When I read something in major mainstream media about manufacturing, production, automation, robots, or jobs, I’m prepared to cringe. Often the author has a journalism or economics degree who never worked inside a plant.
Jeff Burnstein, President of the Association for Advancing Automation, took on an opinion column by Thomas B. Edsall in The New York Times. The column is another one of those unsubstantiated, macro-level treatises on job losses and politics.
I’ll leave the politics to those who care. What I don’t like are the swipes at manufacturing, production, and automation that are popular at the national level. (Would it be cynical, or a reflection of the times, to say that negative articles generate page views?)
Burnstein writes, “Robots don’t take away jobs. When companies lose to their competition, that’s when workers lose jobs.”
My view is that job losses tie back to management—bad decisions, inferior leadership, ego, whatever.
Burnstein again, “Over the last 25 years, many American manufacturers found themselves unable to compete with the lower costs and higher productivity of foreign manufacturers. They closed their doors or moved their operations. Those jobs left for another country. They weren’t taken away by machines.
“In actuality, robots and automation have saved and created jobs – and will continue to do so. Businesses that used automation to lower costs and increase productivity were able to compete with foreign suppliers and keep their doors open. Workers stayed on the job at those facilities, and their communities didn’t suffer the traumatic loss of another local employer.
“Companies that embraced automation had the opportunity to grow and ultimately make more hires. Ask Marlin Steel in Baltimore or Vickers Engineering in New Troy, Mich., how their businesses were transformed – while providing safer, better, higher-paying jobs.”
Burnstein cites two crises on the horizon. First, there aren’t enough workers. And the second crisis: We lack the engineers, the technicians, AI specialists, and workers with trade skills to help companies deploy automation solutions.
In the automation age, the range of opportunities is huge — and promising. Entry-level, automation-age manufacturing jobs can start at $20 per hour with just a high school diploma and a few months of training and professional certification. Highly technical positions can pay far more.
“We need to prepare for change and embrace it. Not stand it in its way – because our global competitors are not standing still.”
Check out the competition
Under its “Made in China 2025” initiative, the Chinese will invest $300 billion in their manufacturing and automation technologies. China wants to dominate the fields of robotics, artificial intelligence, 5G and quantum computing.
The rest of the world is also spending big. Under its Industry 4.0 initiative, Germany will invest more than 200 million euros in research and development funding for advanced manufacturing. Japan and South Korea are both investing heavily in industrial R&D as automation becomes even more essential to improving their competitiveness. The United Kingdom is stepping up its R&D efforts – including targeting funds at electric vehicle batteries and robotics – to help stimulate its economy.
The United States is just 16th in the world in robot adoption rate – a metric that track how fast a company is expected to automate based on economic factors. We are behind China, Japan and Mexico – and even Italy and Sweden.
He nails it. It’s a crisis of vision and leadership. Not a crisis of robots stealing jobs.
I have never been a fan-boy of Jack Welch. And the more we learn in retrospect, we see why he is not necessarily a genius to emulate. As a friend used to say, “You got your smoke; you got your mirrors.” It was growth by acquisition and using deft accounting.
Vitaliy Katsenelson is CEO of an investment company. His newsletter is on my list of informative and entertaining reads. (Plus he kicks in as a bonus a selection of classical music.)
This week’s essay—Welch vs Bezos.
Here are a few snippets to whet your appetite.
“Welch built a company with a “beat this quarter” culture. Welch’s GE was not in the business of building moats and investing for the long run; he was in the business of beating quarters. In his book, Welch raved that from the early 2000s GE always beat Wall Street estimates. He was proud of how managers of one division were able to “come up with” a few more cents of earnings if another division fell short of its forecast. I kid you not — reread that sentence, three times. If I was at the SEC I’d investigating GE’s accounting.”
Once upon a time I worked for a division of a conglomerate. For a while before collapsing it was Fortune 50. It had very few corporate staff. Executives wanted steady, reliable income for reporting to Wall Street. It invested in cyclical businesses. Go figure. Anyway, take this comment about GE:
“He was proud of how managers of one division were able to “come up with” a few more cents of earnings if another division fell short of its forecast. I kid you not — reread that sentence, three times. If I was at the SEC I’d be investigating GE’s accounting.“
Contrast with Bezos:
“Welch is on the opposite end of the spectrum from Jeff Bezos, CEO of Amazon.com. Bezos doesn’t even know how to spell quarterly earnings. Amazon’s founder once explained that Amazon makes decisions years out. So the current quarter’s report reflects decisions Amazon made several years ago.”
“There is another lesson here. As an investor, simplicity and transparency from a company is key. If a company’s business is complex and opaque, move on. One of the most important things in investing is what you do in-between buying or selling a stock. After you buy it is just a matter of time before your initial assumptions come under fire. Maintaining rationality throughout your ownership of the company is paramount, and to do that you need to understand the business well. That’s why I have no opinion on GE shares now.”
And your takeaway:
“Above all, never make a decision based solely on someone else’s research; use it as a starting point for your own investigation.”
I highly recommend putting Seth Godin on your radar—both his blog and his podcast. He always makes you rethink your assumptions.
He discusses problems—crisis versus chronic in this blog post.
We all live to the crisis. Pumps go down. Motor bearings freeze. Valves stick.
I’ve lived the situation of the plant manager threatening bodily harm if I don’t get the machine running—now.
Chronic? That’s an entirely different situation.
The problem exists. We just are not aware of it. That is, until it becomes a crisis.
Chronic is a system problem. We got used to it. A small, but nagging, pain that we learn to live with.
These require a change to the system to repair. Think the advice of W. Edwards Deming.
This is where a good IIoT system with solid analytics and visualization can save your bacon.
What little problems are you letting slide until it becomes a crisis?
There must be something in the air that makes the end of 2018 restructuring time. ABB has announced it is “shaping a leader focused in digital industries.” In other words, it is focusing its portfolio of businesses on digital industries through divestment of Power Grids business to Hitachi.
Interesting that ABB went through an acquisition cycle, replaced the CEO, and has been divesting (mostly) since. The outlier was the recent acquisition of B+R Automation—but that one fleshes out the factory automation (discrete) portfolio making it more competitive with Siemens and Schneider Electric. This divestment should give the company better investment strategies to continue to develop the core (performing) businesses.
Following are a few bullet point highlights and statements by the CEO and the Board Chair.
- Enterprise Value of $11 billion for 100% of Power Grids, equivalent to an EV/op. EBITA multiple of 11.2×1.
- Crystallizing value from the transformation of Power Grids including doubling operational EBITA margin since 20142
- ABB initially to retain 19.9 percent in the equity of carved-out Power Grids to ensure transition; pre-defined exit option on 19.9 percent equity at fair market value with floor price at 90 percent of agreed Enterprise Value, exercisable by ABB three years after closing
- Closing expected by first half of 2023
- ABB intends to return 100% of the estimated net cash proceeds of $7.6-7.8 billion from the 80.1% sale to shareholders in an expeditious and efficient manner through share buyback or similar mechanism
Simplification of business model and structure
- Discontinuation of legacy matrix structure
- Businesses will run all customer-facing activities as well as business functions and territories, fostering ABB’s entrepreneurial business culture
- Businesses to be strengthened by transfer of experienced country management resources
- Existing country and regional structures including regional Executive Committee roles to be discontinued after closing of the transaction
- Corporate activities to be focused on Group strategy, portfolio and performance management, capital allocation, core technologies and ABB Ability platform
Shape four leading businesses aligned with customer patterns
All businesses global #1 or #2 in attractive growth markets:
- Electrification led by Tarak Mehta
- Industrial Automation led by Peter Terwiesch
- Robotics & Discrete Automation, a unique combination of B&R and Robotics, led by Sami Atiya
- Motion, combining ABB’s market-leading offering in motors and drives, led by Morten Wierod, appointed to Executive Committee as of April 1, 2019
ABB Ability tailored digital solutions will drive customer value in each business whilst capturing synergies through common platform.
Actions position ABB with a leadership role in digital solutions, and evolving technologies such as artificial intelligence.Financial impact of new ABB
“ABB has been driving industrial change for more than a century as a global pioneering technology leader. As a result of our Next Level strategy, all of our businesses are today number 1 or 2 in their respective markets. To support our customers in a world of unprecedented technological change and digitalization, we must focus, simplify and shape our business for leadership. Today’s actions will create a new ABB, a leader focused in digital industries,” said ABB CEO, Ulrich Spiesshofer.
“Power Grids will strengthen Hitachi as global leader in energy infrastructure and Hitachi will strengthen Power Grids’ position as a global leader in power grids. With this transaction, we are realizing the value we have built through the transformation of Power Grids over the last four years. Our shareholders will directly benefit through the return of the proceeds of the divestment. Building on our existing partnership announced in 2014, the initial joint venture will provide continuity for customers and our global team.”
“To compete in today’s fast-changing world, we fully empower our businesses, through the discontinuation of the legacy matrix structure ensuring zero-distance to customers and increasing our agility in decision-making. Our four newly shaped businesses, each a global leader, will be well aligned to the way our customers operate and focus stronger on emerging technologies such as artificial intelligence. The continued simplification of our business model and structure will be a catalyst for growth and efficiency in our businesses. Our businesses will be further supported through the transfer of experienced resources from today’s country organizations.”
“All of this will only be possible due to the commitment of our global team who has made ABB what it is today. Our innovation power together with our inclusive culture will continue to be a differentiating strength of our company. We will live enhanced customer focus, provide attractive opportunities for our employees and deliver value for shareholders.”
Peter Voser, Chairman of ABB, said, “Today’s announcement marks the beginning of a new chapter in ABB’s history. Building on our technology and global talented employee base we will further strengthen our focus in digital industries, delivering competitive returns for shareholders, including our committed dividend policy. Over the past five years the deliberate execution of ABB’s strategy laid the foundation for our businesses to compete in the fast changing digital industries and deliver profitable growth.”
“We were very clear in the past that the actions required for the turnaround of Power Grids could be best achieved within ABB. Following completion of this step, we undertook a review of the Power Grids business and decided to secure the best home for the future development of the business through the combination with Hitachi. The new ABB will be positioned to write the future as a customer focused technology leader in digital industries.”
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.