Disrupted but not down

APRIL 2015. HANNOVER MESSE. At a stall in this industrial fair in Germany, the world’s biggest, are Germany’s chancellor Angela Merkel and Indian Prime Minister Narendra Modi. They’re watching the demo of a robot that looks straight out of the Pixar classic Wall E. It’s called YuMi, touted as the safest robot to work with humans. “It can thread a needle, it’s so precise,” the demo says, adding that YuMi was made to assist humans in small-parts assembly in the consumer electronics industry.

But hang on. This is the ABB stall, not some funky robotics company. We are talking of a company that’s more than a century old, which makes electricity transformers and switchgears and other essential but boring equipment. Not a company that makes robots; and not any old robots, but cutting-edge, collaborative robots that the wonks call cobots.

Welcome to the new ABB, as the power equipment and automation major tries to reinvent itself to keep up with the
‘fourth industrial revolution’.

So, even as it makes its smart microgrids and routers and other equipment, it is investing close to 4% of its revenue in R&D that helps in the coming together of equipment, services, and people. That’s IoTSP or the ‘Internet of Things, Services, People’, and it’s a concept associated with ABB more than with any other company. “YuMi is an element in our IoTSP strategy, creating an automated future together,” explains Ulrich Spiesshofer, ABB’s group CEO.

As a concept, IoTSP is hardly new. But as a practical business model, it is a more recent phenomenon, with ABB and other companies that make hi-tech equipment realising that despite the most sophisticated machine-to-machine communication (otherwise known as IoT or the Internet of Things), human intervention is essential to analyse the data and take snap decisions. Even this is a few years old; in India, the Reva e2O car is an example of IoTSP in action: On-board computers in the car talk to a central command computer, and that information is analysed by human engineers who take steps to preempt problems. The e2O was launched in 2013.

ABB had seen the writing on the wall years ago, when it started focussing on smart grids and interconnected devices. It has, for instance, developed products and systems for Energiewende, the German concept of transitioning to new, renewable sources that can be used to gradually transform conventional power supply systems into modern, future-ready systems. It still has its eye on the future, judging by what Spiesshofer tells me. “In future, it is the software and services business that will have a disproportionately higher growth compared with other businesses,” he says. And that means a greater emphasis on embedded software and IoTSP. But, as Spiesshofer said in a tweet later, “Amazing to see how technology is transforming India—the challenge is sustainability”.

The challenge also is in competing with new, and unexpected, rivals. Chief among them are Google and Tesla. Last we heard, neither company was making power equipment, and definitely not at the scale of an ABB. So, what gives? In a word, batteries. Earlier this year, the head of California-based tech company Tesla, Elon Musk, launched Powerwall, a wall-mounted stackable battery system that can store renewable energy for a longer period and at roughly half the cost of conventional batteries. That will, in effect, allow households to go off grid. And there’s Google, which is focussing on renewable energy and, of course, employing coders in all its businesses.

Cheap batteries that can store more renewable power hurt ABB’s bread-and-butter business of manufacturing heavy-duty power transmission and distribution equipment. If more homes go off-grid, there’s going to be less demand for traditional sources of power. Again, not something that’s sprung up overnight, and ABB has tried to minimise the damage by moving into making smart microgrids and by tying up with battery manufacturers. But for all its connected equipment, ABB needs engineer-coders. And coders are flocking to the likes of Google and Tesla, not to manufacturers like ABB.

What’s a legacy company to do? Remember, ABB suffers all the disadvantages of large size and operations spanning multiple countries. What it successfully did, despite these drawbacks, was to pivot into a company making software-embedded products, while continuing with advances in high-voltage direct current, variable speed drives etc.—its traditional stronghold.

In India, the process began back in 2009, when ABB India delivered an energy management system to the Karnataka Power Transmission Corporation. With 16 control rooms and 900 remote terminal units that wired a million connections from and to the state grid, the setup allowed the corporation to monitor and control the entire distribution network covering 16 million people, across an area of 192,000 sq. km. On the face of it, this was usual for ABB, a top choice for states looking to upgrade their grids. But under the surface was a different business: This was the largest power grid installation anywhere in the world that had been built on copious amounts of code.

TO UNDERSTAND WHY THE ABB shift is exciting, take a look at its history. ASEA, the A in ABB, was formed in 1890 when two electrical equipment companies merged to form Allmänna Svenska Elektriska Aktiebolaget. A year later, Brown, Boveri & Cie was set up in Baden, Switzerland, and BBC became the first company to transmit high-voltage power. Almost a century later, in 1988, these two power biggies merged to form what we know today as ABB. Starting off with revenue of $17 billion (Rs 1.07 lakh crore at current rates), the company has grown to $40 billion (2014 revenue) by focussing on five key areas: power products, power systems, discrete automation and motion, low-voltage products, and process automation.

By the mid-1990s, there was pressure on various countries to reduce their carbon footprint, and one of the solutions was to promote non-conventional and renewable power sources. Solar, hydel, and wind power began gaining popularity, and ABB realised that it could not put all its eggs into the thermal power basket. The company began serious work on four growth sectors: microgrids to provide power in remote areas, renewable energy, building smart grids and wireless communication technology for creating smart cities, and strengthening power transmission and distribution network. Its innovation pipeline includes digital software, environment-friendly insulation gas, ultra-high voltage AC and DC products, and shore-to ship power supply.

ABB India is 73 years old, but shows little signs of ageing. Instead, it is, in many ways, leading ABB’s global transformation story. Its factories, while focussing on the core business of producing switchgears and transformers, have also been expanding into smart microgrids, deterministic software, and other products with software embedded in them. ABB has more than 9,000 employees in India (of which 3,000 are engineers with software skills), spends $100 million on R&D every year, and has opened a global operations/engineering centre and its largest development centre in Bengaluru.

India has assumed even greater importance for ABB with Bazmi R. Husain, managing director of ABB India, assuming responsibility as the parent company’s chief technology officer. In that role, he will be responsible for all of ABB’s global R&D. According to the parent, Husain will be based out of Bengaluru, while also having an office in Zurich. His successor in India has not yet been announced.

I meet Husain in his office on the 21st floor of the World Trade Centre in Malleshwaram, Bengaluru. Windows going up to the ceiling offer visitors a breathtaking view of the city, but I am more interested in the transmission lines snaking from one end of the city to the other, lighting up houses, shops, malls, and factories all the way. It’s a great piece of urban landscape, but it’s also a sign of ABB’s clout in the transmission and distribution segment. If the government’s vision of generating 176 gigawatts (GW) of renewable energy by 2022 from the current 36 GW becomes a reality, what will that mean to ABB? A lot, I believe.

I ask Husain what he thinks of homes going off-grid with innovations like Tesla’s Powerwall. “It is a challenge,” admits Husain adding that the distinction between producers and consumers has blurred and we have a new class of “proconsumers”, with some countries having more producers than consumers. Does that mean ABB will enter the same space as a Tesla, I persist. I get an answer from Spiesshofer, who is clear that ABB will not be making batteries. Instead, the Swiss company has entered into a partnership with Samsung, which will make storage cells. “In some cases there will be co-existence, in others competition, and in some cases it will be co-operation,” he says, explaining ABB’s strategy in the renewable energy space.

RENEWABLE ENERGY, SAYS Spiesshofer, “is one of the most challenging and dynamic places to be in for a technology company like ABB.” I talk to people in ABB and to independent power experts, and realise that the complexities can, indeed, be mind-boggling. How, for instance, do you predict when the wind will suddenly die down or the sun disappears for long periods behind thick clouds? The amount of wind or solar power flowing into the grid will vary depending on this. So anyone who owns the information that goes into the grid becomes hugely important. It seems obvious, but Husain says it’s getting increasingly important. “A person who can accurately predict the weather will be perhaps the biggest asset for any power company, because it will enable it to sell power when prices are at the highest and cut down production when it hits rock bottom,” he explains.

There are trickier questions, too. For one, how do you know when a consumer will stop drawing power from the grid and start feeding the grid? That has to be resolved on a technological level, as well as on a pure business level. And that will call for the development of digital grids—something that ABB has been experimenting with for the past 10 years.

ABB, globally and in India, is using IoTSP to help it manage these new challenges. I visit the global R&D centre in Bengaluru’s Whitefield area. It’s a five-storied blue glass-and-steel building that looks no different from dozens of others in the area. Inside, however, is where Industrial Revolution 4.0 is happening. Spiesshofer uses that phrase often in the course of our conversation, calling it a “technological revolution that has the potential not only to transform businesses worldwide, but herald the dawn of a new industrial age”.

It all sounds a bit over the top, but then I enter the Robotic Service Intelligence Wing on the ground floor, and I begin to see where Spiesshofer is coming from. I am greeted by the sight of a five-foot-high industrial robot that’s kept moving to show visitors like me how it can pick up and move objects, over and over and over again. It’s like an assembly line in one unit, only faster and way more efficient. And it doesn’t need tea breaks. I’m pretty impressed with this, but the rational part of my mind tells me that this isn’t really groundbreaking stuff.

I meet Akilur Rahman, head of the corporate research centre, who seems to sense my unexpressed scepticism. It’s not just about building efficient robots, he explains. The technologies developed at the centre “enable customers in industries, utilities, and infrastructure to analyse their data more intelligently, optimise their operations, boost their productivity and their flexibility,” he tells me. That bit of proselytising doesn’t really do the job; so Rahman sends me off to the fifth floor, where there’s an ‘experience centre’ set up to show IoTSP in action to doubters like me. Full disclosure: I come away convinced.

In the experience centre, I see control systems monitoring and controlling a steel plant in eastern India. Everything, from the temperature of the furnace to the speed of rollers and shearing equipment, can be controlled by an employee sitting in Bengaluru. And speedy response is essential: the steel plant produces 38 metres of steel every second, so delays will cost it. That’s where split-second human intervention coupled with almost instant machine response comes in.

For instance, explains Peter Terwiesch, president, process automation division and head of the IoTSP programme, if you are an owner of a paint company with factories across the world, it is not possible to have a super specialist sitting at all the units. However, by looking at the real-time data generated on the central controller, the human expert can make an educated guess on the health of the plant or equipment, and advise the company if it needs to replace parts or processes. People, says Terwiesch, will always remain central to any technological breakthrough. “They will always remain the decision-makers, the program writers and controllers with the ability to change the production process and activities of things and services if the need arises—and that too from a remote location.”

“This triangle of interconnectivity between machines, services, and people can drive up productivity by 30% even in the most highly industrialised nations by ensuring higher productivity, greater energy efficiency, and increased safety among workers,” points out Terwiesch, who is also a member of ABB’s group executive council.

Today, 50% of ABB’s revenues come from embedded software products, although it cannot be defined as a regular information technology company like an Infosys or a Wipro. ABB’s software is far more complex and rugged than those written for enterprise and business processes because it has to work for four to five years without any interruption.

Spiesshofer says this could prove good news for ABB India in the context of the Make in India campaign. “It is not about making something cheap, but about making it right. It is about having the right value additions,” he says.

THE BENGALURU CENTRE’S mandate is to develop the next generation of intelligent and versatile robots, with far greater cognitive powers, interconnected devices, smart automation systems and processes, and smart grids. The smart equipment developed here will go to help ABB cope with the growing complexities in the power, automation, logistics, and infrastructure businesses.

It has also been asked to reduce development of cycle time and costs of equipment and processes for all its divisions such as power, utilities, logistics and infrastructure. These include cybersecurity for substations, wireless technologies to monitor inaccessable areas like underground mines, smart grids and microgrids code analysis, and developing state-of-the art robotics.

Today, large amounts of data generated from various intelligent machines—those embedded with a large number of sensors and actuators and communicating with each other—allow Rahman and his team to analyse, diagnose, and maintain systems and processes of their clients’ plants, utilities, and machines across the world from its office in Bengaluru, using advanced data analytics and cloud computing. “It allows us to make diagnostic and predictive analysis based on the behaviour of the devices,’’ adds Rahman.

“By looking at various data points and messages that pop up on the screen on the main controller, we can make authoritative guesses about the health of the robot and even warn companies of impending breakdowns,” says Prasad D.N., department manager, discrete automation and lower-voltage products. He adds that if a problem is with a remote robot or with the production process, his team calls the client company and the process is fixed. Can’t the fixing be done remotely, I ask. Sometimes it can be fixed from the ABB Bengaluru office, says Prasad, but Indian companies prefer human intervention.

Globally, the acceptance of robots in the workplace is higher, and there are robots that work alongside humans in small-parts assembly units. However, safety concerns meant that the robots would be kept apart in a cage. That’s why YuMi could be a game changer. Loaded with machine-learning capabilities, YuMi can work hand-in-hand with humans.

Rahman and his colleagues in Bengaluru have been given the job of updating, upgrading, and tweaking YuMi to allow the robot to adapt to an even wider range of jobs.

Globally, ABB spends roughly $1.5 billion on research; of this, $100 million comes to India. With Husain’s new role, and with Bengaluru assuming far greater importance in the parent’s operations, this amount could go up. And that’s not all as far as India is concerned. In future, the company will drive profitable growth by shifting to high-growth markets (read China and India), enhancing competitiveness, and lowering risk in business models.

COMING back to Spiesshofer’s pet phrase, Industrial Revolution 4.0, I wonder if IoTSP is enough to take ABB there. Will a focus on human-machine interaction and smart robotics to make the $40 billion global company (India revenues of Rs 7, 707 crore, profits of Rs 229 crore) significantly larger? The goal of all industrial revolutions so far has always been increased productivity and profits.

And that’s exactly what he plans to do, with IoTSP driving the company’s next-level strategy. In the next five years, the company hopes to grow at a compounded annual growth rate between 10% and 15%; grow revenues between 4% and 7% each year, and operational profits by 11% and 16%. Moreover, it expects the robotics division to bring in 14% to 19% of the revenues, process automation 11% to 15%, power products 12% to 16%, and low-voltage products 15% to 19%.

The first industrial revolution started with the steam engine and the industrial loom, and heralded the mechanisation of industry in the early part of the 18th century. The second began when Henry Ford started producing cars in an assembly line. And the third was in the mid-1970s, when electronics and software-based controls of systems revolutionised the production processes in industry, moving it from mechanical to digital. And now, data analytics, cloud, and the Internet itself are being used to ramp up productivity.

While ABB has been using robotics in one way or other for at least a couple of decades now, its emphasis on IoTSP is more recent. It’s still a company that’s making the bulk of its revenue from traditional power equipment and switchgears. But it’s the process of getting a giant future ready that’s fascinating, and if Husain and his team in Bengaluru have their way, the process will also be profitable for the big daddy of power equipment.