Digital transformation means changing how an organization relates to its customers. Often, these changes affect strategic dimensions such as the company's business model, culture, talent, and innovation processes.
Because digital transformation demands that an organization make disruptive investments in people and systems without an immediate payoff, sponsorship for these initiatives usually comes from the top.
On episode 330 of the CxOTalk series of conversations with the world's most innovative business and technology leaders, I spoke about digital transformation with Barbara Humpton, the CEO of Siemens USA. The company has 50,000 employees, $23 billion in revenue, and is a net exporter of goods and services from the US.
Humpton describes the Siemens this way: "Think of us as a large infrastructure company. We're working on things in electrification, automation, and digitalization that are truly shaping the future of the world."
The discussion sheds important light on how a major corporation CEO thinks about transformation, data, technology, and culture. Importantly, the conversation also covers talent, IT vs. OT (operational technology ), and women in technology.
Watch the full video embedded above and read the complete transcript. Edited summary comments are below.
What is your core strategy at Siemens USA?
Barbara Humpton: Siemens put together a business strategy based on global megatrends. If you think about urbanization, climate change, the aging demographics of the human population everywhere, the expanding reach of the global supply chain, and then the digitalization of everything, these are things that are happening inexorable forces moving world markets. Siemens' business strategy is built around that, making sure that we bring our know-how in energy, in infrastructure, in manufacturing, mobility, et cetera to meet the needs of society here in the US.
How are your markets evolving?
Barbara Humpton: Well, the number one thing that's happening right now is this digital revolution that we're part of. Siemens has been building elements of technology since its inception. The whole company is over 170 years old. From the very beginning, the whole application of technology was to help achieve change, innovation, productivity, et cetera, influencing every one of the industrial revolutions.
Here we are in what we're calling the Fourth Industrial Revolution where we've moved from steam to electric to automation. Now we have the digitalization where, truly, the use of data becomes central to the business models and the capabilities being offered in every one of our market segments.
Take any market segment, and let's take one of them that typically has some really long lifecycles to it, the power markets. When you're standing up a powerplant, key questions in the past used to be from the utilities:
- What sort of technology do we want to have in our plant?
- What's going to be the lifecycle?
- How can we get a long-term service agreement in place, et cetera?
Now, we're beginning to ask different questions:
- What is the future of power?
- How will power needs change in this new environment that we're dealing with today?
- Then, how can we use the data that we can gather from all of this physical equipment to make our operations more efficient, to make maintenance more responsive, to increase the lifecycle of assets, et cetera?
The application of data to tell us how the physical world is performing is really fundamentally changing everything. Now, what we're doing in the US, as a leadership team, is taking a good hard look, getting out our binoculars, looking multiple years into the future, to the best of our ability, and then asking ourselves, what kinds of things do we need to be doing today to enable the future that we envision for ourselves and for this society we're part of?
None of us can see that future for real. Just think about the time since 2007 when we saw the convergence of the technologies that would ultimately lead to the iPhone. In computing, in communications, we've seen this confluence of technologies that have given us exponential growth and capability. Those same technologies are now being integrated into this physical infrastructure that Siemens has been creating these multiple centuries now, and we're right on the cusp of being able to see that kind of exponential growth and capability take hold and carry us further into the future.
How do you do drive transformation across an organization of 50,000 people?
Barbara Humpton: Well, hey, every corporation wrestles with this, right? How do I innovate while I'm making sure I attend to excellence in the core business that I already have?
Now, Siemens, globally, has established an innovation approach that is really full bodied. Let me just explain the framework here. We take a couple of different looks deep into the future. Siemens Corporate Technology, pure research and development that's going on around the globe, is looking way out into the future to determine what are the kinds of technologies and capabilities we need to be prepared for.
Here in the US, by the way, Princeton, New Jersey, and Berkley, Calif., are two locations where we host innovation teams and corporate technologies. Yes, they are focused on the US, they're located here, but they're also networked into global teams that are taking the same topics and applying them in different regions of the world. Likewise, we leverage work that's going on in other innovation centers around the world to bring those capabilities here to the US. That's the pure research. Here in the US, we're doing, call it, $1.3 billion worth of independent research and development every year.
Meanwhile, we also started a venture capital arm. It's called Next47. Its headquarters is in Palo Alto, Calif. The team there is constantly scanning the ecosystem looking for entrepreneurs who are really making groundbreaking advancements in technologies and capabilities that we think are going to be vital to our future. What we like to do is take enough of a stake in the company and be engaged enough in their operations to be able to be a meaningful player in that company's growth. In fact, I would say the easy rule of thumb is to say, you want to be the first phone call for the president or founder when they have a key question. "Hey, Siemens. I've got an idea. How can I…?"
On our side, what we're doing is we're opening up the portfolio of access to customers, access into the rest of our technologies to help those venture capital companies of ours really get off the ground and make headway. We expect those companies to disrupt us. It's what we want them to do.
One of the other things we've done is we've encouraged current Siemens employees to bring their ideas to Next47, and we'll invest in those ideas. I've had some cases where former Siemens US employees now have started their own companies, with our help, and we're their number one partner. This whole idea of creating an innovation arm that can run in parallel with the organizations who are ensuring we're meeting our customer commitments every single day is really vital and it keeps us challenged.
Now, the key is getting those teams to work collaboratively across boundaries. There's this constant ebb and flow where there's the actual mergers and acquisitions that bring more capability into the core along with this idea of spinning out new future ideas to keep the innovation engine running. It's a pretty dynamic model, and I'm really pleased with the results we're seeing.
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How do you balance investment in existing operations and current revenue against disruption and innovation with future potential?
Barbara Humpton: This is the holy grail question. This is what makes corporate strategists earn their keep in large corporations, that ability to plan out a path that yields the resources that will support that future. This is what we're all working to as leaders in a corporation.
Let's think about this a minute back in that context of business to society. There have been a lot of people who have thought that our business to society message was all about philanthropy; what you're trying to do is create enough profit so that you can give to the community. In fact, I want everybody to think about this differently.
Think about Maslow's hierarchy of needs within a corporation at the very foundation. In Maslow's hierarchy, it's food, clothing, shelter. Does it take care of basic human needs? For us, it's integrity, safety, business compliance. You don't even go into business if you're not prepared to do that.
Move up the hierarchy and what you'll find is that being able to operate profitability is well up there, but it's not the ultimate of the corporate hierarchy. The ultimate pinnacle of the corporate hierarchy is what we give to society, what we mean, what we're in business for.
Every single day, Siemens wakes up focused on how to bring our know-how in electrification, automation, and digitalization to these markets that we've chosen to serve. In order to do that, we must -- we must first perform profitability. Then we can only use the resources that we have at hand in order to enhance our capabilities for the future. An innovation plan, funding for that innovation, that is all part and parcel of the business plan.
If you've been watching Siemens' evolution closely, you will have seen, several years ago, the decision to spin off healthcare as a separate company and to create a joint venture in the renewable energy space. You'd ask, "Why?" Well, in both of those cases, there just wasn't enough corporate resource on-hand to keep us investing at a rate that would have us number one or number two in all of the markets we're trying to serve. By spinning out, we raised market capital. We got additional investors into the boat, kept a majority share, so Siemens still gets to have the guiding thought and principle that keeps these technologies moving in the direction we're interested in, but we've attracted a lot more investment into the mix.
Day by day by day, we're asking these kinds of questions:
- What investment is needed in order to realize our goals?
- How does our business plan hold together with the performance of today's products and services?
- What else do we need to do to strengthen that portfolio so we can continue to invent?
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