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The catalytic co-investor: How Siemens US keeps R&D alive

Barbara Humpton, US CEO of one of the largest and oldest engineering firms in the world, talks about continuous innovation, the future of AI, and the societal aspects of technology.

A version of this article appeared in the Winter 2019 issue of strategy+business.

This interview is part of the Inside the Mind of the CEO series, which explores a wide range of critical decisions faced by chief executives around the world.

Siemens has been in the industrial technology business since it was founded as a telegraph company in Berlin in 1847. Its U.S. businesses began soon afterward, and evolved over years of cross-Atlantic collaboration into a US$90billion industrial conglomerate, incorporated in its current form in 1970. Siemens US continues to distinguish itself as a technological leader. Linked closely to Siemens’s global role in defining and developing Industry 4.0, Siemens US is a source and incubator of innovations in artificial intelligence (AI), the Internet of Things (IoT), machine learning software, cybersecurity, and 3D printing.

How does a large-scale industrial manufacturing enterprise, with subsidiaries all over the world, continue to grow through R&D? To find out, strategy+business sat down with Barbara Humpton, CEO of Siemens US, on the sidelines of the company’s recent ConneCTs conference in Princeton, New Jersey. Humpton is the third female CEO of this Washington, DC–headquartered enterprise. She took the helm in June 2018, at a time when the number of women in CEO roles at large companies was actually dropping.

In this interview, Humpton discusses the role of innovation in keeping a long-established company vibrant, and how this capability is enabled by changes in workforce dynamics and business strategy. She also highlights how Siemens partners with startups in unique ways through its Next47 unit, stepping in at a carefully delineated stage and providing mutual access between the outside startups and its own engineers and clients. All of this is part of an R&D strategy that she argues will help Siemens navigate the disruptions of the next decade, and establish itself as the purveyor of platforms that will connect industrial companies digitally — in the U.S. and around the world.

S+B: How do you attract highly skilled, future-oriented people to a company that got its start building 19th-century power systems?
We’ve been talking a lot about our purpose recently. The more I’m out talking to people at all levels of the company, I’m finding that everyone — not just millennials — wants to know that when they come to work, it will have meaning. Each person wants to know that he or she is doing something that really matters. Because of that, we [at Siemens] are going to have strong employee engagement through all the generational cohorts working for us, and we will make a real impact in solving the problems of the future.

Our strategy is driven by the megatrends the world is dealing with now: urbanization, the aging population, the digitization of everything, climate change. We serve society by using our know-how to tackle those kinds of big problems, problems that others aren’t able to address. If we don’t, who will? To accomplish this, we’re working on large-scale technologies: electrification, automation, digitization, artificial intelligence, and the Internet of Things.

Siemens is a national asset in the U.S. Back in 1872, Siemens was instrumental in building the first transatlantic cable linking England with the U.S. We have operated in the U.S. ever since. We now have 50,000 employees, in all 50 states and territories. We’ve got 60 major manufacturing, research and development, and digital center sites across the U.S., and smaller local offices nearly everywhere.

Our U.S. company is a net exporter to the rest of the world. We have brought electric power to places with underserved populations and unreliable electricity; we have developed healthcare products and services that enhance lives.

S+B: Tell me about Siemens’s artificial intelligence strategy.
AI is an area of real focus for us. What’s most exciting about AI technology is that the concept of what’s humanly possible is going beyond anything we could have imagined just a few years ago. Milestones are coming closer to reality faster than we expected.

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We now have all the necessary building blocks in place at Siemens to take AI to the next level. We already had communication and computing tools and the physical world of infrastructure deployed in our customers’ buildings. Now we’re bringing sensors into that world so that the physical items can talk to us. That creates a whole new realm to explore. How do you take what the machines are telling us, work with them in the virtual world, and then turn around and drive improvements, new business models, and new ways of meeting customers’ needs in the real world? This data-driven process can lead us to invent things that people didn’t even know they needed.

Another advance during the past 20 years has been mobile phone devices and networks. They were first applied in entertainment and communication. Now, all that technology can be used in other ways — for example, it’s leveraged in these large Internet of Things technologies that we’re now working with.

We’re adopting the terminology augmented intelligence, a term you hear the industry using a lot [these days], to help us organize our AI efforts.

S+B: What’s the difference between augmented and artificial intelligence?
Technologists tend to talk about artificial intelligence as giving computers the ability to mirror the intelligence of humans. The idea is that these machines can go through the same processes as a human brain and use data to reach conclusions and make decisions very much in the way a human being would. The idea of that kind of artificial intelligence naturally frightens people.

But, in fact, what we’re building is very different. With augmented intelligence, you need a person to decide what problems to tackle with the technology we have. Then the computer can assist that person with analysis of the relevant data. In the healthcare space, for example, augmented reality will help physicians diagnose illnesses, and maybe help them recommend treatment, but only a doctor can make the decision about what to recommend. The technology augments the effectiveness of the human.

The incubator strategy

S+B: How do you form relationships with startups?
Any company needs to learn how to disrupt itself effectively. With that in mind, in 2016, Siemens created a global unit called Next47 (named after 1847, when the company was founded), to co-invest in startup companies that are bringing groundbreaking innovation into the world of things we care about. We discovered very early that there’s more money in this world than there are great ideas, so we have learned to be patient and selective.

S+B: How do you know when the time is right for Siemens to partner with a startup?
There is a stage when it’s too early. We don’t yet know whether a market’s going to develop, whether the company’s technology will be successful, or whether the barrier to entry will be high enough that there won’t be many competitors and the investment will pay off.

We now have all the necessary building blocks in place at Siemens to take AI to the next level.”

There is also a stage when it’s too late. In those cases, the market has already developed, the player is already well established, and there is no need for seed capital. Then we look at [the startup company] as a candidate for a merger or acquisition deal, or something along those lines.

We want to attract great companies that are at a middle stage — the right stage to benefit from collaboration with a large enterprise like Siemens. Before we invest, we want the company to already have a concept or product that works: a raw technology that needs access to our platform.

S+B: Why do you think startups are attracted to Siemens as an investor?
Access to our ecosystem, including our customers, makes us stand out. Also, our goal is to make it easy for the startup. That’s why we created a role at Siemens called a catalyst, someone who advises the startup and helps the deal succeed. We typically assign a catalyst after a market and business model is confirmed. Just as in a catalytic reaction, you get a better outcome from having another element present in the deal. A catalyst is deeply involved with both the startup and Siemens management; for example, he or she might engage in our capital investment or serve on the startup’s board.

For people to be effective in the catalyst role, they must know Siemens very well, and they must understand the industry and the business context. We want the catalyst to be the first person the startup leaders call when they are interested in a new idea or aren’t sure how to proceed in any given area. This relationship helps the startup gain expert advice, and it allows us to help shape the startup’s future. It’s very much like mentoring.

There is a catalyst, for example, who works in the global building-technology division in our Palo Alto office. He knows the industry well and works with several startups that are trying to break into markets where Siemens already has a strong foothold. The catalyst can very judiciously give our startups access to our customers or other partner networks, and thus accelerate the startup’s growth and delivery.

Co-investor versus acquirer

S+B: Why be a co-investor, as you put it, working with the founders of these startups, rather than just acquiring the companies?
The trick is not to swamp the boat when bringing new companies into our ecosystem. A lot of innovation has to happen in a virtual garage -- not in a large, global corporation like Siemens. We give organizations the space and time they need to truly mature their technology. Then we can bring them in as value-added partners.

That said, we also do quite a bit of merger and acquisition work for the sake of innovation. We’ve purchased two companies in the last few years in the building-technology space: Enlighted and Comfy. Enlighted has developed sensors that are typically placed in a building’s light fixtures. This works well, because buildings need a lot of light and the fixtures are everywhere. The sensors collect enormous amounts of data about each building, data that wasn’t previously available to us. For example: Is a room in use? What is the traffic flow? What are the space-usage patterns?

Then we marry that data with Comfy’s app for building occupants. The user interface is designed to give people more control over, and comfort in, their work environment. The app senses where people are sitting and can adjust the lights and temperature for them. They can find and book meeting rooms and desks quickly. They can also submit work requests; flag maintenance issues; and locate cafés, mother’s rooms, and restrooms.

The benefits of machine learning make this marriage stand out. The app learns behavior patterns and, over time, automatically adjusts various settings. All of that is new technology that building technologies would not have been able to invent themselves. It makes the work environment more pleasant, saves energy and costs, and increases efficiency.

S+B: With all these resources going to startup co-investment, how do you ensure that innovations coming from within Siemens get the proper attention?
Whether we are talking about intrapreneurs or entrepreneurs, we’re trying to engage with a network of good ideas across the spectrum. There is a lot of innovation coming from inside Siemens. Our employees are out talking to customers and learning about the problems that customers need to have solved. The innovations that arise from these interactions can’t come in a command-and-control fashion, top-down from the corporation. They have to come from people in the field.

To bring more problem-solving technologies forward from within, we recently launched the Intrapreneurs Bootcamp. Thirty Siemens employees, broken into teams, went through an eight-week program. Their assignment was to articulate what they were passionate about and then figure out how to take what they know about their passion and bring it forward to address a problem that Siemens could solve.

That program kicked off two innovations we are pursuing: a lifelong-learning management tool and a safety-and-security application for fire alarm systems.

The pace of IoT integration

S+B: When experts first started talking about Industry 4.0, many projected 2020 as the year when we could look forward to having AI and the IoT integrated seamlessly into most aspects of our lives. How close are we?
Let’s use the analogy of the sun to explain. I think this is a dawn. We’re seeing beams of light coming toward us over the horizon. The light is reaching some people earlier than others — for instance, for people in highly sophisticated cities, the technology is already here. But its overall global adoption will be slower. It depends to a large extent on when people become aware of it, who they are, and where they live.

We need business leaders to recognize that they’ve got to get on with the digital journey or risk being left behind. What’s really cool about this transformation is that it’s possible to grow in stages. It doesn’t have to be one big bang. But for companies that want to do it rapidly, we have people at Siemens who are absolutely pathfinders and can be their partners.

S+B: Can you give us an example?
Recently, I visited our factory in Grand Prairie, Texas, where we have introduced digital natives on the factory floor. Those folks are going around working with people who’ve been at the factory for decades, and together they are figuring out how technology can be put to use to do the job better — for example, as a new way to use data or in configuring equipment.

At the outset I thought this program would reveal a difficult generational divide, but the results surprised me. The more I talk to employees — people who are 20, 30, even 40 years into their careers — the more optimistic I am about the ability of long-standing employees to change their roles. They are saying: “I’m really jazzed about this.” A few older employees have said that after spending some time with a digital native, they did a little bit of research and work on their own to become better engaged as a technological participant. I think this is one of the areas where multigenerational teams are going to be really helpful to us.

S+B: Are the workers who have been employed for years resistant to the introduction of these new technologies?
Here’s the reality of what we’re experiencing overall: There are major changes going on in manufacturing operations. Some things are being manufactured completely differently than they were in the past. At first there is often resistance to the tech. But we are all finding that when the tech makes everyone’s jobs better, the skeptical veterans get on board quickly.

Take our work with Newport News Shipbuilding in Southeastern Virginia. The company maintains ships that come into port for the U.S. Navy. Those ships need a lot of work, retrofits, new capabilities. The work has traditionally been done with a very paper-intensive approach.

The company’s CIO, Bharat Amin, has a vision for a digital shipyard. He’s bringing in Siemens technology to cut down on the time spent doing paperwork. For example, the workers may electronically capture the operations data from the ship, and then use the Siemens product life-cycle management tools to help workers decide on the best course of action. Then those work orders are issued electronically. Instead of carrying around stacks of design documents and work orders that can get disorganized and are hard to sort through, workers are now carrying a single, easy-to-navigate iPad.

Another example is the Siemens Government Technologies–managed service centers for propulsion equipment. We brought in a college student as a summer intern and asked her to see how much of our work she could automate. She similarly introduced the iPad to speed up work and reduce paperwork. By the end of the summer the veteran workers insisted that we make her a permanent job offer. There is a great respect for her from the people who know the business and have been there longer.

I think that’s going to [continue to] be our experience. I don’t think things are going to be nearly as stark as naysayers make them out to be.

Social aspects of technology

S+B: What have you seen here at the ConnectCTS conference that intrigues you the most?
I wore Google Glass glasses for a little while and you get a feeling of optimism and excitement. I can’t wait for the day when I can walk into a room full of people, and the facial recognition pops up and tells me who each person is as I meet them. For example, “This is New Jersey Governor Phil Murphy.”

On the flip side of that, I actually got stopped by people asking if I was going to “take any pictures with a wink.” In other words, the system records an image each time the wearer winks. That was a good reminder that there’s a whole social aspect of technology that has to be factored in.

S+B: How is Siemens working that social aspect into its technology?
We’re making the human–machine interface more fluid and intuitive. At Siemens we are a bunch of engineers who easily get drawn into engineer-speak. It’s easy for us to create an interface that makes sense to an engineer but no one else. That can’t continue, because we have more than 1,500 open job requisitions in the U.S. alone, and we’re going to be training a lot of non-engineers to do jobs engineers would have done in the past.

For example, when we opened a gas turbine manufacturing plant in Charlotte, North Carolina, we had 100 applications for every open job. But we didn’t have nearly enough qualified applicants to hire because of the technical knowledge required.

I’m interested in creating a user interface that’s more intuitive so someone doesn’t have to have a four-year college degree to be productive in our factory environment. That’s beginning to happen. We’ve made some recent acquisitions of companies that have good user interfaces and are tackling that problem head-on.

One possible scenario is using virtual reality glasses to communicate instructions. An employee would only have to know where to look and how to gesture to carry out complex work. They will be productive in a computer-enabled environment. That’s where the future is.

In this context, we’ve been talking about the film Ready Player One. It takes place in the future where people escape into a totally immersive virtual reality. The movie provokes viewers to ask themselves: What really matters here in my life?

S+B: You’re saying that these virtual environments will have a great deal of impact in the physical world — for example, in helping deal with natural disasters or keeping power grids running.
We have a computer-based model for quickly and efficiently powering up a grid that has gone offline. Whereas the conventional way is to try to bring all of the downed parts of the grid up at once, risking another crash, the new method allows the downed parts to speak to one another, and the parts that are up, and bring itself up in the most efficient way.

This is an example of where Siemens can come in and close the loop. We’ve got physical infrastructure, we’re doing work in the virtual world, and we’ve got a lot of data. Let’s make the most of our data in the virtual world. Then let’s come back to the physical world and apply what we have learned. Closing the loop between the analog and digital worlds is what we are all about.

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