5 big questions on innovation

We deliver to our customers low and medium voltage products and automation systems that are all integrated in several end markets: buildings, data centers, asset intensive industries, and utilities. We have a host of innovations throughout those areas, and we invest 1.3 billion euros on R&D. It is about faster, cheaper, better, so why do we need that deep level of innovation?

Over the next 10 years, the energy consumption in the world will increase by about 40 percent, and electricity consumption will increase 80 percent thanks to things like urbanization, industrialization, and digitalization; you must be three times more efficient to keep carbon emissions near neutral. We found that in the domain of buildings, only 18 percent are energy efficient, so there is an opportunity for 82 percent of untapped energy efficiency in buildings. Data centers are 30 percent energy efficient. Asset intensive industries such as oil and gas, mining, and metals are about 50 percent efficient. The grand problem we are trying to solve is making sure your energy efficiency is running close to 100 percent.

I work with the five business CTOs to harness the innovations springing from that $1.3 billion investment. Connectivity is a major part of the solution. We are on the IoT journey, and our innovation chain is tied to IoT and digital transformation. Connectivity is about bringing value to our customers, and it can be cost reduction, efficiencies, performance, or all of the above. It also promotes safety, and safety has always been a core value in our customer proposition.

We look at innovation in the portfolio approach. A large percentage of investment—about 70 percent—is on Horizon 1: short term innovations on our core products. With Horizon 2, we have products like Masterpact MTZ, which has an IoT and power monitoring capability. This is Horizon 2 or adjacent and medium-term innovations: bringing new technologies to the same product. H-2 also includes bringing the same product to a new geography, meaning bringing these circuit breakers to China or India with modifications. H-2 is about 20 percent of our innovation investment. Horizon 3 is truly disruptive and long-term innovations, and represents a lot of the stuff we are driving today, and is about 10 percent of our R&D spend. Some of them are seemingly crazy, but with huge potential to completely disrupt our industry.

I am responsible for all innovation, not just the digital parts. We are on the journey of IoT and digital transformation, and almost all our products—from automation systems to circuit breakers—are integrated with digital technologies. We are absolutely the market leader.

Our new products are taking the industry by storm, and I am completely proud.

We are moving toward IT/OT convergence, so all of a sudden engineers who had been very focused on the physics of arc breaking and switching in circuit breakers find themselves in the world of cyber security and cyber trends, of analytics, and machine learning. How do you bridge the gap from the old physics-based engineering to new world technologies or social media, machine learning and data analytics? That’s a challenge, and it needs a multi-disciplinary approach. Finding people who have knowledge in all areas is tough. Obviously, you do not need individuals fluent in all areas, but you do need individuals who can collaborate in large teams to solve customers’ problems effectively. The competency of people in our area is in the IT/OT convergence. We are an operational technology company, so we take care of the actual operations of the company—whether it is operating wells for Shell or what have you, whereas the IT companies like Oracle or SAP or Microsoft do the company back office.

Siloes also present a problem, because in many organizations, each line of business is so focused on their own vertical that they don’t think about the broader ecosystem. Companies that don’t invest enough in innovation have an even greater challenge. If I had only the industry average of 2 percent of sales for R&D, I would not be able to compete with the Schneinders of this world!

Also, with a risk-intolerant culture, you get only incremental innovation. The only way to get disruptive innovation is to create a culture of risk tolerance, where it is okay to try crazy things. We have a culture where it is okay to fail, and even encouraged to celebrate early failures—but only early failures, not just putting hundreds of millions of dollars into a stubborn mule project. We try to spend on lots of wacky things, knowing that most will fail, and when they do I give the team a pat on the back and say thanks for trying that, and what have we learned? Knowing something does not work also adds to our knowledge. Organizations who do not tolerate failure become very incremental.

For IoT, there are three main challenges: cyber security; inter-operability, or standardization; and legacy systems. There are systems you build on that could be 30 years old (brownfield systems) or one day old (greenfield systems). I think data security is a very big problem. The perimeter for attack is increasing daily with the 50 billion connected devices in the world of IOT. Cyber terrorists can create more havoc with cyber attacks than with bombs. We are giving a lot of attention to cyber security.

One of the things we pride ourselves on is the concept of open innovation, and that is something I have been practicing and preaching for years. Open innovation is a very big part of what we do, and we try build solutions for our customers with partners. Before we open an R&D project, we always ask if there is any start-up in the world that is doing something related to what we are trying to do? If there is, lets investigate and possibly collaborate with or bring that start-up into our fold. We can innovate much faster with this approach. It took three years and 10 million dollars to bring a solution to customers before; now we can spend, say, one extra million and bring it to market in six months. That’s the value of open innovation.

We have partnerships with the top 50 companies in Silicon Valley and relationships with top venture capital firms, and we ask all of them: “what are the top start-ups you are working with in the IoT space? In the sensor space? In the cyber space or in the drive space?” We ask them for their technology strategy—what is it they are trying to do? From this, we typically identify three or four start-ups, and we try to identify the technology that best matches with our system. Conferences are also helpful. A week ago, I gave a keynote in Barcelona at the IoT world congress. We tell the world, “this is where we are headed,” and then 15 start-up founders came to me and talked about possible synergies.

As Group CTO, I am driving IoT, and there are four pillars that are part of my organization. One is working with the five divisional CTOs on driving about 1.3 billion euros in R&D spend. The second is programs like open innovation. The third pillar is our corporate research center, where we look at Horizon-3—disruptive innovation. The fourth pillar is IoT. I was recruited at Schneider fundamentally to drive our IoT development, along three levels. One is connected products, which is fundamental, but not where the real value is.The next level is edge control, where in our application, our customers do not expect these IoT products to be connected and controlled from the cloud. We want to have local control. The third level is apps, analytics, and services, which we are building on top of the cloud.

The first value is in services. In the past, if a transformer failed, you as the customer would have to alert Schneider and ask if we can fix it. Today, we will tell you your transformer has failed, and ask if you would like me to fix it. Remote services are the low hanging fruit we are going after. But the next level is having the transformer give signals before it fails so we can inform the customer that the transformer will fail Thursday, and replace it Wednesday. Now there is no downtime. It is called asset performance management with predictive analytics, and we are doing it with a whole range of products. The cost of 15 minutes of downtime for an Amazon data center can be a hundred million, so the value is enormous. The third value is outcome-based services—if you can guarantee the outcome. If you’re making widgets in your factory, we can guarantee you will make 20,000 widgets per minute, no matter what. So rather than selling the 1,000-dollar transformer, we can sell the guarantee of 20,000 widgets per minute. You lease our products which we install for free, and you pay for the service of productivity. We are currently running pilots on this model. The IoT area will journey from products to connected products to services to guaranteed outcomes. We are increasingly moving toward a world where people will not own products, and instead will get services on demand where and when they need it.

IoT also offers enormous benefits for continuous customer engagements. In the past, when we sold you a circuit breaker or panel that lasts seven years, the next time we would talk would be in seven years. With IoT, you have a 24/7 connection with the customer. We know exactly what is going on. Continuous engagement with customers is an amazing new opportunity for marketers, and the best thing you can do for your CMO. IoT is just the plumbing. The technology that will be truly disruptive will be the analytics on that big data you are collecting. How to use data is the most important question we discuss every day. Initially, you are collecting small data, but with data coming in 24/7 from 50 billion connected devices. How do you do artificial intelligence and machine learning on all that data? This is going to be the most exciting thing. Connectivity is the easier part; analytics on the big data is going to be the game changer.

I am very excited with some of the latest innovations in areas such as augmented reality/virtual reality, cognitive computing and machine learning, 3D printing, robotics and drone technology.