- Word count :2500 words
Answer the questions in 2500 words
- 500 words/ question
- Kindly please refer to the attached document
By reading this case, students will:
• Analyze product life cycles as Ingersoll Rand (IR) enters the innovation phase of home automation, and justify how IR should proceed in this space considering its organizational structure, company resources, and company strategy.
• Identify counteracting forces that IR must recognize to succeed in home automation; analyze market pulls using Porter’s Five Forces to justify responses.
• Assess the potential for IR in a new industry while noting misalignment with company strategy and culture;
• Justify how IR can capitalize on innovative strategies.
A Company Shaken to the Core
On a brisk autumn morning in 2010, Gary Michel, president of the Residential Solutions division at IR peered out of
his office window. IR had recently gone through reorganization, expecting to create synergies and spur growth.
Michel knew the company needed a change, a vision towards the future – it was primed to take advantage of a
booming new industry in home automation. Michel called a meeting with five senior managers to discuss options.
The managers left the meeting skeptical of his new proposal to shift focus towards innovative technology; they
expressed doubts that the business had the talent and experience to excel in this competitive space. After all, being
an innovative leader was not a core competency of IR. Michel was convinced this route was the future for IR.
Michel went to work devising his proposal. Over the next six months, the company experienced modest growth of 4–
5% annually. Michel wondered if the company could transition into a technology company, whether its organizational
structure could support quick and adaptive decision-making. How would the business establish itself in the market
without prior industry knowledge? Michel questioned if he was making the right decision. If the company was going to
enter the home automation arena, it needed to move fast.
A Foundation of Success: History of Ingersoll Rand
Ingersoll Rand originated from two independent drilling companies that merged to form one company in 1905. The
United States experienced booming economic growth, and its infrastructure was expanding at a rapid pace. Power
tools were needed to support these initiatives and IR capitalized on that need. Over the next 20 years, IR capitalized
on market leading success in drilling operations.
Ingersoll Rand was at the forefront of technological innovation in its industry; however, innovation was slow and
methodical. IR was the first to develop a commercially successful locomotive in 1925. Nearly 25 years
later, IR developed air compressors that are now used throughout the world in commercial and residential
applications. IR compressors became the trusted technology in the first nuclear submarines. Again, in another 25
years, IR developed centrifugal air compressor technology that offered efficient and sustainable air solutions for
customers (see Figure 1 for a company history of IR through 2010).
Figure 1. Ingersoll Rand company history from 1871–2010.
Under the direction of James Perrella, IR developed a strategy in the mid-1990s aimed at diversifying IR’s portfolio to
drive immediate growth. Before his tenure, revenue streams were cyclical, subjecting the company to increased risk.
Manufacturing, the main application of IR’s signature air compressor business, was waning, going from 30% of jobs
in 1979 to 23% in 1989 to about 20% in 2010 (Plunkert, n.d.; Scott, January 22, 2015). Additionally, infrastructure
spending continued to decrease, from 2.2% of annual gross domestic product (GDP) in the 1960s to 1.6% of GDP
today (The Case for Investing in America’s Transportation Infrastructure, 2015). To grow, Perrella acquired marketleading companies such as Bobcat, Steelcraft, Thermo King, and Harrow Industries. Additionally, he focused efforts
on innovation, dedicating $156.4 in 1994 alone (Ingersoll Rand Co. Ltd. History, n.d.).
Herbert Henkel succeeded Perrella in 2000 and continued to develop a diversified portfolio. Shortly after taking over,
Henkel acquired Hussman, a market leader in refrigeration. Aggressive cost-cutting tactics were put in place to
reduce costs. By cutting nearly 20 manufacturing plants worldwide, Henkel reduced the company’s manufacturing
footprint and therefore leveraged overall manufacturing space (Ingersoll Rand Co. Ltd. History, n.d.).
Shortly after acquiring many small companies, in 2007 IR chose an aggressive strategy to sell many subsidiaries of
its still highly cyclical and capital-intensive businesses to generate $6.2B in cash (Ingersoll Rand Completes
Acquisition of Trane, 2008, June 5). This sale was in anticipation of acquiring Trane, a commercial and residential
heating, venting, and air conditioning (HVAC) company in 2008, the largest acquisition in the history of the company
at $10.1B. After the acquisition, revenues more than doubled while generating $300M in profit by consolidating
suppliers and improving overall administration. The Trane acquisition added 29,400 new employees; it also created
vulnerability as systems lacked integration and its company culture differed greatly from the IR landscape. Trane had
enjoyed periods of steady growth; however, IR instituted cost-cutting measures and relied on key metrics to drive
performance. The acquisition did create synergies, allowing packaged solutions and additional sales channels that
increased revenue. Trane brought along its established builder relationships. Additionally, Trane’s commercial
operations had superior technology in Building Automation Systems (BAS).
Ingersoll Rand leadership worked to develop a strategy meant to drive organic growth throughout its many
subsidiaries. IR believed that the various companies in its portfolio could create a comprehensive customer solution.
Home Automation Solutions and Markets
An emerging industry, home automation aims to provide sustainable solutions in which everything from appliances to
air conditioning systems can be controlled by a centralized network. In 1995 commercial
automation systems gained traction in the market as a result of computing networks able to support the Trane BAS
technology. Companies recognized the cost advantages and ease of use of automation systems, which increased
their popularity. Most commercial structures built after 2000 use a BAS system (Building automation; n.d.).
Home automation appeared on the market in 1998 and continued to increase in popularity through the early 2000s.
Initially, few platforms existed and what did exist was underdeveloped and costly to produce. Competition increased
the number of platforms, and each platform offered different functionality. Automation systems ran exclusively on one
platform and they were not interchangeable. This created complexity as technologies did not run on open systems;
consumers had to choose one platform over another.
Information technology has become an integral part of the product through embedded sensors, processors, and
software that create connected products. These features allow systems to determine whether a customer is home,
whether the lights are left on, or if the air conditioner is running. Smart sensors can detect water leaks and gas
emissions. Smart software can alert authorities automatically, turn off the lights after dark, or turn on a fan if a room
is too hot.
Home automation systems take two forms: standalone systems or integrated systems. Standalone systems are
essentially à la carte automation systems that control one function only, such as a standalone lighting system or a
standalone security system. Consumers may purchase different standalones for different purposes from competitors
and customize these to fit each customer. Standalone systems can be controlled only from a universal remote from
inside the home. Integrated systems allow connected solutions with multiple functions on one platform. Consumers
prefer integrated solutions for ease of use: people can control the climate, security, lighting, and appliances all from
one smart device. A significant benefit to having a smart home network is that it can be remotely controlled.
Additionally, automation systems lead to greater energy efficiency. Phantom electricity loads equate to 7% of energy
waste; however, smart devices can completely cut power of phantom loads creating energy sustainability while
reducing energy costs for consumers (Little, 2015, July 29).
Due to technological advances, home automation has become cost-effective for average households. Manufacturers
have increased volume to produce units with economies of scale. Because of open operating platforms, niche
competitors can specialize, which drives efficiency and quality while reducing overall costs. As a result, industry
growth rates are between 30% and 45% depending on whether the system was integrated or standalone.
Penetration rates in 2016 are 11.2% of households; however, penetration is expected to hit 31% by 2021. Total
households in the US in 2015 were 124.2M (Peng & Gatschke, n.d.). Standalone solutions are expected to face
negative growth by 2020 (Statista, n.d.). Growth is limited to developed countries as a result of the complex
infrastructure and internet connections required to operate systems. Smart systems utilize WiFi, which is more
concentrated in the developed world; the United States holds nearly 75% of all home automation systems (Statista,
n.d.). As penetration rates are low, growth domestically is not expected to create operating risks. Revenue growth
from 2016 to 2021 is anticipated at 19.6% (Peng & Gatschke, n.d.).
With this significant growth, different industries are trying to gain market share including industrial, telecom, and
technology companies. Residential automation systems accounted for $32B in 2015 and are expected to grow to
$78.2B by 2022 (Rohan, April 27, 2016). The competition is fierce, causing companies to seek differentiation
strategies to promote customer value. In 2016, 67 companies entered into the home automation space. From 2010
to 2015, investor funding increased 146% (Rayal, Hartani, & Chan, 2016, January). Controlling costs is a focal point
to continue consumer momentum in the automation industry. Declining system costs have increased consumer
demand. Over the five-year period from 2016 to 2021, revenue per home is expected to decline 15% (Rayal, Hartani,
& Chan, 2016, January). This is expected to be offset by increased penetration of automation systems.
The results of a recent nationwide survey determined that 20% of US households own at least one home automation
feature and that almost 60% of consumers state they are interested in home automation (Albert, 2015). Builders are
taking a serious look at including home automation systems as part of their standard packages. Since consumers
desire this technology, builders can gain competitive advantages over other
homes not equipped with automation features.
Ingersoll Rand Home Automation: Paving New Roads
In 2009, IR introduced Schlage LiNK exclusively for the security segment of the company. Schlage LiNK is one of the
first products of its kind with the ability to monitor and regulate access to a home’s main doors, but the technology
was not interoperable with other home automation features. Within a few years, Schlage LiNK evolved into a home
automation system; however, it lacked the brand name and direction needed to take the business far into the future.
The name was not indicative of the services it provided. Another problem was that Schlage LiNK was identified by
consumers as a security company. This caused confusion among consumers and limited market potential. For
consumers looking to automate their HVAC units, Schlage LiNK was not an immediate solution that came to mind.
IR decided to implement a solution that would integrate internal and external products using Z-Wave technology. In
2010, IR set a goal to create a connected solution for its customers, pledging to increase research and development
spending by $50 million per year in anticipation of becoming a leader in emerging markets (Ingersoll Rand, 2010).
Ingersoll Rand chose Z-Wave technology to position the company for future growth. Nearly nine out of ten products
sold in home automation used Z-Wave technology, which ran on a different frequency bandwidth on WiFi from
competing platforms. This created an interoperability advantage with less traffic on a typical 2.4GHz. Z-Wave
technology had experienced over 10 years of successful operability (About Z-Wave, n.d.). Due to its inexperience in
technological innovation, IR wanted a proven solution in home automation. Company leaders also believed that due
to the extensive experience of Z-Wave, they could capitalize on an established market and sell through their
products or add onto existing automation platforms.
All products using this technology can operate using this system creating increased flexibility. This was also
beneficial when consumers purchased Schlage LiNK because it often meant continual and repeat revenue when
customers expanded their smart systems to other areas of the home. There are over 1,200 Z-Wave compatible
products on the market. The technology is easy to use and set up thus reducing overall costs of installation for
consumers (Fritz, 2017).
The IR home automation product Nexia followed a direct-to-consumer sales model. Basic kits sold for $299 and
allowed further system integration through additional add-on items. Each peripheral ranged in cost from $30 to $300
depending on features (Nexia, 2017). The direct sales channels sold through IR’s internal Nexia web portal and
through Trane’s network of independent dealers. This method offered limited marketing capability and was not
expected to produce the majority of sales. To increase market capacity, Nexia aimed to utilize its partnerships with
big box retailers such as Lowe’s and Home Depot. This was easy sell to retailers who already carried IR products; it
offered an integrated solution and thus increased inventory turns and cash flow.
While several competitors chose to offer services for free, Nexia charged a monthly premium of $9.99 (Nexia, 2017).
Competitive Landscape in Home Automation
The landscape of home automation includes many different companies trying to make their mark in the emerging
industry. Listed below are some of most promising products in this domain along with the diverse features as well as
the price tags for each.
Control4: Established in 2010, Control4 offers commercial and residential systems with a complete home automation
solution. Control4 has developed partnerships with leading brands to offer increased connectivity to at least 10,000
electronics, which leads the industry. Its controls can be personalized to better fit the consumer lifestyle. Systems go
to market via independent dealers who sell to consumers and builders. The company operates globally in 91
countries; it remains relatively small in comparison to other large-scale companies at $110M in revenue as of 2012.
The lowest priced Control4 system costs $600 (Control4, 2016,
CÔR: A home automation system developed by Carrier. Carrier is the world’s leader in high-technology heating, air
conditioning, and refrigeration solutions. CÔR was launched on January 4, 2016. Carrier is a subsidiary of United
Technologies Corporation whose revenues topped $58B in 2012. The automation system offers flexibility, connecting
to 64 different sensors and 250 Z-Wave enabled devices. United Technologies owns a fire safety subsidiary that
provides additional functionality over competitors. The system is installed by Carrier representatives and does not
require any additional subscription fees other than an initial purchase cost of $250 for the system (Côr Home
Google Home: A voice activated speaker rather than wall mountable solution that is powered by Google’s signature
“Google Assistant” and retails for $129. Users can speak directly to the automation system, making it completely
hands-free. Google is integrated not only with home systems but also with other Google applications to make the
system one of the most versatile automation systems on the market. Google’s system learns and adapts to its
environment. This automation system works with many of the well-known brands on the market. Therefore, Google
only provides the heart of the automation system. Google’s management spent $6.8B on innovation in 2012 (Rao,
Nest: Founded in 2010 out of a garage by 16 employees, Nest is a do-it-yourself home automation system that
allows the user an easy, seamless setup. The main thermostat retails for $250. Nest offers integrated products in
HVAC, safety and fire, and security cameras. Nest offers limited capability to integrate with other home automation
solutions; however, it is compatible with Google Home. Each accessory is purchased separately without a combined
package (Nest, 2017).
Placing Importance on Partnerships
Ingersoll Rand management, including Gary Michel, quickly moved to develop partnerships with a variety of
industries. The strategy was thought to be necessary to gain traction in the ever-evolving field of home automation.
One of the many reasons Schlage LiNK was not successful was the level of partnerships that created an integrated
business model. The Nexia brand would give IR the ability to redefine its automation systems in the minds of all
consumers. Nexia took aim at building comprehensive solutions with retailers, home builders, and other innovative
Through the acquisition of Schlage LiNK and Trane, IR gained access into big box retailers. Both businesses had
operated in large retailers and dealership networks prior to acquisition. IR then leveraged the Nexia brand into
retailers with the phase-out of Schlage LiNK systems. Therefore, no additional retail space was required for an
unproven, yet enhanced brand. The challenge was paying for premium space, which was expected to range up to
$25,000 per item per store (Van Camp, 2010, May 10). The goal was to find a way to cost effectively generate
enough traffic in the wake of increased competition. Additionally, Lowe’s offered a version of home automation, IRIS
™, which placed it in a better market distribution position (Iris by Lowe’s, 2017).
Ingersoll Rand management made it a priority to leverage its residential builder channels to push Nexia, by offering
discounts through exclusive builder networks and creating incentives for builders to use Nexia home automation
products. This strategy was essential to the long-term success of Nexia. By offering discounts to encourage builders
to install Nexia, IR believed it could capitalize on lost product revenue with additional subscription revenue when they
charged customers $9.99 monthly. Builders also believed that installing home automation systems would increase
home values and create a more saleable product (Albert, 2015).
In 2012, IR invested in Powerhouse Dynamics, a leading innovator in home automation security and monitoring
systems. IR also formed partnerships with Enphase Energy who offer solar technology and Pella Windows. The
objective was to connect the entire home to better develop efficient, safe, and sustainable solutions.
Managing Unfamiliar Territory
connectivity have created new market offerings with increased functionality in home automation systems. On
average, technology doubles in capacity and capability every year (The Emerging Future, n.d.). There is enormous
room for growth as home automation is just entering the growth phase. This has caused a once exclusive industry to
become more widely available with decreasing costs. Increasing complexity of the industry, 67 new startups entered
the market in 2011. Most new startups enter the market in a niche area of home automation. The increased
competition also accelerates technological disruptions through rapid innovation.
Ingersoll Rand developed the Nexia system with a team of 25 developers; however, Michel was skeptical about
whether IR possessed the technical knowledge and capability to meet future innovative demands. In strategy
meetings, management discussed IR’s ability to continue to internally produce or to outsource production and
development. Outsourcing was expected to cost upwards of $4M for ongoing support and enhancement.
Senior management held monthly new product development meetings to discuss emerging technologies. By this
time, Amazon and Google had introduced smart assistants that integrated home automation solutions. Smart TVs
were offering connected home and monitoring solutions. New companies offering smart solutions were able to
leverage cloud-developed intelligence software to enhance and create customer value.
Strategic Importance: Nexia
Gary Michel had spent the past two years developing and reshaping IR’s focus on home automation. What started
out as Schlage LiNK quickly fizzled out, leading to a new offering and brand strategy in Nexia.
Substantial investment went into developing Nexia. Many employees questioned the motive for aggressively
pursuing a strategy outside the company’s core competencies especially having already failed once. Gary Michel
knew that IR was positioned to provide unique value but he had to engage employees to get them to follow willingly
Gary Michel spent nearly 10 years managing the Residential Solutions business of IR. His strategy was risky but it
offered immense opportunity and an area for growth to spur stagnating financial results.
1. Why did Schlage LiNK fail? What are the benefits of reestablishing another IR home automation product under a new
brand? If IR failed once in home automation, why did they persist with pursuing it again? What factors would make
this next attempt successful?
2. How does IR provide value, if any, with Nexia? Analyze using Porter’s Five Forces. With diagram and porters forces explained and analysed.
3. Analyze the product life cycle of home automation systems. Does this cycle provide any benefit for IR?
4. Is it more strategically beneficial for IR to continue to develop its system internally, partner with a technology firm, or outsource development? Support your decision.
5. Ingersoll Rand has chosen to use Z-Wave technology. Why? Will this be beneficial or detrimental to long-term.