19/06/2017
FEATURING GE, JEFF IMMELT AND THE DIGITAL/INDUSTRIAL ENTERPRISE
GE’s Chairman and CEO Jeff Immelt of over 16 years to retire.
Immelt has caught flak due to GE’s share price performance since his appointment shortly before the 9/11 attacks. Under his leadership GE shares have dropped considerably, underperforming the S&P 500 index.
Source: Financial Times
GE was badly hit by the 2008 financial crisis mainly due to its exposure to financial services via GE Capital’s portfolio. Immelt responded by restructuring and firmly focusing GE on industrial activities, including power and energy, oil and gas, aviation, transportation, industrial products and services as well as healthcare. Given its huge installed base, evolving technology and its commitment to services already under Jack Welch, Immelt saw significant commercial opportunity in helping optimize the performance of that installed base. This led to GE’s committing substantial resources to developing the Industrial Internet of Things (IIoT) and its engagement with software through the creation of GE Digital based close to Silicon Valley in San Ramon, CA (let’s not forget that GE’s machines are often the key productive assets at companies implementing Internet of Things/Industrie 4.0 programs). Since the company’s all- time low in March 2009, GE’s share price has grown by over 300%, however possibly not enough to placate investors. Some have complained about overpaying for acquisitions and insufficient focus on operating performance and cash generation.
Nevertheless, Immelt’s reshaping of GE towards industrials, tech and services has been remarkable by any measure. It has helped transform the company’s markets and competitive environment, has influenced competitors’ behaviors and has created global IIoT and digitization momentum. At the recent Electrical Products Group conference, Immelt reaffirmed GE’s industrial/digital focus, strategy and operating framework .
Source: Financial Times
Whether Immelt’s strategy will be ultimately successful will, of course, depend on execution and his successor’s plans. But it will also depend on how market structures evolve and to what extent old economy companies are able to withstand the competitive assault of “digital natives” on their territories in the age of big data and machine learning, something that can be seen vividly in the car manufacturing and mobility space with companies like Tesla and Uber eclipsing the major manufacturers in market valuations.
GE’s major strategic/transformative moves under Immelt show a bold consistency towards the digital/industrial enterprise, but also text-book conventionality: Divestment of non-core and financial businesses (plastics, appliances, water technology, NBC Universal, GE Capital); Major industrial acquisitions to broaden and deepen offerings and create bulk or scale economies in selected market sectors: aerospace, renewables, fossil power, oil and gas and industrial automation; Rapid build-up, both organically and though acquisitions of digital capabilities. Immelt’s strategy has been a long game strategy. Some moves and acquisitions might be questioned as to timing and future orientation or valuations in view of how prices are evolving (fossil power, offshore oil and gas). But the main question will be can a conventional strategic approach designed for industrial age economics be valid in the digital age of platforms, network effects, increasing returns to scale and dematerialization. The jury will be out a long time yet on this.
RENEWABLES
Following US President Trump’s decision to exit the Paris Climate Accord (PCA), the European Union, China, India, Japan, Australia, Canada and, less clearly, Russia have reaffirmed their commitment. But interestingly, also California’s senate voted for a 100% renewables target for electricity by 2045 which has a good chance of becoming law and Hawaii became the first US state to a pass a law committing to PCA. Other states are expected to follow. Ironically US renewables build-up is strongest in states that voted for Trump due to favorable conditions and electricity export prospects to urban and industrial centers combined with decreasing costs. The International Renewables Energy Agency released a report revealing that jobs in renewables are growing fast reaching almost 10 million globally in 2016. In fact, jobs in solar power in the US have been growing at a rate 17x higher than the average for the economy as a whole, with wind power not far behind. The US Department of Energy estimated that wind power could account for almost 400,000 jobs in the US by 2030. Over 50% of these jobs are in installation, operations and maintenance.
Bloomberg New Energy Finance published New Energy Outlook 2017 in which it projects that the US Paris exit will have at most a marginal, if any, effect on renewables adoption and that power generation from renewable sources will reach 34% globally by 2040, while total renewable investment to that year will reach US $7.4 trillion. It also predicts that levelized cost of electricity from new solar PV will drop 66% and from offshore wind by 71%, while electric vehicles and batteries will see strong growth. The projections differ significantly from those by ExxonMobil which see only 11% share in power generation by renewable sources by 2040.
Given the size and maturity of onshore wind turbine installed base, GE is making a business out of repowering legacy turbines. The repower program can include increasing a turbine’s rotor size, and upgrades to the gearbox, hub, main shaft, and main bearing assembly. It extends the life of wind turbines by a decade or more, making them more efficient and reliable while also increasing a wind farm’s performance by up to 25%. GE announced that it has already repowered over 300 turbines. The US National Renewable Energy Laboratory estimated that the repowering market could grow to US$ 25 billion by 2030.
Companies are increasingly integrating battery storage into solar and wind power installations. DONG Energy To Integrate Battery Storage Into Burbo Bank Offshore Wind Farm. Vestas is reportedly looking for acquisitions or investments in the sector “to increase the global use of wind power and bring costs down”.
Suzlon is eying 40% market share in India’s growing wind power market and a floatation of its Suzlon Global Services subsidiary, which among other things has approximately 4200 MW under management in India and China. The service subsidiary has reportedly a higher debt rating than the parent.
MOBILITY
Service driving competitive advantage in the tire industry: Investors are pushing up share prices of tire makers, as they predict that self-driving cars will increase miles driven per vehicle (utilization). Although overall number of vehicles on the roads may decline, many analysts are projecting a significant increase in total miles driven. But some tire makers may have a particular advantage, namely those that shift from being simply a B2C peddler of tires to a more holistic B2B mobility services provider, in a future where vehicles are operated as parts of fleets rather than individually owned. According to JP Morgan analysts, Goodyear may be one of those: “As the model moves more toward B2B, we believe Goodyear’s excellence in offering a service network for fitment, maintenance and repair of its tire fleet will provide a new standard of competition and is key to preserving its competitive moat. While the tires themselves may be a commodity, the service/network is not. Excellence in service, in our view, will be key to sustaining the long-term competitive moat, which is missing in the current model. Tires may ship from China, but the service does not”
MARINE
Wärtsilä says offshore marine players are breaking away from prevalent operating models and changing their “defensive” approach to maintenance, opting instead for lifecycle-oriented service approach with guaranteed asset performance and dynamic maintenance planning. And ABB will run “Collaborative Operations Centers” 24/7 to monitor data sent by vessels from all over the world to troubleshoot problems and provide timely resolution. But remote monitoring can be unpopular with a ship’s crew.
Wärtsilä introduces dedicated organisation to drive digital transformation
OIL AND GAS
About 1,300 global energy service jobs are under threat from the proposed merger of Wood Group and Amec Foster Wheeler (AFW)
Hess Corporation has signed a non-exclusive 10-year global agreement with Wood Group to provide engineering, project management, construction, commissioning, operations and maintenance, integrity management, subsea, and decommissioning services.
INDUSTRIALS AND POWER
Metso and Valmet separated three years ago. Now they are developing different IoT solutions. Metso with Rockwell Automation, Valmet with Tieto.
Kone Elevators lifts profits with IoT and a “Connected Services” strategy
A Chinese industrial automation and sludge treatment products and services provider Huazhang Technology is acquiring a paper machine service vendor Wuxi Refine Technology Co., based in Wuxi City, Jiangshu Province, with a customer base of twenty paper manufacturers. Through the acquisition Huazhang intends to become a one stop shop for paper machine and other maintenance services and with other add-on acquisitions launch an international service business.
A start-up, Prophesy Sensorlytics has developed an analytics based predictive maintenance solution for pumps and similar equipment: “Our platform monitors 24/7, and it doesn’t just tell you if your bearing is getting bad,” noted Biplab Pal, chief technology officer and founder. “It finds the root cause of your problem and tells you why the bearing is getting bad
3D PRINTING SPARE PARTS and other technology innovations
Siemens has successfully tested power generation gas turbine blades produced wholly by metal-based 3D printing by UK-based Materials Solutions, which it bought last year – calling it a “breakthrough”. “It rotates with 13,600 rotations-per-minute which means it is the most highly loaded component in the whole gas turbine. So, this blade that weighs 180 gramms will weigh 11 tonnes while rotating with this speed, meaning that it will bear the weight of a double-decker bus.”
Daimler Buses division has explained how it is implementing 3D printing to create components for its customers on-demand. Providing the example of a banknote stowage compartment, Daimler has showcased how it is utilizing the technology to create bespoke parts. According to Daimler, the company has so far 3D printed 780 components with over 150 replacement parts currently undergoing validation.
Volkswagen launches pilot project to produce legacy spare parts 100% through 3D-printing
Seeing is believing: Drones—what are they good for – The Economist on Drones in business. You can also read our drones article with more examples from industry and services.
Innovative maintenance system automatically monitors the underside of trains for faults
21/05/2017
FEATURE: RENEWABLES
Unsubsidized renewables have become the cheapest source of power -by far- in many countries, turning wind and solar into major asset classes and probably the fastest growing service market in the world -in the process changing or displacing other installed bases. Of course, this affects size, growth rate and structure of associated service and maintenance industry.
According to a new report from the United Nations and Bloomberg New Energy Finance, the cost for (new) solar generation dropped by 17%, for onshore wind by 18% and for offshore wind by a stunning 28% -over a one year period. New capacity added in 2016 was 138.5 GW, which not only beat the previous record of 127.5 GW (2015), but cost 23% less in terms of investment. GLOBAL TRENDS IN RENEWABLE ENERGY INVESTMENT 2017.
The Financial Times has a story titled: “The Big Green Bang: How renewable energy became unstoppable” explaining how falling costs in solar, wind and, particularly, batteries and electric cars are driving a tectonic shift towards renewables. Interestingly, oil and gas companies as well as major energy service providers are shifting to renewables to drive down energy costs: “France’s Engie, for example, aims to create “zero-emissions power plants” that generate electricity for “the Rio Tinto price” — the price that the metals and mining company seeks when deciding where to build a new smelter, anywhere in the world.
Offshore wind is currently creating huge market buzz: The planet’s biggest and most powerful wind turbines have begun generating electricity off the Liverpool (UK) coast. Installed by Danish company Dong Energy, the 32 turbines are 195 m tall, with blades longer than nine London buses. Each turbine has more than twice the power capacity of those in the neighbouring wind farm completed only a decade ago. And in Germany, the regulator (BNetzA) granted power purchase agreements for 1,490 megawatts of wind farms to be built in the North Sea. The developer (again Dong) will supply power from the facilities at a record-low weighted average of 4.40 euros ($4.67) a megawatt-hour, less than a tenth of the previous offshore wind deal. The bids were “far below any expectations,” (BNetzA) and well beneath the market price for power in Germany, which has fallen 3.8 percent this year to 30.10 euros a megawatt-hour (Bloomberg). The massive drop in offshore wind power costs is mainly due to better technology, operational learning effects and scale (as well as cyclical factors such as declining steel prices and low interest rates). And as the technology is still new further drops are to be expected. Nevertheless, as novelty wears off it will fall on operations and maintenance to ensure on-going cost sustainability and competitiveness of the technology – in similar fashion than an ecosystem/cluster of knowhow, logistics and operational/maintenance technology ensured sustainability of north sea oil industry for decades. Watch our blog for an upcoming article on this topic.
EDF Renewable Services reports 10 GW of windpower under service contracts in North America. Fast growing wind service company Deutsche Windtechnik expands through contracts in Sweden, France, and UK. It also acquired a 70% stake in OutSmart, a Dutch offshore operations management provider with expertise in asset management (offshore wind parks), remote monitoring and data analytics. In the meantime, Suzlon Energy explores the listing of its service and maintenance business (Suzlon Global Services) to reduce debt.
INDUSTRIAL AND ENERGY
Wärtsilä introduces guarantees for reliability and availability of power plants for self-operating customers – i.e. power plants not operated or maintained by Wärtsilä. Performance targets and KPIs are determined together with customers based on metrics and Wärtsilä guarantees that targets are reached and the achieved levels maintained. The company relies on an onsite support engineer, remote monitoring, data analytics and a fast response capability. And in another move, it acquired energy storage software platform provider Greensmith Energy, aiming to become a global energy systems integrator through the acquisition.
Amec Foster Wheeler announces a big loss prior to its acquisition by Wood Group highlighting difficulties in oil and gas services sector due to low oil prices. Nevertheless, Halliburton expects to be able to raise prices for its diverse services by 10-20% this year – possibly consolidation and restructuring has increased service providers pricing power?
ABB and Sulzer announce UK service partnership for rotating machinery.
Interesting contracts
Siemens signs long-term service and maintenance contracts for two major power plants in Argentina and Wärtsilä does the same in Pakistan – full O&M on a performance basis.
Valmet renews long-term service and maintenance agreement with Orora’s Botany Mill (board making line 9) in NSW, Australia
TECHNOLOGY
The business benefits for service vendors of IoT enabled predictive maintenance as laid out by Forbes. Meanwhile, GE signs agreement with Invenergy to install its IoT solution Predix on 13 gas turbines in 6 power plants in US and explains how the oil and gas industry can learn from Tesla. Honeywell launches an analytics hub to “listen” to smart buildings and Siemens launches “Siemens Digital Rail Services”, a business unit with a stated goal of “digitalizing” the U.S. rail industry. First app, Railigent™, Siemens’ cloud-based industrial data analytics platform, which uses real-time monitoring to provide insight on a train’s condition and location. In addition, Railigent employs data analytics to perform root cause analysis and remote vehicle and infrastructure diagnostics. It is connected to Mindsphere, the company’s Internet of Things (IoT) operating system (and rival to GE’s Predix).
Industrial / Technology partnerships for IOT solutions – identify problems before they happen: ABB with IBM and SKF with Honeywell plus ABB buys Austrian industrial automation company Bernecker & Rainer, a move that aims to challenge Siemens for leadership in factory automation. Also Voith, a German engineering company (in a somewhat unorthodox move) acquires 60% of Ray Sono, a German digital communications and user experience agency – to develop digital products and services for the industrial sector – though it’s legitimate to wonder whether this is putting cart before the horse in some ways.
Our article Drones in industry and services covers development in this space, while “Drones go to Work” in Harvard Business Review provides some more background and explains the economics of using drones in some applications like construction. In the meantime, oil and gas company ENI awards drone-based industrial inspection service provider Sky-Futures a three-year contract to inspect all its facilities worldwide using drones and SkySpecs drones inspect 1500 wind blades in one month.
The mobility paradigm is changing and servitizing fast -from car ownership to mobility services with virtually all auto manufacturers investing in ridesharing. Uber’s valuation now rivals or exceeds the market cap of GM. We wrote about this already in June 2016 “Technology is servitizing the world: Auto industry”. Now the Financial Times are reporting that ride-sharing and on-demand taxi apps were considered a viable alternative to ownership by 34 per cent of people, up from 29 per cent a year earlier, in a global Capgemini survey of 8,000 people in eight countries. The survey showed a spread in attitudes towards transport services between developed nations and emerging markets. While 80 per cent of respondents in China said they were likely or very likely to use “mobility on demand” services, the figure was 39 per cent in the US, 29 per cent in Germany and just 18 per cent in the UK. The numbers in China were “very scary” for carmakers. And to illustrate how tech is clashing with engineering, Forbes says that Google is racking up more patents than most automakers on connected and self-driving cars
Finally, 3D printing is reaching an economic tipping point for legacy spare parts (which will upend business models) through new technologies. We wrote a more general introduction two years ago (3D Printing will disrupt the spare parts market) and development is faster than we anticipated. Singapore is fast becoming a 3D printing technology and services hub.
MANAGEMENT
Nick Frank has this to say about the future of field service and Titos Anastassacos says that digitization will dematerialize the economy, drive down prices and make life difficult for many manufacturers and their service businesses
COMMUNITY
For those in the UK, don’t forget the next Service Community event on 24th May at Oracle’s Reading offices with presentations by Mark King of Pitney Bowes, Dave Gibson of Oracle, Kris Oldland of Field Service News and Ian Cockett of Bosch. If you need further info please contact nick.frank@si2partners.com
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