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Emerson

Emerson

8000 West Florissant Avenue
St. Louis, Missouri 63136
U.S.A.
Telephone: (314) 553-2000
Fax: (314) 553-3527
Web site: http://www.gotoemerson.com

Public Company
Incorporated:
1890 as Emerson Electric Manufacturing Company
Employees: 123,400
Sales: $15.5 billion (2001)
Stock Exchanges: New York
Ticker Symbol: EMR
NAIC: 335312 Motor and Generator Manufacturing; 335314 Relay and Industrial Control Manufacturing; 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing

Emersonformerly Emerson Electric Co.operates today as one of Americas most admired business success stories in the field of manufacturing. Emerson has quietly grown from a regional maker of electric motors and fans into a highly diversified international firm. During 2000, the firm was ranked among the 100 Best-Managed Companies by IndustryWeek magazine for the fifth year in a row. Its diverse product line is divided into eight brand segments including Emerson Network Power, Emerson Process Management, Emerson Climate Technologies, Emerson Storage Solutions, Emerson Professional Tools, Emerson Motor Technologies, Emerson Industrial Automation, and Emerson Appliance Solutions.

In 2001, Emerson operated over 60 divisions in nearly 380 manufacturing facilities across the globe. With businesses in over 150 countries, the companys international sales reached $6.2 billion in 200140 percent of company sales. Due to economic downturns however, Emerson ended its 43-year record of consecutive earning increases in fiscal 2001.

Company Beginnings

The company traces its roots back to the dawn of the electrical age in America. Founded in St. Louis on September 24, 1890, the firm was named for a Missouri judge, John Wesley Emerson, a descendant of the New England family of literary fame. Emerson was impressed by the ingenuity shown by a pair of brothers, Alexander W. and Charles R. Meston, in finding applications for the newly developed alternating current electric motor. In addition to lending his name, he provided the financing and became the president of the new company. The fledgling enterprise enjoyed modest success in its first three years, primarily producing small electrical and mechanical products.

In 1892, Herbert L. Parker, a Chicago railroad man, recognized the companys potential and bought Judge Emersons controlling interest. Parker became president and general manager of Emerson, supervising the companys steady expansion until his death in 1924. During Parkers tenure, electric products developed into household and business necessities, and Emerson became a pioneer in the industry. The company produced a steady stream of innovative products by adapting its electric motors for such items as sewing machines, dental equipment, and water pumps. As electricity became an important factor in mechanized industry, Emerson supplied electric motors for office, factory and farm equipment as well.

In 1920, Parker was elected chairman of the board and T.M. Meston, the founders younger brother, became president. During the 1920s, electric fans represented 40 percent of sales. Small electric motors for appliances and general household uses, however, were the dominant business.

Battling the Depression and Labor Issues

Emerson was hit hard by the Depression. The company paid a stock dividend in 1930, but did not do so again for ten years. In 1933, Joseph Newman took control of the company after a career as an executive at Lesser-Goldman, a St. Louis-based cotton and agricultural-products broker. Lesser-Goldman owned an interest in Emerson and was concerned about the companys financial performance during the Depression. Newman streamlined operations, focusing on lowering costs, developing new products, and broadening the companys line of fans.

While sales were uncertain, labor relations between the company and its employees were positively dismal. Convinced that the Wagner Act of 1935, which reaffirmed the right of workers to form unions, was unconstitutional, Newman refused to recognize the United Electrical, Radio and Machine Workers, C.I.O. The union called a sitdown strike in 1937 that lasted 53 days, seven days short of a record. It was 68 days before the employees went back to work, however; Newman settled only after the Supreme Court upheld the Wagner Act.

The settlement came too late for Newman. His bankers had agreed to make a new stock issue just before the strike, but the issue failed. The failure was due partly to the strike, but the companys generally poor financial picture is what ultimately led the board of directors to form a committee to seek new management.

In 1938, William Stuart Symington III was named president of Emerson Electric. A member of a prominent eastern family, Symington arrived in St. Louis facing a daunting array of problems. The company suffered a loss of $138,000 in fiscal 1938. Inventory and overhead were up, while sales had fallen substantially. Symington immediately began cleaning house, firing most of the old top management.

The new management undertook a vigorous campaign to secure new business, and landed Sears, Roebuck & Company as a promising new motor customer. Symington was willing to take risks: he bought an arc-welding business sight unseen and later took Emerson into the delicate business of manufacturing hermetically sealed motors for refrigerators.

Once Emerson was back on its feet, Symington turned his attention to solving the companys long-standing labor problems. The new president, who would later go on to a distinguished career in the United States Senate, faced a union deeply distrustful of management, believing the contract it had so bitterly won was not being honored in good faith. Symington was a realist and decided to work with the fledgling union. The ensuing agreements between Emerson Electric and the United Electrical, Radio and Machine Workers were viewed as landmark achievements for Emerson and followed the example of labor agreements in the newly unionized automobile, steel, and packing industries.

Symington also undertook a major effort to modernize Emersons manufacturing facilities. At the time the company was housed in five separate buildings in St. Louis. Rents and taxes were high, the multi-storied structures were unsuitable for modern production methods, and none was located near a railroad siding. The company clearly had to relocate to more efficient quarters if it was to compete successfully.

The city of Evansville, Indiana, made a pitch to be the companys new home, offering a plant site and $100,000 to facilitate the move. Public officials in St. Louis declined to match the offer, fearing that it would set a precedent they would have to match for other businesses. Indicative of the changed labor atmosphere, however, the union offered to raise a similar sum through a system of wage cuts. Symington declined the unions offer, arranged independent financing, and relocated the company to a suitable location in St. Louis County.

With the advent of World War II, the company joined the war effort and manufactured a variety of war-related items. Emersons largest contract was for the development and manufacture of the gun turrets used on Air Force bombers such as the B-17, B-25, and B-26, the major weapons in the U.S. bomber force. At the height of production during the war, the company was doing $100 million worth of defense work annually.

Emerson fell upon hard times again after the war, as defense contracts fell drastically, slipping to a low of $1.5 million in 1947. The company had been a leader in its field for most of its life, but in the postwar years large competitors like General Electric and Westinghouse saw potential in Emersons markets. They moved quickly, building plants in low-wage areas and squeezing the company in its traditional strongholds. In 1945, Symington left the company to pursue a career in politics, boosted in no small part by the reputation he had gained as head of Emerson during the war. When his successor, a long-time company executive, died suddenly, Emerson was once again in the midst of a leadership crisis.

Reorganization Under Buck Persons: 1950s

In December 1953, Wallace R. Buck Persons was named president. At the time Emerson had sales of only $45 million and a host of problems that had been building for years. But Persons, who came to Emerson from Lincoln Electric, a company known for its cost-effective management, was equal to the task. He instituted an extensive reorganization of the companys commercial product line to exploit Emersons old-line electric motor business and bring in new customers outside the household appliance market. Products were redesigned using standardized parts to allow for mass production, rather than the companys traditional job-shop lots, producing immediate and dramatic results.

Company Perspectives:

Being Connected; Commitment; Forward-looking; Performance; Customer-focused; Excellence. These are attributes that define Emerson and its people today. A company at the forefront of technology and one of the worlds best-managed companies.

Persons placed heavy emphasis on upgrading Emersons engineering capabilities. In his first couple of years at the helm he doubled the size of the engineering staff, making a major effort to recruit top-notch engineers and develop the new Electronics-Avionics Division, which worked on fire control systems for jet bombers. He also got tough with labor. Emersons labor costs were higher than its major competitors, who had relocated to low-wage areas. The company suffered several strikes but eventually succeeded in restructuring its labor agreements to conform with industry standards. However, Persons also emphasized planning, budgetary discipline, and a policy of open communication with employees including annual employee opinion surveys.

Emerson also redoubled its efforts to secure defense contracts, concentrating on the engineering and development of electronics and avionics rather than on armaments production. The modernization of the Air Forces bomber fleet provided a windfall for the companys rebuilding program. By 1956 military sales accounted for 30 percent of Emersons total sales.

While Persons short range plans called for rebuilding Emersons existing product lines, his long range goal was to expand into new products. To assist with this effort, Persons called in a host of management consultants. One of the first firms hired, Lester B. Knight & Associates, eventually produced Persons successor, Charles F. Knight.

Diversification Through Acquisition: Late 1950s60s

Beginning in 1958, Emerson embarked on an acquisition program, aiming for quality producers with strong marketing skills. Through merger or acquisition, more than ten companies were added to Emerson during the 1960s, including Day Brite Lighting, U.S. Electrical Motors, Ridge Tool Company, Thermo-Disc, White-Rodgers, Browning Manufacturing, and In-Sink-Erator. Emersons industrial and consumer markets expanded significantly, lessening the companys dependence on uncertain defense contracts. When production of B-52 and B-58 air force bombers, for which Emerson was manufacturing tail turrets and fire control systems, was abruptly canceled in 1962, the move away from defense contracting was accelerated. The financial impact of the cancellation was minimized, since Emerson had already heeded the advice of its military consulting experts and concentrated its defense business in helicopters and other limited war hardware, but it convinced Persons that defense would not be a consistent growth market and gave added impetus to the companys efforts to expand in commercial markets.

The wisdom of this move was underscored in 1969 when, with almost no warning, the defense department canceled Lockheed Aircrafts huge Cheyenne helicopter program, for which Emerson was the largest subcontractor. The companys defense sales skidded from $70 million to between $35 and $40 million in one day. Following the companys stringent budgetary procedures, and as a result of continued growth through acquisition, Emerson was able to avoid a loss for the year by drastically cutting expenses, but the message was clear. Emerson remained in the military market, but Persons set a cap on military business at 15 percent of total sales.

By the time the Cheyenne contract was canceled, Emerson had acquired more than a dozen companies manufacturing a wide range of commercial and industrial products. The firms household products included lighting fixtures, kitchen waste disposers, door chimes, intercom units, power tools, heating and air conditioning, controls, and high fidelity equipment. On the industrial side, Emerson was producing power transfer equipment, industrial test equipment, and industrial tools.

By the early 1970s, Buck Persons had turned Emerson, a troubled maker of small electric motors and fans, into a company capable of competing with the industry giants. But he had no clear successor inside the company, and the time was coming for him to move on. Persons undertook an exhaustive two-year search for the right man, reviewing 150 potential candidates. The final choice was Charles F. (Chuck) Knight, Lester Knights 37-year-old son and the lead consultant involved in helping find Persons successor. He was named Emersons vice chairman and CEO in 1973, and chairman the following year.

Continued Growth: 1970s80s

Knight proved an excellent choice for the job. He knew the company intimately at the highest level, since he had been an Emerson consultant for ten years and a board member of Emerson Motor Division, the companys largest division, for four years. Persons had wanted someone who would accept the companys organization and provide a sense of continuity. Knight had helped set up Emersons management structure, and shared Persons commitment to continued strong sales and earnings growth. Knight also had international experience, having overseen his fathers European operations before becoming an Emerson consultant. Emerson had been late getting into overseas markets and now faced entrenched competition. One of Knights main goals was to expand the companys international sales, spearheaded by specialties like its Ridgid tool line.

Key Dates:

1890:
Emerson Electric Manufacturing Co. is established.
1892:
Herbert L. Parker buys Judge Emersons controlling interest.
1933:
Joseph Newman takes control of the firm.
1937:
Emerson workers strike for 53 days; the companys finances continue to falter.
1938:
William Stuart Symington III is named president and begins a restructuring program.
1945:
Defense contracts fall drastically; Symington resigns to pursue a career in politics.
1953:
Wallace R. Buck Persons is named president and begins focusing on the firms electric motor business to attract new customers.
1956:
The Air Force modernizes its Bomber Fleet; military contracts account for 30 percent of sales.
1958:
Emerson begins an acquisition program.
1962:
Company begins to shift focus away from defense contracting.
1973:
Charles F. Knight is elected CEO.
1975:
Emerson enters the electric utility supply market with the purchase of A.B. Chance Company.
1986:
The firm acquires Copeland Corporation and Hazeltine Inc.
1992:
Fisher Controls International is acquired; sales reach $7.7 billion.
1996:
Attempts to outbid Recoton for control of International Jensen Inc. fail.
1997:
Net sales exceed $12.5 billion.
2000:
The companys name is shortened to Emerson, and David Farr is named CEO.

Knights management philosophy kept as much decision-making responsibility as possible at the operational level; each division operated like a separate company in many respects. Managers negotiated wages and benefits according to community standards and were responsible for determining what steps must be taken at the divisional level to respond to market conditions. At this time, Emerson avoided the huge manufacturing facilities favored by some of its competitors, keeping a plant size of no more than 800 workers at most locations, and most of its plants were non-union. All these were components of what Emerson called its best cost producer strategy, through which it strove to manufacture the highest-quality products at their lowest relevant global cost.

Knight continued Emersons approach of frequently entering new markets by the acquisition of an existing market leader or high-quality producer. The company entered the electric-utility supply business for the first time in 1975 with the purchase of A.B. Chance Company. Similarly, Emerson made a strong entry into the industrial measurement and process control business in 1976 by buying Rosemount, Inc.

Emersons strategy of diversification and acquisition continued in the 1980s. Emerson acquired Copeland Corporation, the worlds largest manufacturer of compressors for air conditioners and commercial refrigeration applications, in October, 1986. In December 1986, the company purchased Hazeltine, Inc., a leader in state-of-the-art defense electronics components and systems. However, in 1988, two officials at the newly acquired Hazeltine unit were indicted on charges of fraud. Emerson and Hazeltine cooperated with authorities, and in early 1989 Hazeltine pleaded guilty to the felony charge. In March 1987, Emerson acquired Liebert Corporation, a maker of computer support products.

During the late 1980s and into the 1990s, Emerson sought out companies that provided not only immediate sales and profits gains, but growth potential for years to come, and preferred to buy private firms to avoid paying the large premiums over book value that public companies demanded.

In 1988, the company posted its 31st consecutive year of earnings growth, a record that made the company a perennial Wall Street favorite. Emersons quiet, steady growth throughout the 1980s showed no signs of faltering and its customer base had grown to include commercial and industrial buyers of a broad array of factory automation and process control equipment.

In September, 1988, James F. Hardymon was named president of Emerson. C.F. Knight remained chairman and CEO. The company continued to expand in both domestic and international markets in order to forge ahead with its plan to become a leading global manufacturer. In fact, in 1990 alone, the firm acquired ten companies including French concern Leroy-Somers SA and CESET, an Italian manufacturer of appliance motors.

Focus on International Expansion: 1990s

Along with acquisitions, Emerson also formed strategic partnerships and joint ventures in order to gain a strong foothold in the international market. In 1992, the firm entered into a joint venture with Germany-based Robert Bosch GmbH to produce power tools. Fisher Controls International was also acquired that year in a deal worth $1.25 billion, and Emerson sales reached $7.7 billion.

During this time period however, revenue growth began to slow. A 1996 Fortune article claimed that the firms marketing and sales forces, constrained by tight budgets, were missing critical opportunities. Innovation flagged as well, in part because division managers were opting for those investments that they knew would fatten profits in the short term. The article went on to state that foreign expansion, long a stated corporate goal, got stuck in first gear as division chiefs, anxious to protect their home turfs, shied away from adventurism abroad. As such, Knight began to alter the companys strategy, making growth a top priority for all division managers, holding each one responsible for achieving agreed upon goals. The company also began to hold yearly two-day growth conferences where growth targets were discussed and strategies were laid out.

Back on track and with its sights firmly set on global expansion, Emerson spent the next few years gaining a strong foothold in the Eastern European market, as well as in China and India. Management eyeballed the Asia-Pacific market as highly lucrative, so the firm sought out partnerships and ventures in that region. By 1995, revenues had increased to over $10 billion.

In 1996, Emerson was outbid by Recoton for control of International Jenson Inc. That did little to dampen the firms plans however, and the following year Computational Systems, a manufacturer of error detection equipment used by machinery in plant locations, was purchased. The company also began production at its compressor plant in Thailand. By 1997, net sales had surpassed $12.5 billion and net earnings reached $1.1 billion.

Along with purchases made during the late 1990s, including the Westinghouse Process Control Division from CBS Corp., Emerson also began to divest non-core, slow-growth businesses. During this period of acquisition and divestiture, the firm began making a name for itself as a supplier of high-tech power equipment serving both the computer and communications industries.

A New Branding Strategy for the New Millennium

Emerson made several key moves in the new millennium to reflect this new image. It adopted a new branding strategy, changing its corporate logo for the first time since 1967. It also shortened its company name from Emerson Electric Co. to Emerson, signaling the firms expansion from an electronics firm to a global technology and engineering firm. In October of 2000, David N. Fair was named CEO while Knight remained chairman and James G. Berges was elected president. In 2000, IndustryWeek magazine named Emerson as one of the Worlds 100 Best-Managed Companies for the fifth year in a row.

The company also made several key acquisitions during 2000 and 2001. It purchased the telecommunications products business from Jordan Industries Inc., which gave it a broader reach in China, India, and Malaysia. It then went on to purchase Avansys Power Co. in October 2001 for $750 millionEmerson claims it was the largest private acquisition in China by a foreign company.

Despite these positive advances, sales in fiscal 2001 remained flat over the previous year. As many of the firms businesses segments began to experience economic downturns, Emerson was forced to cut costs and make strategic investments, which would provide for its long-term growth. As a result, 2001 marked the end of the firms 43-year record of consecutive earning increases. Nevertheless, Emerson management remained convinced that the company would be able to successfully combat these economic hardships. With its longstanding history of success and strong focus on securing business in developing countries, continued technological advances, and investment in fast-moving markets, Emerson appeared to be well positioned for future growth.

Principal Subsidiaries

Applied Concepts Inc.; Astec International Holdings Ltd. (United Kingdom); Avansys Power Co. (China); BI Technologies GmbH (Germany); Branson Ultrasonic S.A. (Switzerland); Clairson International Corporation; Compania do Motores Domesticos (Mexico); Computational Systems Inc.; Control Techniques USA Inc.; Copeland Corp.; Daniel Industries Inc.; Daniel Automation Company; Hytork International plc (United Kingdom); EECO Inc.; Emerson Holding Corp.; Asco Electrical Products Co. Inc.; Emerson Electric GmbH (Germany); Rosemount Inc.; Fisher-Rosemount Holding AG (Switzerland); Emerson Power Transmission Corp.; Environmental Remediation Management Inc.; Liebert Corp.; Ridge Tool Company; E.G.P. Corp.; Emerson Electric Asia Ltd. (Hong Kong); Emerson Electric RG (Russia); Emerson Electric Holdings Ltd. (China); Emerson Electric de Mexico; Leroy-Somer AB (Sweden); Fisher Controls International Inc.; High Voltage Maintenance Corp.; Kato Engineering Inc.; Vermont American Corp.

Principal Competitors

ABB Ltd.; General Electric Company; Hitachi Ltd.

Further Reading

Berman, Phyllis, Emerson Changes Its Spots, Forbes, December 24, 2001, p. 66.

Deslodge, Rick, The Remaking of Emerson, St. Louis Business Journal, May 15, 2000, p. 1.

Dyer, Davis and Jeffrey Cruikshank, Emerson Electric Co.: 100 Years of Manufacturing, St. Louis, Emerson Electric Co., 1990.

Emerson Electric Company, Appliance, March 1998, p. 132.

Emerson Electric to Invest US$1 Billion in China, Alestron, December 13, 2001.

Emerson Losses Grow, Television Digest, November 25, 1996, p. 15.

Emerson Unveils New Logo, Readies Print and TV Efforts, Brand-week, December 11, 2000, p. 5.

Henkoff, Ronald, Growing Your Company: Five Ways to Do it Right!, Fortune, November 25, 1996, p. 78.

Remedies For an Economic Hangover, Fortune, June 25, 2001, p. 130.

update: Christina M. Stansell

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