For a large company trying to thwart disruption from smaller, nimbler players, massive size and centralized, hierarchical structure can be a real impediment to innovation and adaptability. Siemens AG, a global technology giant, decided to tackle that head-on with a strategy it calls “Vision 2020+.” The goal? To give Siemens’ individual businesses more autonomy and entrepreneurial freedom to adapt to a business environment in the energy sector that “believe it or not, has become quite agile, with a lot of innovation happening,” says Tim Holt, Chief Operating Officer of Siemens Gas and Power, one of the three new operating companies. “We needed a change from a conglomerate structure to what we call a ‘purpose-driven’ or market-focused model. It’s all about agility, adaptability and accountability.”
In the following interview, Holt explains how a 170-year-old company keeps up with fast-moving digitization in a legacy industry. He also shares why location matters, how Siemens’ presence in Orlando gives it a unique competitive advantage, and how the growth of Orlando’s cultural scene has made him miss his native Germany just a little bit less.
Beyond the structural changes Siemens has moved to create a more entrepreneurial environment, how do you, as a leader, create that sense of ownership culture down through the organization?
It’s all about accountability. In Gas and Power, we’ve kept the structure very lean. Other than some IT systems, which have to go across the whole organization, everything sits in the seven business units within the operating company. And the leaders of those business units make the decisions in terms of what resources they need, how they spend their budget on capital expenditures, and how they prioritize R&D.
Like most businesses today, we’re on a journey. It’s not like you can just flip a switch and then suddenly everyone is entrepreneurial. So it’s about making that transition from a framework with certain expectations, to a culture where you’re now saying, “Okay, I’m now running this as if it’s my own business.”
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Joe Kaeser [CEO of Siemens AG] recently said that “it won’t be the biggest companies that survive, but the most adaptable.” How do you apply that at Gas and Power?
We see there is rapid change in the energy landscape, especially with the shift toward renewables. Our traditional customers are large utilities, large oil and gas companies, and transmission companies. The energy landscape is changing so rapidly that it puts our customers in quite a difficult situation—they have to adapt. We have seen in the U.S., some customers merge or go bankrupt and we have new players emerging that are faster, leaner, and adapt to new technologies more quickly.
We’re seeing that shift in the workforce as well. Many of our workforce are in their late 50s and early 60s. In the utility industry, people tend to stay at their companies for a long time, 35 to 40 years. At the same time, with digitalization, you have a young workforce coming in. You have to be able to adapt through technology and innovation, as well as transform the work force, getting everybody comfortable with these new market realities. I’ve heard from our competitors that big companies like ours are too slow to adapt—we want to prove the smaller players wrong and show that we can be fast, we can be agile. We have a great experience base and domain knowledge. You pair that with the right agility and you are very competitive in this environment.
Siemens is doing some exciting things with Internet of Things – can you talk about some of those you see as having the greatest impact on the energy business?
It’s all about finding connections in the data. We have around 60,000 turbines and generators running around the world, which are producing multiple gigabytes of data every day. So we have this wealth of information. In the last 10 or 15 years, we didn’t have the capacity or algorithms to really look at what we could do with this data. But now with AI and data analytics, we can dig into the data, and come to certain conclusions that help our customers operate their plants better, more efficiently and with lower emissions.
With the data, we can also build what we call “the digital twin” so you can simulate how a power plant operates and how it would behave under certain conditions. In the past, you couldn’t really do that. Now you have that model of the power plant and you can simulate all these different conditions with it. We’re utilizing Siemens MindSphere, which is an industrial cloud-based data platform. In the past, you had the direct connections and you uploaded that data once a day; now with MindSphere, the data is continuously sent up to the cloud, collected and then from there we take it and analyze it. So that’s one area.
Another area is additive manufacturing or 3D printing. Right now, we’re printing about 20,000 metal parts a year for our gas turbines. It took us a while to get there; to give you a sense, we started in 2007 with prototyping and testing and in 2015 we started serial production. So that took us a good nine years.
What are the advantages for you in 3D printing?
There are three key advantages. One is, you can now create structures that you could not make before with normal casting processes to improve the performance of the parts. For example, we can now print a honeycomb structure that has superior cooling efficiencies; we could not cast or manufacture those before. The second is lead time. Normally if you produce a blade, it takes you two years with the lead time on castings. With 3D printing you can do that in a week. The last one is cost. The cost curve is coming down on 3D printing so there is potential there to produce a lot of parts much more cheaply. We can also reduce our inventory, so from a cost perspective that’s also a plus.
Are the innovators inside Siemens more centrally located or are they closer to the businesses they’re designing for?
Both. If you take the 3D printing, we started that in one of our locations in Finspang, Sweden. One of the head engineers was very persistent. He came to us and wanted $300,000 for a 3D printer in 2007, when it was new technology and nobody knew its potential. He wouldn’t stop asking so we finally said, ‘Okay, start with one machine and build it from there.’ Now we have 3D printers across the globe, and the vision going forward is to have printers in different locations, including customer sites, so that instead of sending a part, you just need to send some metal printing powder, along with the electronic print file and they can print the part right there at the location.
For digitization and AI, we have different centers of expertise. We have a center in Berkeley, California, one in Berlin, another here in Orlando. It’s in these expert centers where the expertise, domain knowledge, digitalization knowledge and customer base meet. Across the globe, we also have many different MindSphere Application Centers close to where the customer base is. We have one for oil and gas in the Middle East. One for automotive in Germany. It’s somewhat industry specific.
What kinds of benefits are you seeing from the MindSphere location that opened last year in Orlando?
We’re changing the relationship with customers and how we work together. We’ve run co-creation workshops here where customers come in and sit with digitalization experts and spend anywhere from two days to two weeks together, exploring ‘what are the customer’s pain points?’ That’s a big difference to what we traditionally have done, where we had a set portfolio and we’d pitch the customer on those products. Now with co-creation, we start in listening mode, to better extract their pain points and then jointly develop solutions to solve those problems. It’s quite a different approach.
How far off are fully autonomous power plants? Or should we expect human involvement for the foreseeable future?
It depends on your definition of “the near future.” It also depends on the regulation in different countries. The technology exists. We already have power plants where we provide the technology in Europe to work remotely. So you don’t have a control room on site, instead we’re monitoring the systems from a central control room. In a traditional power plant, people are doing the maintenance and visual checking, but today, with drones and CCTV and imaging, there is a lot you can do remotely. It’s a matter of putting these technologies together and making sure it’s safe and secure. We’re always surprised at how fast the technology advances. Look at solar—10 to 15 years ago, it was never going to be price competitive. It was nice for the people who could afford to have a green image, but you were never going to see those solar panels on a mass scale. Now you see them everywhere.
What competitive advantages does your location in Orlando give Siemens?
First of all, it’s an attractive location. It’s a vacation spot so that tells you people come here for a reason. For some colleagues I talk to, the first thing that comes to mind is Mickey Mouse and I try to make the point that you’re overlooking this whole other side you need to know about. The schools—we have University of Central Florida right across from our offices, and they have an excellent engineering school. In 2005, UCF had around 30,000 students — now it’s the one of the largest universities in the U.S. with 66,000 students on campus. And it’s not just size, but quality. In this area, we have access to talent in simulation and gaming and visualization. With our emphasis on digitilization and AI and augmented reality, it’s helpful to be able to draw on the talent here in Orlando.
In terms of where Orlando is located, we have a great airport with direct connections to almost any big city. For an international business, that is a big asset. When we talk about work life balance, the quality of life is good with a low cost of living. And then you have the performing arts. For me, coming from Europe, when I first came here, there wasn’t a lot on offer from a cultural and arts perspective, but over the last 14 years, we’ve made great progress.
Acquiring top talent is one of the greatest challenges facing CEOs today. How do compete for the best talent and how does your location help?
First, you have to create an environment where people want to work. Where they can see opportunities for development, which an international technology company like Siemens can provide. We also try, in everything we do, to bring to life our purpose, which is to make a difference to the future of energy. With the younger generation especially, that’s important.
In addition, in Orlando, we have some unique advantages in terms of work-life balance, affordable housing, no state income tax. It’s also about diversity and inclusion. We want people to feel like they can have a long, fulfilling career here.
What do you see as your top challenges over the next 1-3 years?
The first one is keeping up with the pace of change that’s coming, and adapting to the new market realities. There has been as much change in the last five years as I’ve seen in the last 35 years, so for us its anticipating that change and being open to the idea that we have to adapt our approach. It’s also about helping our customers navigate that change. We also have to make sure we’re anticipating the next generation of technologies. In the future, we will see all-renewable power generation, but there is a long transition time. If you look globally, 80 percent of the power generation is still based on fossil fuels so until all that is renewable, it’s going to be a while. We have to make sure that we have the technologies to make that transition affordable for our customers. There have already been some great technologies and we have to keep on innovating, pushing those boundaries and pushing ourselves to provide the energy system of the future.
Original published in Chief Executive Magazine on June 5, 2019.