What Makes Rockwell Automation One of America's Best Companies

The 25 Best Companies in America
The 25 Best Companies in America

Advanced manufacturing has been transformed in recent decades. The assembly line of Henry Ford's day, where legions of low-skilled laborers lined up beside conveyor belts, has given way to a highly automated factory floor where robots do the heavy-lifting, and a few skilled technicians run the show, often from a computer terminal. While this development has contributed to the loss of blue-collar jobs, it has also made factories safer, more productive, more precise, and even more sustainable, since the improved efficiency of an automated factory wastes far less energy, water, and input resources.

Rockwell Automation is at the heart of this transformation, designing and producing equipment to control and monitor automated industrial processes as well as the software and system architecture to manage that equipment. While the company competes with giants like General Electric, Siemens, and Honeywell, Rockwell is the largest company purely concentrated on automation and controls. This focus has allowed it to out-innovate its bigger, more diversified competitors, driving value for its customers, and, in turn, its employees, its shareholders, and the environment.

The case for Rockwell Automation
Over the past decade, Rockwell has sold off peripheral businesses and poured resources into the development of its Integrated Architecture, an industrial software system anchored by the Logix platform. Uniquely, Rockwell chose to build Logix on open standards, which critics thought might erode Rockwell's competitive advantage. Instead, Rockwell's Integrated Architecture has proved incredibly valuable, proving to be flexible enough to work across multiple applications in various industries.

Keith Nosbuch, who drove implementation of the platform as vice president of control and integration before rising to the CEO's office in 2004, notes that Integrated Architecture's flexibility and universality allows customers to "eliminate the need to have separate hardware, separate software, separate training and separate spares in their plant." This makes life a lot easier for customers, saving them time, money, and resources. As a result, Rockwell solutions command a price premium in a market that is otherwise fairly commoditized.

Rockwell's product flexibility has a few important implications for investors. First, open standards allow Rockwell products to coexist on a factory floor with competing systems, making it easy for Rockwell to make inroads on competitors' market share. Second, Integrated Architecture's universality across multiple platforms allows Rockwell to cross-sell customers on new applications for its products. Finally, the ease of training workers on just one universal software ecosystem creates high switching costs for existing Rockwell customers.

These advantages make Rockwell a cash-generating machine, supporting an astonishing five-year average return on equity of 33%, double or triple what you'd see from its diversified competitors. Rockwell has shoveled that cash right back to shareholders, growing its dividend by over 60% since 2010 and investing over $2 billion in stock repurchase programs since 2007. Over the past five years, Rockwell shares have more than quadrupled market returns: 60% compared to 13%.

In a real way, Rockwell's business is predicated on sustainability, as part of its value proposition is helping customers reduce energy use and waste. But the company doesn't stop there, and has set ambitious sustainability goals for its own operations, including reducing its carbon emissions 30% from 2008 levels by 2022, recapturing at least 80% of solid waste for reuse and recycling, and adopting a zero percent increase policy for water use.

For these efforts, as well as for exceeding safety and ethics goals for its workforce, Rockwell has been recognized by being named to the Dow Jones Sustainability Index, the Human Rights Campaign's Corporate Equality Index, the Ethisphere Institute's list of the world's most ethical companies, and the social responsibility-focused FTSE4Good Index.

Room for improvement
While Rockwell has earned a reputation for employee engagement and ethical behavior, it has further to go in creating a diverse and representative workforce. As of 2010, minorities held only 11% of managerial roles and 15% of professional roles, while women held only about a fifth of these leadership positions. Rockwell has started to make strides toward being more inclusive, working with social equality consultant Catalyst to advance inclusive attitudes among predominantly white male managers, but the company has more work to do toward equal representation.

Foolish bottom line
Rockwell Automation is a market leader in a growing industry that boasts a deep competitive moat, a history of returning cash to shareholders, and a dedication to sustainability that stems from both a sincere sense of corporate responsibility as well as from a pragmatic business sense. The company does not have a perfectly inclusive or representative workforce, but it recognizes this problem and is working to solve it. For the steps it has taken, and the goals it has set, Rockwell Automation deserves recognition as one of America's best companies.

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The article What Makes Rockwell Automation One of America's Best Companies originally appeared on Fool.com.

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