This was partly presenting 3rd financial quarter results but more on their future course with a Vision 2020+ and its respected parts being the design that is going to take the business out further by exploiting the parts within this vision.
There was a lot to take in on limited information and understanding. View the post “A feast of opportunities for Siemens?” for my first reactions on this.
The whole expansive story around Siemens new structure announced at this event offered some of the opening details, yet it is still to be “fleshed out” later in the year, by their management.
I specifically zoomed in on the new Digital Industries (DI) structure and where it is seemingly heading. Presently this new operating group will have 78,000 employees and a business revenue of around Euro 14 billion, that contributed a profit margin of around 16% in their fiscal 2017.
The expansion of the digitalization business has a very exciting acquisition announced the day before, with the Mendix acquisition, a leader, and pioneer in the area of low-code application development platforms, where you can potentially program and deploy apps up to ten times faster. This has been one of several “pain points” for Mindsphere, the Siemens digital platform, on providing a menu of apps to support client problems, so we should see some significant improvement on this point.
This purchase of Mendix can make a significant difference and propel the platform into a new value proposition, a 2nd generation digital platform where “smart” becomes central. I will be coming back to this once I have undertaken a little more research and assumption undertaking, in the next few days, as it has some compelling value positioning for Siemens, I believe.
It was the other part of the digitalization expansion that stopped me a little. This is what I want to discuss here. Let me work it through.
Siemens plan the entry into the IoT Integration Services business market, so as “to rigorously expand its market leadership in industrial digitalization (IIoT)” as part of the press release from the event.
Building a newly formed Business Unit for this IoT Integration Service is aimed to expand the Siemens platform of the Mindsphere offering, into a more comprehensive support to customers in their digital transformation. Siemens plans to offer consulting, design, prototyping and implementation services and plan to hire 10,000 people in this area as they forecast the market for IoT services to achieve annual growth rates of 10 to 15%.
Chasing Growth Opportunities and Value Creation
The IoT integration market is really growing. Actually, the Siemens view of 10-15% is downplaying many others on their predictions. Some are indicating annual compound growth rates (CAGR) of 30% plus. The whole IoT market is huge and we need to recognize Siemens focuses on the IIoT segment but growth looks both good and big. Is this a good move, well it depends.
What concern’s me, at this stage is a number of lingering questions on this announcement of entering the IoT Integration Service business.
It raised some opening questions that I want to explore
- The players in this space are formidable, respected and well-structured and positioned
- Is this a chase to the higher margin ground of implementing and designing the solutions?
- IT and OT are converging but this does need a new way of thinking?
- Why would Siemens expand at a time when GE contracts in this area?
- Is the existing platform Mindsphere robust enough in client validation and use cases?
- Siemens has many of the formidable competitors as “partners” in their ecosystem of supplies, so how will this work going forward?
I could go on with further questions but these are enough at present to think about, as a step like this does need this understanding in the near future. More will emerge on this I assume fairly soon
Firstly, Siemens can do this, there is no question. There is a growing logic to this as I work it through it here. They are already involved in consulting, design, prototyping and supporting implementation services so why not ramp it up and turn it into a very specific “stand alone” business unit? Especially as it is a high growth area and the outcomes dictate the future actions.
So lets flesh out some of these opening questions.
Q1. The players in this space are formidable, respected and well-structured and positioned
With global, well-established consulting companies like TATA Consulting Services (TCS), Wipro, Atos, Accenture, Infosys, Capgemini, HCL Technologies, Tech Mahindra, Intel, Cognizant, Dell, Deloitte, Mulesoft, IBM, NTT Data, are all well-proven, heavyweights in the IoT Integration Services Market. Where will Siemens fit? Will they “stand alone” or strengthen their partnership arrangements even more, especially with Atos, where they have a very extensive set of strategic arrangements, or how will they deepening the existing ones with the numerous system integrators within their Ecosystem of Partners. What do they offer, others don’t when they walk through the client’s door?
The Mindsphere partner program has different types
Now does this announcement “fly against their present stated position” of “being an open cloud-based Internet of Things (IoT) operating system” where others are encouraged to build and provide professional services? There can be a lot of argument about what anyone means about an open platform anyway and where does Mindsphere truly fit in this?
Will this announcement have conflicts within the existing arrangements and who works with whom? (my post refers called “when is a partner, not a partner“) The partnering may have to be redesigned to adjust to this recent move into more integrated services for IIoT. Building a new Business Unit, mostly from scratch, others well established in this space, will be very watchful and keen to highlight differences themselves, reputations and pride will be in play.
Q2 Is this a chase to the higher margin ground of implementing and designing the solutions?
Mindsphere in its present format has been growing well. There has been a considerable up-front investment. I have heard of investment figures of Euro 10billion in this platform. The value of having such a robust PLM software business has been critical in this business to date. Is the PLM road running out of steam?. Although the Digital Twin approach of Siemens is second to none, is the adoption rate not at the levels it should or needs to be? Has the global roll-out been pushed hard enough as they only just announced a really important entry into China with Alibaba for building out the IIoT platform? Are clients you would expect placing their trust in Siemens, especially if they buy their products, yet not extending this cross to digital solutions? My thoughts here in a post “So are clients resisting IIoT platforms -Why?”Are clients lining up fast enough to keep the existing platform offering on a good solid growth trajectory?
There are lots of “ifs” but to make this move into the IoT Integration Service area signals it is simply not enough on the investments made or solutions provided. Siemens needs to shape events more in this area. The service design and architecture services that involve analysis, design, and configuration to support the system architecture in a vast majority of customers are complex and still in the very early stages of digitally maturing. The growth in integrated services and potential margins is attractive but it is for many others already operating in this space. How do you judge a “good return” on building up a new Business Unit in the short term unless it ‘feeds back’ into existing ‘sunk’ investments?
Does Siemens does see a real difference in what they offer; a (rock-solid) platform, significant emphasis on cybersecurity on their platform for a clients security, their growing in-house software applications, digital visualization, and industry-specific machine learning and artificial intelligence capabilities, but are these parallel or better than “pure” consulting companies? There is a strong case here that Siemens are indicating they are putting their money and reputation out there, through their Mindsphere platform and its expanding services in a statement of trust to clients.
Can they expand back their current Siemens strongholds of applicable Software Application, Digital Services, Products, and Systems as well as their deeper understanding of Lifetime Services into Consulting, Implementation and deeper involvement in Clients Operations? Will they be welcome or not, trusted or regarded in the same way as current service providers. That needs some thinking through in my opinion on differentiation to get themselves in pitching these services against very experienced consultants.
The margins in this area are higher, Siemens is signaling a profit pool of 12-18%.
Q3. IT and OT are converging but this does need a new way of thinking?
For years the view has been that IT and OT were converging. The Corporate IT team battling all their information technology issues versus the OT team working through their operational technology changes. The increasing amount of high-tech going into factories, onto fleets, into cars, or in the use of many highly specialized machines for the technical purpose such as robots where integration is becoming absolute key, can Siemens position itself well in all these areas? It certainly can, it can ‘fuse’ technology solutions for complete business solutions.
The whole context of (your) operational business and industrial activities and assets is where the past division between IT and OT just can’t continue anymore. It is the defacto conversions going on that convergence and integration needs to come together that must force this change, once and for all. Security of “everything” has to be on a common platform as the connections, nodes, and sensors are potentially highly vulnerable without a cohesive plan. Can Siemens help in this as it builds out its Charter of Trust around Cyber Security?
So we are heading for convergence and the depth of knowledge within a specific industry, the way a machine works, communicates and is engineered we do need a new “transformation”. Do companies like Siemens leverage their expertise in physical and digital to fuse It & OT in new ways? The challenges of securing data are huge, it is the elephant in the boardroom.
As they have just purchased a significant App developer and have strategic alliances with others they can build the tools to sit within safe environments (their platform) and analyse data, automate it, simulate it, automate it, apply machine learning and AI and keep helping “write” consistent updates to applications needed at ever-increasing speeds in client’s business areas.
So convergence of IT and OT offers those with more of the (mythical) “full stack” to be a partner of choice. Siemens is seeing this or just well positioned to now go and exploit this in their own specific way. Pure consulting Firms do not have this investment in assets or their own platforms to complete, perhaps?
I did recently put up “A case for changing the IIoT platform providers proposition,” I think Siemens is certainly doing that from what I can draw in inference in this announcement.
Maybe we are moving to a different narrative here. One that takes IoT and the data story into the Smart narrative of real business value. This is a topic I am coming back too as mentioned in a separate post soon.
Q4: Why would Siemens expand at a time when GE contracts in this area?
GE is in an awful state today. The story of IIoT and everyone being a digital player was pioneered and pushed by the previous CEO of GE, Jeff Immelt. He had a very ‘expansive’ mind and pocket for GE to build GE Predix. I gave a view some months ago here in “Digital to the rescue or has the opportunity past for GE? The new leadership at the top of GE has been giving a tighter clarity to a new way forward on Predix.
GE through Predix cut out IIoT as a separate market for dedicated solutions and different business models. It opened the way for platform offerings from many others. Siemens was a very fast follower and built its Mindsphere in a very different way. I think it reduced the rhetoric and focused on validating and proving its credentials in a very different way than GE. GE and Predix got caught up in a real Silicon Valley expansion type frenzy but it really woke up the market to the potential platforms provide in designing new business models, accelerating technology adoption and software solutions.
Today GE is going through some very tough reorganizations. It is scaling down, selling off a number of assets once regarded as strategic and Predix has been deeply caught in this “downsizing”; in financial backing, expansion, and scope of services. Many of its internal customers are leaving the GE fold, being sold off. What does that mean for Predix? The latest suggestion is that a number of Predix assets are going on the block
We have learned Predix will not so much go out and attract new clients but solely focus on its existing client base. Now that is massive so let’s not get so caught up in that, but it signals “the end of we will take on the world and dominate” as a mindset. The seemingly open-ended financial flow towards Predix has suddenly been (dramatically) reduced. The top management within GE has given the Predix team a clear directive, to focus on giving priority to the internal digitalization of its own parts and tighten up on the “open to all” stance. It formed a strategic alliance with Microsoft and Azure to lessen the financial and digital burden and recently has been caught up in speculations that “certain parts “ of Predix will be auctioned off (see link above).
So why at this very moment when one, GE & Predix seems to be contracting does Siemens and Mindsphere begins to ramp up even further by acquiring and expanding? Of course, one easy answer is the financial shape of the two. Siemens is in the position to expand, GE is not. It could be the difference in CEO’s in where they are in their tenure and vision of the market, it could be how each went about getting to this point of time, seeing things in very different ways to a future. Whatever the case the different position seems significant, the timing perhaps not!
This might be the hard part to chew over and digest a little more and analysts will be dining out on this for months, if not years.
Predix really flew out of the digital blocks but Siemens seems to be more a distance runner. Thoughtful, reflective, clear of its Germanic roots of planning through in more comprehensive ways perhaps might be part of the analysis but the move into a very expansive and potentially expensive IoT offer, of Integration Services needs designing carefully.
There are far too many “wounded animals” out there, who equally joined the platform chase (about 450 on the last count according to IoT Analytics) and there are some turbulent times in the near future as the markets shake out the weaker from the stronger. And let’s not forget Amazon AWS, Microsoft Azure and IBM Watson and others, all-seeing digital shifts taking place, working through their new design offerings and making attractive deals in this platform market space. These are the 800-pound gorilla’s in this digital space building their own platforms for business but they totally fail to have the manufacturing “chops” in understanding complex machinery that Siemens really has. Having the Physical and Digital is the “twin” that Siemens does have. Take a read of “Have you got your digital strategy sorted out yet”
Siemens seems not scared of a good hard fight but with stated operating objectives to be made clear by the designated leaders in its digital industries area, this move of expanding its services on top of Mindsphere at a time when others are contracting or hurting is a very watchful one for all involved.
Q 5: Is the existing platform Mindsphere robust enough in client validation and use cases?
There has been a number of research investigations into the IoT and IIoT platform business. Many clients are still holding back. Why is that? Whatever the reasons they need solving. Is its legacy issues, a lack of the right type of digitally-savvy resources, a poor boardroom understanding of technologies ongoing impact, or simply a reluctance to undergo such a digital transformation, in cost and disruption.
Clients still do not seem clear on direction, execution or where to place their bets. They are lacking their own in-house talent and seem to have reluctant stakeholders in any digital transformation. Siemens is facing this growing frustration in their expansion ambitions. There is a whole journey of breaking down barriers.
Are Siemens ready or can become fit to take on these significant challenges? As they shape their offer, their “take” of Integration Services based on where they are and what they can offer, will this help unblock the digital logjam?. Perhaps but they need to open up a lot more on the current state of the business to show their credentials in very different ways.
Siemens need to build a new narrative away from the past one.
A very significant part of Siemens digital business has been and still is PLM related. This has been its major plus point, now there is a need for something as big and different. I certainly believe their Digital Twin is one of those but they need to convince more customers of the value of this “twin” and what it can bring in value, efficiency, predictions, and cost saving in avoidance and prediction.
The place to go, in my opinion, is in “smart”: Smart buildings, smart cities, smart cars, smart trains, smart supply chains, smart manufacturing but in owning a “smart” platform that learns, is full of intelligence and smart apps. Mendix is part of this story. There is a need to build a “smart” holistic integrated story.
A platform version 2- smart in design, operation, and service. Now that becomes exciting.
As for the client validation and use case. Like many these seem awfully thin in published outcomes, this alone, unless addressed, will hold customers back. That is of course unless the next wave of platform design becomes like a tsunami that many are unable to ignore then it might be different. In becoming “smart” in everything, being “context-aware, in intelligence and being proactive (a core design feature of Mendix)” then platforms, as we know them today possibly, can make a dramatic shift to a new platform 2 design. Siemens might be able to show a way for the new game to emerge in delivering business value, in “smart” ways, not just data, delivered and supported in highly visual and intelligent ways.
Q6: Siemens has many of the formidable competitors as “partners” in their ecosystem of supplies so how will this work going forward?
I have already partly raised this issue of formidable competitors or partners. I believe platforms will only really thrive when we design them in a more robust ecosystem design. Today there are many versions of what is a “ecosystems” but we have not designed a business ecosystem based on platforms fully, as yet. The whole holistic design of supply and demand are not in true balance. It has been a supply- sided ‘push’ and a client-side “push away”. The reflection on balance, push and pull within the whole system of IIoT needs re-addressing.
Partnerships are the way forward but can you have the platform provider as the chief orchestrator? Yes, you can because the prize is greater than the platform. When the value of the Ecosystem extracting from the platform is greater, you are getting closer to having a better balance and successful transformation towards a new business ecosystem. This is years away and the role of the orchestrator becomes critical to shape and direct this. The orchestrator does not need to win all of the parts, he/she needs to conduct it.
Now will Siemens relinquish parts within the value of IIoT or does it need too yet? The market is still forming
I think it becomes a judgment of how long the maturity path we are in digitalization of IIoT and we might be past the “early adopters”- the visionaries and moving now into the vast majority of adopters of platform business models.
Yet there are a huge number of late majority and laggards still to embrace a true digital transformation. As we seem to be at one of those “crossing the chasm” points the ability to collaborate, partner and build out a reciprocating network is where the future value and growth lies. Will Siemens embrace a different model of ownership and partnership to capture the bigger part of the IIoT market in the future? Time and strategic discussions going on will determine this for the emerging future.
I have been discussing this need to change the Platform Business Model on a number of occasions, recently in this piece “Platform Providers need to think more about Ecosystem Principles and Design”
So the announcement of Siemens expanding its IoT platform offering into Integration Services to support the digital transformation journey of its customers is a potentially bold and ambitious move. It is a fast-growing and attractive market to enter but if they, Siemens, can answer these six questions (and a few more besides) in market-defining terms then I think it has the offering of a “transformation” strategic move.
The next six months as they design this out will be pivotal in knowing if they are addressing these questions and more.