[MUSIC]
Rob Charter, welcome to Stanford and The Industrialist's Dilemma, thank you so
much for coming.
>> Thank you, it's a pleasure to be here.
>> Now, Rob, you're a group president at Caterpillar, what exactly does that mean,
and what is your job at the company?
>> Okay, there's five group presidents, I'm one of those, reporting to the CEO.
And my role is really several.
I look after our independent dealer network globally.
So we have about 175 dealers around the world.
I look after the aftermarket business on behalf of their end to-end businesses.
So across the organization I look after our marketing,
digital analytics group, so a variety of things.
>> That's a pretty wide spread.
As you look at your channel, how is your channel changing giving some of
the changes of what's happening with machines and automation, how
are the people that you saw through being impacted by technological innovation?
>> I think it's like all of us, they're learning to adopt in change,
they're given more skill sets typically in digital space,
they're having to work in an environment like all of us, it's constantly changing.
And so, they're evolving like the mothership or
caterpillar is in the same way.
>> How much are you having to guide them down the path that you want to go?
All of us are creatures of habit.
And I would argue Caterpillar puts the dust in industrialist dilemma.
You're really digging in dirt and the like.
How do you bring them into a technological world which drives a lot of the products
and services now that you offer to the end users?
>> So we have a variety of sizes of dealers.
We have dealers that have revenue stream of $50 million a year up
to $5 billion a year, even 6 sometimes in peak years.
So there's some big companies there and some small companies.
We work very closely with our dealers most of them are multigenerational dealers when
they're private.
So we're very close to them,
they're quite innovative entrepreneurs in their own right.
They do a lot of development in the digital space by themselves.
Quite often then they rely on us to do that, as well.
So it's a mixture between their entrepreneurial spirit and
us as the center body.
In some respects where we need scale.
We're are looking for some domain expertise,
sometimes it us needs to develop at technology for them.
>> How do you think about the impact of digital and data on your business?
For you no longer just selling of variety of equipment for the construction site or
a mining site.
How are your business change for the next five to ten years?
>> It's an interesting question, and I was thinking about this before I came in.
So a lot of people don't understand, we've been in technology for long time, for
92 years we've been a company.
We started our autonomy program over 30 years ago.
We put our first commercial autonomy product out into the customers
hands 20 years ago.
And in 2012,
we moved a 1 million tons of war with their customers in an autonomous trucks.
So if you think about technology, we've been in that space a long time.
We have semi-autonomous machines today.
I remember back at that 20 years ago, we connected our first machines
either by satellite or so we've been doing data transfer for a long time.
I think the change now is speed.
>> Okay. >> And the ability to take
vast amount of data, and turn that into actionable items.
And I think that's what's really changing.
And the ability to adapt to that quickly.
And actually add value to your customers, is the big challenge we have today.
>> So how is Caterpillar looking to use data?
To impact your behaviors and behaviors of the channel,
or the behaviors of the end user.
>> So we start
somewhat different from some of the other people that we compete against.
In my mind we start trying to solve customers problems, or
trying to improve the customers efficiency and effectiveness.
>> Mm-hm.
>> And then, if you think about that, the more you do that using technology,
the more loyal they become to you, the more machines you sell,
the more parts you sell, the more engines you sell, and so forth.
So we really, really focus on that space.
Now, we do that through looking at productivity.
How do we make our product more productive?
And the interesting thing in technology today is if you think about productivity,
you can gain like 30% productivity improvements,
where from traditional engineering you may gain 5 or 10%.
So it's a big, big shift.
So that's one.
We look at availability.
>> Yep. >> How do we keep the machines up and
running?
How do we do predictive analytics to make sure that we know if something's going to
break that we have the right parts and the service people and all in the right space?
So we look at all of those areas, and
then we look at the customs business in a whole and say from the societal enterprise
point of view what tools do you need to quote better, to run your jobs better and
do postmortems better so you can get better and better as you go forward.
So we look at all those areas.
>> So on the first one, do you actually get data from the machines that come back
to Caterpillar, that you can figure out best practices?
>> Absolutely, absolutely.
>> And then, when you go back to a customer, what are the types of
things that you tell them to do differently, based upon what you learned?
>> So we do few things, it's complex right [LAUGH] so
we do a few things in that space.
We'll do things onboard where we'll look at an operators technique and
we analyze that and we actually can do live onboard
feedback to the operator to keep improving their performance right there and then.
We look at fuel burns, we look at cycle times, we look at idle times.
We look at when they're being productive, how they're managing their fleet,
are they stacking, are they not?
All these sort of production elements to say, how do you optimize that fleet?
We would do that directly into dashboards back to the customers or
then into insights and how to improve.
So we do a lot of work in that space.
>> In a business that's highly cyclical, Caterpillar's always had this cyclical
business depending on the broader economy and right now we're going through a very
tough one with the falling commodities especially in China.
How do you make sure that you have the resources to invest in a lot of these new
technologies in new areas,
when the role of management also is to make sure the core business stays healthy?
And is executing.
>> So [LAUGH] you taste the industrial dilemma, right?
So that's one of the hardest parts.
>> Mm-hm.
>> I think, what we've really focused on and we've been through 4 years of topline
degradation, which is the first time in our history, in 92 years.
And it really started with that super cycle coming out of China, and
mining came off, and then oil and gas came off And
construction in developing countries came off.
Brazil imploded.
So lots of things all at once, which is extraordinary.
Usually we have a few kind of cyclical activities.
What we've tried to do right through this is right size the business for
what the actually business is today.
Making sure our resources are appropriately structured,
which has been really painful.
We've moved, lost about 30,000 people since 2012 but
we've been really conscious to protect our R&D.
>> Mm-hm.
>> And because if you don't protect the R&D, this cycle just extends
further as you come into the up cycle in going to a new product introduction.
You fall further and further behind.
So we're being very conscious to protect that as much as we can.
We've had to make some changes, but over all we've really kept it intact.
>> On the R&D side, where do you hire?
You mentioned to me earlier that you got global R&D centers, and so
you're now at the point where you're probably competing against
traditional technology companies for engineering talent and the like.
So where are you looking to add personnel and what are the skill sets that you're
looking for to bring on board that maybe you didn't have before?
>> So it's changing.
I think code.
Traditionally we've been very strongly into mechanical engineering and
engineering in general.
So we hire engineers in obviously the US predominately.
We also hire them in China In India,
in Europe, everywhere we operate we bring engineers in.
So we have several R&D centers around the globe for that.
The new skill sets we're seeing more and
more of today is obviously in analytics and data technology, so that's
something you usually don't hire normally down in Priori and Midwest Illinois.
And while we do do some there and we have great people,
we are also hiring in other parts of the US including here,
and in Chicago, in Dallas, and all sorts of places.
So we look everywhere and we're changing the way
we operate to accommodate the talent and where it comes from.
>> As your business changes, you get more into these value edited services and
the like, how do you determine what business Caterpillar should be
in versus what do you need to partner?
And maybe how has that changed over the last decade and
where do things you maybe need to bring in house?
Or you know realize you can't do it in house and
you need to partner with the outside.
>> So it's a really interesting question.
And it actually applies to hard iron as much as soft iron or software.
So if we think it's proprietary or
we think it's going to be part of our core, we bring it inside.
>> Okay.
>> And we can do that through acquisition, or hire, or organic growth.
Where we're trying to, I think,
learn a new skill set or a new way of doing things.
Quite often we'll partner in that space and we'll learn those skills.
because we don't have them inherently inside and it would be very hard to
integrate that immediate, we tend to partner in some of those spaces.
If we don't think it's a proprietary, or
if it's more commoditized, we'll certainly go outside for that.
>> Is there anything that you see happening in the last few years that,
historically, wasn't proprietary?
But you think may need to be in the future,
because it's becoming core business to what you need to serve your customer base?
>> I think in the digital space there's more skills there than we've had
in the past.
We've had a lot of skills in that space before.
But if you think about the way industrial iron,
or capital assets are going, the hot iron is getting dumber.
>> Mm-hm.
>> And the computers are getting smarter.
>> Yeah. >> And so, that actually shifts your focus
around that the engineers that could invent complex valves and
complex plumbing, we made that a lot simpler so
that you can outsource that a lot more than you used to.
And how you control that and manage that is far more important so
you need to bring that inside.
That's the big difference.
>> You recently developed,
the company had a relationship with Uptake in the Chicago area.
Can you talk a little about that and why did you decide to partner with Uptake?
>> Well, to me, a couple of reasons.
We're looking for some solutions that we tried traditional ways many times and
failed, both internally and what I'd call more normalized large outside companies.
So we're looking to do something different.
We're looking for
a small, agile organization that can bring great talent together.
And we really wanted to learn a different culture, which we certainly do.
Brad Keywell is a really dynamic guy,
he brings really great talent.
They are really of that start-up mentality.
You've got a mature company of 90-odd years.
That's very cautious about what they do because their customers are the same
customers tomorrow as they were yesterday and we have to be very reliable.
So you bring those two cultures together you learn lots.
So it's not easy but it's fascinating and it's challenging.
And I think we teach a little bit about longevity and
how you deliver quality product over a long period of time.
He gives us agility and fresh sort and rapid approach.
And so, those two things have really helped us.
We've learned a lot from each other.
>> When we had Beth Comstock from GE with us a few weeks ago,
she actually said this was the hardest thing that they've dealt with as
an organization- >> Yeah.
>> Of being an industrial firm and then bringing in a digital mindset.
What's been the biggest surprise to you,
as you think about the changes that you've had to internalize at Caterpillar and
maybe what uptake or others have taught you?
>> I think the spade cycle is a big thing.
So doing sprints in two week cycles rather than.
And we're getting faster and faster because the world demands it,
but we're used to, three to five year product cycles, and
how do you bring that along and test and prove and perfect, hopefully.
But certainly the intent is to be perfect out of the box.
And I think what we're learning from these companies is what's a good enough product.
Get started, get it out into the field, get it right as you go along,
do these sprints.
And the mindset's different.
>> Yeah. >> The mindset also for
some of these companies, and I'm not being specific to uptake, or anyone is.
How I think of a business model.
We think about the sustained business model over a long period of time.
There's certainly a transactional model of his value, you pay for it.
Where some of these companies that we've dealt with are definitely about how
do I establish And valuing in the company.
Now, I might not earn any money, but how do I establish this value
when I can run it into an IPO and spin it and do it again?
And that's a completely different behavior or mindset to us.
So that's been interesting.
[LAUGH] >> So as you think forward to the next
decade, where do you think the growth drivers will be for Caterpillar?
What are you betting on, on a go forward basis,
that'll continue to get back in the upswing of the organization?
>> We definitely have always been in cyclic businesses.
And so, we see there is an upturn in cycle that's natural,
that will come, just an cycle.
So we see that as a normal.
I do see that I think the continuation of speed of technology and
what you can do with to look at the total job your customer's doing and
help them get better and better and more efficient is going to continue with us.
I see a long train for automation or semi-automation,
let's say, operate or assist all the way to full automation.
I think that will continue, it's just a natural.
So you get less skills, less people wanting to do that type of work.
It's going to drive to more automation.
So I see that as a big change.
But we see a tremendous growth in the industries we serve.
We're in lots of industries, they're all
industries that are bad infrastructing, improving people's lives, and
we just see that is an endless opportunity around the world.
So it may move from country to country, but we see a great opportunity.
So we're quite optimistic about the future.
Even through this difficult time we've been through.
>> Do you think if you and I were sitting here in five years,
that your sales mix might involve more services and
the selling of data services to your customers?
Or improvements perhaps in their actual performance, and getting paid for that,
as opposed to just selling the iron?
>> I think a little bit.
I've thought about this a lot the other day, actually.
When we think about how we help a customer, in the old days,
we used to help a customer plan a job.
In paper.
[LAUGH] Plan a job, think about the equipment they use,
design the job, do the job, and then postmortem.
And it was a very analog, mechanical way.
What we're changing to today I think is, shrinking that time frame down and
making a lot of it digital and
thinking about it in a way that's far more connected than it used to be.
But it's very similar work, it's just in a different way.
So I think that's true.
The other thing I think is because of the analytics you can apply to this
vast amount, there's enormous amount of data.
All that data we bring in to the company because of that,
there are opportunities were you can say I can help you in this area.
And this year and
this year where I couldn't before because I get insight from around the world.
So I do think it broadens into more services, but
I don't think it's a pure services client that we want to play.
I think we're really saying we see our core as being really similar but
we expand that and we use technology to actually speed that up.
>> Final question for you.
What keeps you up at night about this transition to your products becoming more
digital, information services playing a much larger role than it has in the past?
Again, Caterpillar is a company which is at its
most core foundation digging in the dirt.
>> Yep. >> And so,
now you're dealing with ones and zeros and everything else, and
what keeps you awake at night as you think about moving the company
from where it was in the past or it needs to be in the future.
>> Probably two things, speed is one.
I think it moves so fast and the whole process and
the evolution moves much faster.
And how do you keep up with that?
And how do you keep abreast of what's coming?
And in the same token of speed, I think that lays over to disruptive influence,
where the disruptive's going to come from.
And I'll give you a great example.
We have a network of 175 deals, like I've 2,200 branches around the world.
We have 21 past distribution centers.
So we've got this massive network, bigger than any of our competition,
of how to support the product.
And then, you go and do additive manufacturing.
And we're working very hard in that space and thinking about when the technology
will come on to be commercially sensible to replace traditional methods.
And how you're going to run your business model through that.
I mean, they're big questions, and they really change the world.
And we've kept abreast of that.
And we've gone early and then said, no, it's not ready yet.
Picking the right time to do that and
then making sure you have the business practices and
the change management in place, there are things you gotta think about a lot.
>> Definitely interesting times, Rob Charter, thank you for joining us.
>> Thank you.
>> Thanks for coming to Stanford.
>> Thank you very much.
[MUSIC]