The U.S. industrial giant is moving toward its goal. The German company is taking a more cautious approach.
General Electric, the big US rival to Siemens, as part of their business development strategy will soon have a new base. However, it takes three hours by car from the former Fairfield site in Connecticut to the new Boston site. Its architecture will also have plenty of green technology, such as a huge canopy made of solar panels, as well as public-accessible spaces, including common work areas and lounges. There will be laboratories for internal entrepreneurship and some from the outside.
While Siemens as part of their business development strategy has arrived at Munich’s old headquarters for a new year, opening in June: the German industrial giant has built it next door. The design is as sophisticated as the building’s environmental features. It is equipped with energy-saving sensors; channel rainwater is used to flush toilets.
The two companies are experiencing the most profound changes in the company’s history, trying to move from machine builders to fully digital businesses. Jeff Immelt, GE’s chief executive, said the program will join the world’s top ten software companies as early as 2020 to sell $ 15 billion worth of projects and services.
For other reasons, businesses are also tempting. The basic numbers make them look similar. With annual revenues of about 100 billion U.S. dollars, they are the largest diversified industrial group in the world. JP Morgan Chase is a bank, about 70% of the market overlap.
But the similarities are only so far. GE sells major independent products such as jet engines and locomotives. It may seem like a collection of different departments, but it has a strong center for quick action. This is also greatly influenced by the U.S. technology giants.
In contrast, Siemens specializes in product design and factory automation. It has already had a lot of experience digitizing the entire life cycle of industrial products, from design to manufacturing, so it is somewhat more of an IT company than GE (though it has a long way to go). German companies are more dispersed and have competing centers of power. Its top management prefers to carefully weigh options, not always achieving great results: Siemens is about half the size of a U.S. company.
So, the two companies to the digital road are not the same. GE is reinventing itself, and Siemens is approaching its roots. What works best will be closely watched by other companies in various industries who want to know how operational technologies, such as GE and Siemens, can properly meet the demands of information technology. The first trend is to organize vertical, industry-specific silos, such as machine tools and medical equipment. The second is a horizontal, widely used layer, such as a computer operating system. Putting it together can be a serious mistake.
Siemens has its own factory or plane has landed. With faster Internet connections, cloud computing, and clever algorithms, information can now be easily collected and stored in huge “data lakes” and filtered insights.
This technology enables manufacturers to create the “mirror world” that David Gelernter, a pioneer Yale computer scientist, imagined two years ago. GE wants to create a similar “virtual twin,” testing every type of physical asset it sells from engineers, allowing engineers to provide real data on virtual models to improve performance. Ganesh Bell, GE Chief Digital Officer, explains: “Digital twins are more than just a generic model, but are based on the real world’s exact conditions.
While the efficiency gains of individual products may be relatively small, they can save customers billions of dollars over the life of the device. More broadly, by connecting the physical and digital worlds through the “Internet of Things”, the economic value can reach 11 trillion U.S. dollars annually by 2025 and it is estimated that the McKinsey Global Institute is a think tank. One-third may be in manufacturing.
The reforms at Siemens and GE are not just about reaping these benefits. Digitization is also a threat. If they can not meet the customer’s request to change the machine and spend less on maintenance, others will do the same. Large IT companies like Google and IBM may control the virtual part of the manufacturing industry by developing software and services that optimize factories and supply chains. This will cut the profits of most manufacturers.
The answer for General Electric is that it has invested billions of dollars on a data platform called Predix since 2011. It wants the system to be the Android machine for smartphones: the mainframe for industrial “applications,” for managing wind turbines and locomotive teams, for example. GE has set Predix to “open,” which means it can not only use its own machines or its own applications. For example, heavy mail systems and product manufacturer Pitney Bowes use the platform to analyze data from machines to better manage them.
GE is also using Predix to change its internal organization. It built an independent software division in San Ramon near Silicon Valley to develop it. Bill Ruh, head of General Electric Digital, explains: “We trained this unit on its own because it was killed by key organizations, and in September last year it started connecting startups to other digital activities, including Its entire IT department) into Mr. Ruh’s division, which interacts with all other GE businesses to ensure that the algorithm that controls the motors in the locomotive can also be used for similar devices in wind turbines or power plants.
GE also changed its culture in other ways. As an industrial group, the company is known for being almost obsessed with the Six Sigma approach. This uses statistics and incremental improvements to drive the company closer to perfection. Now, GE wants employees to get out of the startup world and start making mistakes, which is what’s called “FastWorks.” The idea is to experiment with more and develop so-called minimally viable products that can be quickly discarded if they do not take off.
The digital transformation at Siemens seems to be slow (though this may be partly because its managers do not know much about the company’s accomplishments). Its main focus remains on vertical industry software such as healthcare and manufacturing rather than a horizontal platform for all industries. It was not until recently that it began selling MindSphere more deeply, the equivalent of Predix. “Our customers live in very different worlds,” Horst Kayser, the company’s strategy director, explains. Siemens is also keen on not annoying a significant customer base: machine tool builders using Siemens components. They want to maintain a direct relationship with their industrial customers, not through a platform like MindSphere.
As MindSphere within Siemens is not as important as Predix within GE, the organizational transformation of German companies has so far not been radical. But it tries to open up their own external thoughts. Internal start-ups, which used to be subject to their budgetary processes, often mean they are the first to lose money. In June, the company created an independent home for such a project called next47 (a courtyard built by Siemens in 1847 in Berlin), a partially-invested company. It hired an American to work instead of building it in the German capital, the German capital with a thriving start-up ecosystem that will remain in Munich.
Siemens also began sending senior staff to participate in so-called “study tours” to help start-ups understand the situation. Employees are now encouraged to cross organizational boundaries and communicate directly with their employers. Whatever the priorities in the digital arena, companies will have to do most of the work; the reputation of risk aversion and over-hierarchy is not the best way to attract young talent in Germany’s aging population.
In other IT markets, one company has quickly taken the lead, whether it’s Google, Microsoft, or Oracle. This seems to advocate a “g approach” approach. Nicholas Heymann of investment bank William Blair said General Electric is already creating an “ecosystem” for Predix. It agreed to establish partnerships with major telecom operators, consulting firms and IT service companies, especially external data sources.
However, the consumer world is different from the business world. Online search and social networking services are easy to expand because the needs of people around the world are similar. On the other hand, specific industries and companies often have specific requirements that require customized products rather than a platform that tries to be everything on all machines. This may help Siemens customize a customer-centric approach.
Siemens is also likely to have a better attitude to its industrial customer data than GE. Although individual consumers are generally willing to give up personal information to a platform such as Google or Facebook, most companies try to avoid this lock. Whether they are machine tool builders or factory operators, they cautiously protect their data because they know how valuable they are. Both General Electric and Siemens said their customers will retain control over the data in the new digital world, but the real question is who will have the algorithms built with that data. GE claims ownership and Siemens are less absolute.
Therefore, a single platform is unlikely to dominate the industrial Internet. Andreas Willi of J.P. Morgan concludes that there is room for growth in Predix, MindSphere, and other services. In spite of this, GE seems ready for the digital future. The company now has a flexible organization that can quickly change course. In contrast, Siemens still lives in a more closed vertical world. Both new headquarters have small museums that showcase the roots of the business. No prizes can guess which one you can access only by appointment.