidly.

8. The current popularity of non-com-

petes employed to retain top talent

will ultimately fail under the weight

of enforcement expenses. If you have

to legally restrain your employees,

then you’ve stepped over the bond of

mutual loyalty into fealty.

9. The strategic plan will become a bat-

tlefield. With legacy leaders relying

on new tech employees, the strategic

direction of the company will require

deft talent.

10. Legacy leaders will change or

disappear.

11. The availability of talent will remain

restricted for decades as the lighting

market will be competing with tech

companies for the next wave of

innovation. Tech companies line up

outside colleges to recruit the best and

brightest with top dollars. That is foreign

to lighting companies and legacy

channel partners.

12. Diversity of talent will grow rapidly.

13. Change will be exhilarating to

an industry that had a nice and

comfortable 100-plus-year run of

insulated, close-knit relationships.

Enjoy the ride!

Ted Konnerth is president/chief executive officer of

Egret Consulting Group, a professional, executive

search firm since 1999. Egret is uniquely specialized

in the electrical industry. Previously, he was global

vice president of sales at Cooper Lighting, where he

managed a diverse channel strategy to position Coo-

per as the industry’s most profitable market leader.

He holds M.S. and Ph.D degrees in psychology from

Tulane University and a B.S. from Ohio State. He is a

member of IES, IEEE, EmergeAlliance, Human Centric

Lighting and a contributing writer and guest speaker

throughout the industry.

imark now summer leds and the future

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