Digital transformation and the industrial internet of things at energy giant ABB (CxOTalk interview)
Transformation, re-thinking business models, and changing culture are complex, especially in a large organization. Learn how one of the world's largest infrastructure suppliers brought on a Chief Digital Officer to drive change across the organization.
Digital transformation continues to be important as companies of all sizes modernize their operations. For large organizations, "becoming digital" is a complex effort that involves technology and business process changes together with adopting new mindsets, business models, and corporate cultures.
Given all these components, we can hardly overstate the complexity of genuine digital transformation.
Infrastructure and energy giant, ABB, is currently undertaking a large-scale program of digital transformation. With $36 billion in revenue and 135,000 employees, the company is driving change across its large portfolio of operations. The firm traces its founding back to 1883.
ABB describes its offering within two value propositions: "bringing electricity from power plant to plug" and "automating industries from natural resources to finished products." These broad points cover the extensive scope of the company's operations.
To explore ABB's transformation, I spoke with the company's Chief Digital Officer, Guido Jouret, on episode 312 of the CXOTalk series of conversations with the world's top innovators in business and technology.
Although the discussion was wide-ranging, two broad themes emerged: the industrial internet of things (IIoT) and how a large organization approaches digital transformation.
Watch an excerpt from our conversation in the video embedded above and read the edited comments below. You can also see the full, unedited video and complete transcript at the CXOTalk site.
Tell us about ABB?
Guido Jouret: ABB is involved in the movement of electricity, so we do the transmission, the distribution of electricity from power generation to your house or your building. We also turn that electricity into movement with electric motors, actuators, and industrial robots. We're one of the largest makers of industrial robots on the planet, so whether it's moving electrons or using electrons to make things happen, that's ABB.
How do you work with customers?
Guido Jouret: The first place we always start is with sensing. We can start doing what's called condition monitoring. We start by saying, instead of doing maintenance every year, every six months, whatever the time interval is, we can do maintenance when the machine requires it, and we can detect problems before they arise. We reduce downtime, so that's about extending asset life and reducing the unplanned downtime. That's the basics.
The next level above that is, if you can not only sense but also act, increasingly these devices are programmable so that we can change their behavior; we can change their performance. That means we can make them more energy efficient. We can make them perform faster. We can make a number of tradeoffs. That depends on the customer. What do they want to do? We could boost productivity that way.
We can also, increasingly, sell these devices in new ways. We can sell the robot as a service. Instead of buying a robot, you're buying the output of a robot, and we will sell that robot alongside its maintenance, alongside with the replacement of the robot when it reaches the end of its useful life, all of that for a regular monthly fee. This business model innovation is the final and third step enabled by this industrial Internet of Things.
What is the business value of the Industrial Internet of Things?
Guido Jouret: These technologies affect three major variables: uptime, speed, and yield. Uptime is less downtime: your factory, your plant, your environment. Your grid is more productive. Speed: You can get things produced much more quickly because they're more programmable. You can now have an assembly line that reconfigures itself. You can take software-defined machines and make them do new things like increasingly we're seeing with cars.
Thirdly, though, we can also improve the overall output -- for example, visual inspection. If you're looking at making widgets on a manufacturing line, you'll have some defects. Today, quality inspection is typically done by people. Tomorrow, increasingly, it'll be done by smart cameras that are enabled by machine learning software to look for those defects. They automatically then discard, tune, and optimize the machinery to minimize those defects. Those are the key three variables that most people are looking to optimize or improve thanks to digital technologies in the industrial Internet of Things.
Where are we in the Industrial Internet of Things hype cycle?
Guido Jouret: That's a great question, and I like to distinguish between two IoT markets. There's the consumer market, so we all have seen the advent of smart speakers and colorful lightbulbs and those things. In many ways, they're a nice to have. They're sort of, okay, this is cute. I can change the color of the lights when I approach my home, and I can set it up for the mood that I want. But it's not a must-have. It's not one of those things you can't live without, at least for now.
In the industrial side, many of those things I'm describing, whether it's the changing of the grid because of renewables, whether it's the advent of automation, whether it's to be able to make things more flexible. Unfortunately, now, for example in geopolitics, we see the advent of more trade tariffs, more barriers. We predict that that's going to lead to more of a push towards localized manufacturing, onshoring, bringing manufacturing back. That's going to require automation for those factories to be viable because they need to achieve levels of productivity that need to be very, very high.
I would distinguish between, on the consumer side, the Internet of Things, at least for now, seems to be largely sort of a solution in search of a problem. Therefore, I think the hype is still relatively high. But, on the industrial side, I think that there's no hype at all. Arguably, many of these consumer technologies, whether it's augmented reality, whether it's blockchain technologies, whether it's machine learning are not fads. They're not hype. They are being put to use in industrial contexts right now.
I think what you can see is that anything that can be connected will be connected. Whether it's the drives, the motors, the transformers, the circuit breakers, all of these devices, if they have behavior or aspects of their performance that can be tuned or optimized, then we're going to put software inside, and we're going to connect them. That's already happening.
Now we have to figure out, how do we deliver new sources of value? Can I make a factory that can reconfigure itself with minimal human intervention? Why would I want to do that? Because I can make things in smaller batches and serve customers that I can't get to today.
If I've got a grid that becomes smart, that can adapt the loads on the grid, that can send signals back to smart buildings to tell them to consume less. Because right now I'm not able to generate as much power, then I don't have to bring onstream these old peaking plants, these polluting plants that generate a lot of emissions, so I can run a cleaner grid. All those things are possible today. I think they're not hype because they're not solutions in search of problems. We have these problems, and the technology is ripe to address them.
What are the enabling technologies of the industrial Internet of Things?
Guido Jouret: The first one, I think, is clearly connectivity. Not only 5G, but things like just regular Wi-Fi, Zigbee, Bluetooth. There's a whole raft of wireless technologies and, not only wireless; it could also be wired because, in an industrial plant, a lot of the equipment doesn't move around. Just connecting things, that's, I think, job one.
The second one is cheap compute. Thanks to the mobile phone revolution, we now have small supercomputers in our pockets, while those same processing capabilities are very useful inside some of our devices, whether they be robots or others.
We also have a strong interest, ideally, in machine learning as well because, for many things where we have predictive maintenance or we're looking to predict the future performance of something, we have physics-based models, which are based on the science, but sometimes we don't know what the model is, but we have a lot of data. So, we can use machine learning to train the algorithm on past data and try to use that to predict future performance.
The blockchain is another one, which is very interesting. In many of the best use cases for the industrial Internet, we're looking at getting benefit from an entire supply chain, so not just one plant, but something is made in a plant, then it goes on a truck, then it goes to a ship, and the ship delivers the container to the remote port. Orchestrating and keeping track of all that, a blockchain is an ideal mechanism to do that because multiple companies are involved.
Then augmented reality is another one, which in terms of the consumer hype cycle, maybe a little bit fading or waning, similar to 3D TV. But, augmented reality, in our sense, in our world, is extremely relevant because we have this challenge in the industrial world, in many industries, where we have a lot of aging of the workforce. A lot of people are aging out, and the new person coming in has to do the job of maybe 10 or 20 people. The only way we're going to teach them the necessary skills is by putting a pair of goggles on their head that guides them through a task. There might be a remote expert whispering in their ear or just an overlay of computer-aided graphics telling them what to do.
What about data privacy?
Guido Jouret: In the world of the consumer, we call it privacy. In the world of business, it's often expressed as a concern for intellectual property. I.e. I have my Coke formula. How do I make sure that if you're connecting your devices in my plant, you're not also learning my formula? I think that's a great question.
We decided to address that head on two years ago. We published something called our Data Manifesto where we realized there was a bit of a gap. While there was emerging legislation in the consumer space, things like GDPR and other things, the General Data Protection Regulation, there was a bit of a gap in the industrial side on how we have conversations around customer data. Where does that data go? What kind of data can we see as a supplier of equipment?
It's not a small or trivial concern at all. If you, for example, can monitor the equipment in a mine that is pulling diamonds out of the mine, in theory, by monitoring the speed at which you're pulling ore out of the mine, you could infer how many diamonds will get produced. That may give you insights as to what's going to happen to the price of those diamonds when they reach the market.
I think customers are right to ask these questions. We decided to frame that in a couple of ways. We said, "Look, there's identity data, sensor data, and then the insights from data. The first two belong to you. The third, as a course of doing business, we will gather insights about your use of our equipment that we cannot choose to unlearn. That's just part of just making products. But, if you decide to stop being a customer, we will delete these first two types of data. They are yours. If we want to try and use your data, we will need to ask you for permission first and explain to you why we want to use that and what we want to do with that."
That was really inspired by two sources. We went to what the healthcare industry has done with the Healthcare Information Privacy Act, or HIPAA, and also the Passenger Bill of Rights in the airlines. Again, those two were the sources of inspiration for us, and we encoded that in our data manifesto, which is then also implemented in our online ability platform, which is how we develop our solutions.
How does a company like ABB transform itself?
Guido Jouret: Primarily, what my role has been within ABB is to do three things. The first, to enable our business units to transform themselves by creating new growth businesses around these digital technologies. It's mixing it in. It's not about stopping what they're doing and doing something new. It's about accelerating the adoption of digital in their products and services. That's job one.
Job two has been to develop and deliver a common technology platform. We call this the ABB ability platform leveraging Microsoft Azure as the platform as a service. We extend Azure technologies with our own technologies, and that's a common software foundation that we developed, and we provide to all of our business units. Now, we're building on the same common technology foundation, so we can build new solutions much more quickly.
The third is to do what I'm doing right here, which is to evangelize, communicate, and act as the chief spokesperson for this digital transformation within ABB. I think the question behind your question, Michael, is quite often there's an element of culture and resistance to change; why should I embrace this? This is one of the more interesting aspects of the role, which has nothing to do with technology and is everything around winning hearts and minds.
How does such an old and established company drive culture change?
Guido Jouret: Yeah. I think one of the things that companies like ABB, which have been around for over 100 years, have sort of in their DNA is the ability to sense and adapt to the changing markets because there have been many technological revolutions in the past. The electrification transformation that happened as sort of the second industrial revolution, that gave birth to our company, the advent of electricity and its use in factories and plants. Then the digital revolution, which started, I would say, in the '70s and early '80s, again, gave rise, for example, to our robot business unit and various others that have emerged since then.
Being close to technology has always helped us. We sense these technology trends, and we've been able to jump on them in time to make them successful growth businesses for us. Now, however, we do have a much, much broader range of digital technologies that are coming to the fore. So, it's not just about microprocessors and software, which we've known about, but I think it's the rate of digital innovations across this wide swath of everything from AR, machine learning, blockchain, connectivity, all those things we just described, all of that happening at a frenetic pace.
That's why my organization was set up was to say, "Look, we need an organization that's really out there leading this charge for the company, bringing those innovations back, sharing them with the business units to say, like, 'How would you reinvent this part of your business by using these technologies?'" That's why there are digital people in my team, but there's also many, many more inside of our business units as well, as an extension of my team.
What is the Chief Digital Officer role at ABB?
Guido Jouret: It's clear that companies use different approaches. In some cases, you already have a chief technology officer who is doing not only research and development but potentially also very much customer facing. Sometimes it's a CIO who is not only doing the back office systems but also can support the business with technology to enable the products to become more digital.
We have both at ABB; we have a CTO and a CIO. Similar to many other large companies in our industry, we've chosen to embark upon having a dedicated chief digital office, and I would say there's a slight tongue and cheek answer to that question, which is, when I was being interviewed for the role, our CEO said, "Are you a technology guy or a business guy?" I thought, "Okay, here's a trick question," so I gave the only answer I knew, which was, "Yes."
I think, actually, although it's slightly tongue and cheek, it really gets to the heart of what is a CDO, which is that intersection of technology and business acumen because it's not only about providing technology to the business units because, if that's all you needed, then ideally your CIO or CTO could probably do that. But, it's also about innovating in these new business models, and those new business model innovations are an integral part of the technology. They're enabled by the technology. They feed on technology and vice versa.
I think, to get that ideal blend, and to have that be carried forward as an imperative that is strategic where somebody gets up out of bed every morning thinking it's my job to make this company more digital and no one else has a similar singular focus, I think there you really probably need a chief digital officer. We see a lot of companies starting to embrace that.
How do you think about innovation?
Guido Jouret: I think the best source of innovation comes from the interface with the customer. As I like to say, customers' frustrations or their aspirations are your biggest source of innovation. What are they trying to fix and what are they hoping to get to?
The best sign for innovation is to look for what I call evidence of tinkering. Find customers that are solving problems with unorthodox solutions, which is, they're trying to do things in ways that you might initially frown and go like, "What are they doing? Why are you trying to push that square peg in a round hole?"
That's the best sign that there is a problem worth solving. Then, once you know what that problem is, you can then work with the technologists, whether they're in your research organizations, whether they're with your partners because clearly, increasingly, technology companies are providing that innovation as well. Then figure out, is there a better way to solve that problem? If so, how would we do that, and can we work quickly with a customer to pilot that together? That, I think, is the best source of innovation is to listen to your customers, watch what they're doing, figure out if you can do it better, and then figure out how to apply technology to do that.
Share your advice on digital transformation in large companies?
Guido Jouret: I think the first thing to decide is who is on point to lead the digital transformation. I'm not suggesting that they have to automatically rush out and create a chief digital officer function or team. But it does help because the problem is, if this is urgent and it's becoming more and more of an issue, if it's just a hobby or an additional responsibility for someone else who is already very, very busy, you probably won't make that much progress. The first is, who is responsible and accountable for making progress.
It is, however, a team sport, meaning you can appoint someone and tell them, "You're in charge," but then give them no authority to act and, therefore, you won't get very far. You have to make that a mandate for all of your customer-facing business units and services groups. You have to say, "I want to see an increasing proportion of our revenues come from fast-growing, digitally enhanced solutions that we're developing." That is the mandate to the line functions.
Then I think you also have to pick your battles wisely. One of the challenges, especially with companies that are very proud of their technology is what Geoffrey Moore calls the question of core versus context. The question sometimes manifests itself in different ways. You can ask people the question like, "Hey, can we build this?" A lot of very proud engineers will say, "Yes, we can."
The better question is, "Should we build all of this? What should we partner for? What is our core that adds to the differentiation? And, how do we double down on that?" That is, I think, usually one of the first significant hurdles because a lot of proud companies with very good engineers, the engineers want to be able to tackle everything.
Partnering sounds a bit like you're giving up, like you're delegating or you're recognizing you're not going to be very good in doing that yourself, but it is an essential skill. We've chosen to partner with a number of technology companies to build out our own platform, for example. That's a significant, early decision point.
Then, how do you put a lot more focus on just the couple of things rather than peanut buttering, spreading them out across everything? It's very tempting to sprinkle your digital pixie dust across a wide range of businesses, across a wide range of products and say, "You know what? Everybody, do more of that."
The challenge with that is that if you have something that starts to take off, it'll probably get starved for resources, so you need to be able to double down. That's part of the journey. We can talk about this for a lot longer, but I want to make sure that I give you a bit of time back to maybe get to a couple of the last questions.
I would say that the number one mistake is waiting too long before engaging a potential customer. You've got an idea. You work on it. You go back to the labs, go back to the buildings, hunker down, do all this development thinking, like, "Okay. We're only going to show this when it's ripe and when it's ready."
I would say a lot of customers are very interested in being part of that development journey with you. I call that having a project versus having a product, and there are many customers who say, like, "No, I want to do this together. I know this stuff isn't completely baked, but I want to get to market quickly, enjoy this capability early, so let's work on this early enough and I'll help you shape it."
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