Remember the TV ads where the recent college graduate gets a job with GE? He then must explain to his parents that it is not an old-line dirty industrial company but a hip software company.
Send those ads to the never, never land of wherever bits go when they are deleted from servers.
GE has been trying to divest GE Digital for about a year. Evidently there were no takers. It just announced spinning off Digital into a new “IoT Software Company.” Or, if you want the GE spin on the action, “GE Advances Digital Leadership with Launch of $1.2 Billion Industrial IoT Software Company.”
I attended just one GE Digital Minds+Machines conference. It was 2017, and after listening to the new CEO (who is now a former CEO) asked “could this be the last Minds+Machines?” Appears I was right.
Bullet points from the press release:
- New GE-owned, independently run entity will be established to expand company’s leadership in IIoT market and better serve industrial customers
- GE selling majority stake in ServiceMax
The company will start with $1.2 billion in annual software revenue and an existing global industrial customer base. The company is intended to be a GE wholly-owned, independently run business with a new brand and identity, its own equity structure, and its own Board of Directors. The proposed new organization aims to bring together GE Digital’s IIoT solutions including the Predix platform, Asset Performance Management, Historian, Automation (HMI/SCADA), Manufacturing Execution Systems, Operations Performance Management, and the GE Power Digital and Grid Software Solutions businesses.
Additionally, GE announced an agreement to sell a majority stake in ServiceMax, a leading provider of field service management software, to Silver Lake, a leading private equity firm focused on technology investments. With these actions, GE will sharpen the focus of its IIoT portfolio to position the new business for future growth. The transaction is expected to close in Q1 2019, subject to customary closing conditions and regulatory approvals.
“As an early leader in IIoT, GE has built a strong business with its industrial customers thanks to deep domain knowledge and software expertise,” said GE Chairman and CEO H. Lawrence Culp, Jr. “As an independently operated company, our digital business will be best positioned to advance our strategy to focus on our core verticals to deliver greater value for our customers and generate new value for shareholders.”
GE’s new IIoT business would provide software for these asset intensive industries with a focus on the power, renewables, aviation, oil and gas, food and beverage, chemicals, consumer packaged goods and mining industries.
GE Digital CEO, Bill Ruh, has decided to depart GE to pursue other opportunities. The company intends to conduct an internal and external search to identify the CEO for this new independent company. Further details on GE’s new IIoT software company will be announced in Q1 2019. This plan is subject to customary regulatory approvals, including information and consultation with employee representatives where required.
Emerson has been methodically expanding its focus for the past few years. It began touting “Top Quartile Performance” for its customers. It has made some interesting strategic acquisitions yielding a stronger presence in IIoT, software, and discrete automation. It had a strong presence at the last Pack Expo.
In that vein, Emerson announced it has acquired iSolutions Inc., a Canadian-based consulting group with expertise designing and implementing data management solutions. iSolutions provides organizations with decision-support tools to make data-driven production and operational decisions based on the analysis of real-time insights from integrated field and plant systems.
The acquisition will accelerate delivery of Emerson’s new digital transformation roadmap by adding proven skillsets in information technology/operational technology (IT-OT) and application knowledge to help integrate data from the plant floor to business systems.
“We make the Industrial Internet of Things (IIoT) tangible through our approach focused on business needs and readiness,” said Thomas Waun, general manager for Operational Certainty Consulting at Emerson. “With the addition of iSolutions expertise, Emerson can expedite roadmap implementation and digital transformation deployments across organizations – helping them realize faster return on technology investments and achieve Top Quartile performance in the areas of safety, reliability, energy consumption and production.”
iSolutions has a proven reputation with North American upstream oil and gas, power, and utilities customers for its successful and repeatable methodology that transforms plant data into real-time key performance indicator (KPI) visualization and business intelligence. In addition, its expertise will strengthen Emerson’s Operational Certainty Consulting organization with the addition of a data management practice for process, hybrid, and discrete businesses.
As part of Emerson, iSolutions will help organizations deploy Emerson’s Plantweb digital ecosystem.
“We’re excited to join Emerson and expand the reach of our expertise throughout Emerson’s global organization,” said Anil Datoo, on behalf of the four founding partners at iSolutions. “Together we can continue to make digital transformation practical, accessible and achievable.”
Emerson has been corporately restructuring in an interesting way partly by divesting non-core divisions. It describes itself as a global technology and engineering company providing innovative solutions for customers in industrial, commercial, and residential markets. Emerson Automation Solutions business helps process, hybrid, and discrete manufacturers maximize production, protect personnel and the environment while optimizing their energy and operating costs. Emerson Commercial & Residential Solutions business helps ensure human comfort and health, protect food quality and safety, advance energy efficiency, and create sustainable infrastructure.
What makes an industrial company stand above its peers? PwC recently released its 2018 Global 1000 Innovation Study authored by Barry Jaruzelski and Robert Chwalik revealing some interesting results. For the purposes of this study, PwC equated innovation with R&D spending. We could quibble with this definition, but let’s just run with it to see what they discovered.
Two key takeaways I noticed included top management encouragement and focus on customers—insights as well as experiences.
The report also shares 6 characteristics that high-leverage innovators and high-performance companies share that help them remain competitive.
The 2018 Global Innovation 1000 study included the 1,000 publicly held companies that spent the most on research and development. They looked at R&D spending trends and financial results over the last 15 years. A very select group of companies that consistently beat their peers on seven key financial metrics—and spent their R&D dollars more efficiently. They call these companies ‘high-leverage innovators.’
Only 88 of the Global Innovation 1000 companies qualified as high-leverage innovators for the five years ended 2017. Overall, they had higher sales and market capitalization growth, lower R&D expenditures as a percentage of sales, higher gross profit growth, higher operating income growth, and better total shareholder returns. Only two companies, Apple and Stanley Black & Decker, made the high-leverage innovator cut for the entire 15-year period.
In the 2018 ranking, the highest R&D spending industrial firms included Siemens, General Electric, Toshiba, Hon Hai Precision, Koninklijke Philips, Mitsubishi Electric, Caterpillar, China State Construction Engineering, and 3M.
Overall, the 161 industrial firms in the Innovation 1000 increased their R&D spending from $71.2B in 2017 to $82.5B in 2018, an increase of 15.9 percentage points. But total revenue increased as well, so that R&D intensity was unchanged at 2.8%. In comparison, R&D intensity levels for the 1000 global innovators in the study was 4.5% for both 2017 and 2018.
To gain further insights they surveyed a sample of leaders and managers to find out about their innovation efforts. Both the high-leverage innovators and the larger universe of companies that report relatively high performance share the following six key characteristics:
- They closely align innovation with business strategy. More than three-quarters of respondents reporting that their companies were outperforming their industries said their innovation strategies were highly or closely aligned with their business strategies.
- They create company-wide support for innovation. Seventy-one percent of respondents who reported that their company’s revenues were growing faster than competitors’ revenues said their corporate culture was highly or very aligned with their innovation strategy.
- Their top leadership is closely involved with innovation. Survey respondents reporting higher revenue growth than competitors were much more likely to say their company’s executive team was closely involved with the R&D program.
- They base innovation on direct insights from end-users. All of our survey respondents ranked consumer and client insights as the most important capability during the early stages of innovation. However, same- and slower-growth companies reported they are satisfied with their competence in this capability, while faster-growth companies are looking for improvements.
- They rigorously control project selection early in the innovation process. Companies reporting faster growth are most likely to say project selection is the innovation stage with the most opportunity for improvement.
- They excel at the first five characteristics and integrate them to create unique customer experiences. Companies at the highest level of innovation leadership excel at every aspect of innovation. And they work to push the boundaries of market expectations and transform the customer experience.
High-leverage innovators understand the importance of R&D spending. But they also know that is not enough. Innovation success is the result of painstaking attention to strategy, culture, executive involvement, customer insights, and execution throughout the stages of innovation—all focused on creating unique customer experiences.
Capturing headlines and attention while I was in Germany was GM’s announcement about restructuring its manufacturing, closing plants, and terminating thousands of people.
This becomes a huge political football, of course.
I’ve been on both sides of this equation. I’ve been laid off and have done the terminating. There are no winners.
The foundation of manufacturing consists of having customers who will buy the product we are making. No customers, no production needed.
This puts an enormous burden on executives to make the correct product decisions and scale plants appropriately. Sometimes the problems are tied to the general economy. Sometimes (often) the fault lies with bad management and/or wrong decisions.
Automotive markets have been whipped to and fro for years. First, we have plenty of oil, build bigger and bigger cars, and everyone in the industry is making big incomes. Then the economy changes and the scramble to build small, fuel-efficient cars. Then the economy changes and people are demanding big vehicles again.
But I’ve seen far too many workers (salaried or hourly) who get into the mindset that they’ll always keep doing the same job, making the same product. But then customers stop buying. No demand, no jobs.
Of course they are angry. I was angry the times in my life where I’ve experienced that dislocation. Then it’s just, oh, well, here we go again. Gotta look for something new to do.
It takes years of engineering and billions of dollars of investment to make a new car line. A manufacturing facility can’t be changed over in the space of a two-week shutdown.
Our challenge as leaders and engineers in manufacturing becomes designing more flexible production capabilities that allow management to make a wider variety of products. This would help maintain employment to a better degree and stabilize companies, communities, and families.
Merger and Acquisition (M&A) activity in the industry segment I cover seems to have been hot for some time. I, along with others dependent upon the strength of the industry like say magazine media companies, view market consolidation as having the potential for decreasing revenues. Fewer companies makes for a less vibrant marketplace. Just take a look at the size of the magazines covering controls and automation these days.
Although this report covers a much broader segment than controls and automation, I always study the quarterly PwC M&A report carefully. And here is Q3 2018.
Global industrial manufacturing M&A results for Q3 2018 experienced a significant pull back in deal value from the Q2 2018 historic high with aggregate disclosed value of $11.7 billion, which is a 73% decrease quarter on quarter and a 52% decrease compared to the three-year quarterly average. The most recent quarter is directionally consistent with the 42% decrease seen in global cross-sector M&A deal value from Q2 2018. Since PwC’s last publication, the US administration has taken steps to implement tariffs on imported goods and a trade war has ensued. The uncertainty around how this will affect the M&A landscape more heavily weighed on industrial manufacturing than other sectors this quarter.
Looking at deal volume, there were 477 deals announced in Q3 2018 compared to 612 deals announced in Q2 2018, a 22% decline. The three-year average number of announced deals was 624 to which the 3Q 2018 results represent a 23% decline.
Worldwide cross-sector and industrial manufacturing deal making had been humming along with five and four consecutive quarters of deal value growth, respectively, prior to Q3 2018. The question remains if this contractionary quarter is the beginning of a trend or just a pause in action resulting from uncertainty in the economic, regulatory, and political environments.
- Total aggregate disclosed deal value sank 73% to $11.7 billion in Q3 2018, a 52% drop compared to the three-year quarterly average of $24.2 billion and a 73% decrease from Q2 2018 of $42.9 billion.
- Total deal volume decreased to 477 deals in Q3 2018, a 23% drop compared to the three-year quarterly average of 624 deals and a 22% decrease from the 612 announced deals in Q2 2018.
- There was $78.9 billion of deal value announced for the first nine months of 2018 compared to $60.4 billion for the same period of 2017, a 31% increase.
- There were 1,738 deals announced for the first nine months of 2018 compared to 1,906 deals for the same period 2017, a 9% decrease.
- A $1.2 billion merger was the largest deal announced in the quarter.
Continuous learning is essential for economic survival in this increasingly technological world. However, I believe it is also essential for growth as a human. Sometimes we get so wrapped up in technology and organizational success that we forget that our first duty is to improve ourselves.
Drawing as Thinking
When you take notes or think about a project, what do you write? Do you use pen and paper? Or some sort of notes app or outliner on your computing device?
How about drawing mind maps or sketching ideas? On listening to a recent podcast I jotted this note
Drawing is not an artistic process; it is a thinking process.
Math as Thinking
Reading Peter Diamondis’s newsletter recently, he once again talked about how worthless math was in school—“I have never expanded a polynomial in my life.” I bet he used the logical thinking instilled by working math problems his entire life!
Wishing for Certainty
When I was young I knew old guys who had worked for the same company for many years. There was a certainty about life. I, on the other hand, have never really known that certainty. Here is a thought that once again draws out that idea of clear, logical thinking
The antidote to uncertainty is not certainty—which is impossible—but clarity.
It’s all about passion
Henry Cloud—The fruitfulness of our lives will come from our hearts. Developing our inner selves helps us prioritize our lives. Our hearts will determine the “issues” of our lives.
Your most important resources are time and energy.
Andy Stanley—Leaders who don’t listen will eventually be surrounded by people who have nothing to say.