Siemens bets big on software, all across the AG

Jan 10, 2017 | Hot Topics

Quick: what do you think of when I say “Siemens”? Since you read here, probably PLM, and that makes sense. But Siemens AG is so much bigger than the PLM part of the business, encompassing energy, medical diagnostic systems, manufacturing automation equipment, trains (yes, trains) and a lot more. Telling its story requires understanding 150 years of German manufacturing history — and Siemens’ attempt to pole vault over that history into the 21st century.

I was honored to be invited to the Siemens Innovation Day, last month in Munich, where Siemens management recapped the year, discussed its strategy for 2017 and beyond, and recognized key contributors for their accomplishments. A couple of quick thoughts before the first of several deeper dive posts:

  • Every, and I mean every. single. Siemens executive who spoke at Innovation Day talked about the importance of the PLM business, simulation and design technologies to the business overall. If they had a chart, it showed Teamcenter as the backbone. Siemens AG is all in on this, and see PLM as the way to transform Siemens, the big industrial hardware company, into something far more modern and ready for the future
  • Software will play an increasingly important role in Siemens’ overall business, and the company plans to push its way into the rankings of top global software players — bet you didn’t know that they are likely to break into the top 10 in 2017
  • Siemens AG is a big, old school, German company. The attendees at the Innovation event were mostly male, over 50, with the typical formality of speech and dress (and thought, too, probably) that this implies. The invitation read “smart casual” which, in Siemens-speak, means men wearing suits without ties. It makes sense that such an event would involve the upper levels of management (hence the male, over 50 vibe) but the workers in Siemens HQ were younger and much more diverse and, it seems, starting to shift the culture just a bit
  • One of management’s goals is to get Siemens to be easier for small, new companies and inventors to engage with. That’s not easy to do so Siemens created next47 as a venture capital and incubation arm to attract new ideas and talent. It’s run by someone fresh out of Silicon Valley who has €1 billion to invest over the next 5 years. next47’s charter is to find and capitalize on “disruptive ideas” in electrification, industrial automation and digitalization — and to run interference between start-ups and the more staid and complex Siemens corporate structure. That’s a fascinating realization by Siemens that 1. it’s old school, 2. many people like it that way and that 3. this won’t work for a lot of startups who find Siemens too hard to deal with. More to come on this
  • The Innovation awards presented during the event recognized both lifetimes of achievement and younger inventors at the start of their careers. You can read about them all here, but the common thread is that Siemens welcomes ideas from all: researchers with a great deal of experience, new graduates who question why things are the way they have always been, interns and students
  • MindSphere is Siemens’ play in the Internet of Things big data analytics arena. Announced at the event, Siemens and IBM plan to integrate IBM’s Watson Analytics and other analytics tools into MindSphere. MindSphere will enable data acquisition and analysis; Watson will help with visualization and dashboards, and with analytics via APIs for app-developers and data analysts. More on this, too
  • We learned more about MindShpere at Amberg, Siemens’ poster child factory, which manufactures some of the controllers and other devices that make up the bulk of Siemens’ business today. The factory is unlike any other I’ve been in: nearly silent, clean, incredibly data-centric with screens and production statistics visible to all, at all times. Lots more to say about this …

Bottom line: Innovation Day was a fascinating look at the totality that is Siemens AG, presented through the lens of invention and forward thinking. This one post is already longer that most people will read, so I’m breaking this trip report up into three sections: Innovation Day, Amberg and next47/MindSphere. Check back over the next few weeks to read them all.

First up, Innovation Day. Siemens has been honoring its inventors since 1995, though until recently, this has been an internal ceremony aimed at peer recognition. For the last few years, it’s been an externally-focused event, where the media and financial analyst community are invited to celebrate the winners and learn about the importance of innovation in general, and these in particular, to Siemens. It’s a bit like the Academy Awards, with categories, video montages and acceptance speeches.  Read about the inventors and their innovations here.

While the inventors and inventions were very impressive, I was more taken by the management presentations. As noted above, every single one highlighted the importance and contribution of the PLM business to the whole — but it was more than self-justification for expensive acquisitions. It was about reinventing a historic hardware brand, in the very unsexy field of factory automation, as an essential partner in manufacturing.

Let’s do a little recap: Siemens is very proud of its history as a 170 year old company (the HQ has a mockup of Werner von Siemens workspace from the 1860s or something like that — nothing digital in sight, of course). Today, it has over 350,000 employees in 200 countries, generating revenue of nearly €80 billion. That’s a big ship to turn, but turning it is. By its reckoning, Siemens is already one of the world’s largest software companies, with total software (including PLM) revenue in fiscal 2016 of €3.3 billion. Add in over $1.2 billion from Mentor Graphics and Siemens could break into the top 10 (using Wikipedia’s list of the top software companies in the world) during 2017.

Siemens has been talking up its digitalization push for the last several years, defining “digitalization” as adding computation to lots of industrial processes. In Siemens-speak, this means software, PLM and other, and digital services that use MindSphere and other tools to create manufacturing efficiencies. It’s digital twin where that makes sense, big data analytics and other other 21st century techniques applied to what might otherwise be old-school manufacturing. Creating the product and services offerings to support digitalization is expensive, and the company defended its R&D expenditures of €4.7 billion, almost 6% of revenue, in fiscal 2016 (ended September 30) as crucial to moving this agenda forward. Siemens expects this to grow to €5 billion for fiscal 2017. [We should note that this is total R&D expense, and applied across Siemens’ huge product portfolio — not all of this investment is for software or digitalization. — Ed.]

This is the first Innovation Day I’ve attended so I can’t compare it to prior years, but the demonstrations and discussions of simulation and additive manufacturing, pictures of CD-adapco heat maps, videos of Tecnomatix Jack models, Teamcenter swooshes and Simcenter circles were everywhere. It certainly seemed to me that Siemens is working hard to shift the conversation from the traditional hardware business of PLCs and other automation devices (where it competes against GE and its IoT strategy, against Rockwell and others) to the cloud, where its software portfolio could be a real advantage. It comes down to MindSphere. If Siemens can drive MindSphere development and adoption, it can argue that a manufacturer can do everything on one platform, from design to manufacturing planning to manufacturing execution to fine-tuning daily production. That means PLM plus connectivity, analytics, and a network of application developers who build on top of the platform. Now the R&D investment starts to make sense … And Siemens is putting all of its own SIMATIC products on MindSphere — eating its own dog food — as a way of proving the platform’s stability and extensibility. Now there’s a virtuous circle that repeats often at Siemens: using its own products to design and make its own products.

More on Amberg in the next post.

Note: Siemens graciously covered some of the expenses associated with my participation in the event but did not in any way influence the content of this post. The title image is of Norbert Gaus, Siemens Research Center, Corporate Technology, talking about how Siemens is shaping Digitalization. Image is courtesy of Siemens’ excellent photgraphers. You can see several industry analysts in the background, if you squint.