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GE’s Chief Economist: Why the Industrial Internet changes everything (Part 2)

June 10, 2014
Missed Part 1? Read it here. 
GEreports: Let’s talk about manufacturing. What role does geography play in the economics of manufacturing today? 

Marco Annunziata: You have to look at two things when you’re deciding where to do your manufacturing.  How important is it to be close to the market, close to the customers, and how important is it to be close to the talent? We’re now gaining initial degrees of freedom once you bring advanced manufacturing into the picture. Because advanced manufacturing allows you to do two things. One is it gives you techniques of production which can be economically, effectively efficient at lower scales. If you think of it, the classic example is 3D printing.

A 3D printer is something that can produce different pieces depending on how you program it. It gives you more flexibility and at the same time, thanks to visual communication you allow the factory that employs these advanced manufacturing technologies to be better integrated with the supply chain. So this starts to give you more flexibility on the scale of your operations and where you position them.  So once you consider the cost of transport versus the cost of labour versus the cost of technology – all of a sudden you will be able to optimise across these factors and minimise the whole set of costs that go into the equation: the optimal location is here and therefore we will do it here.

GEreports: How critical will 3D printing and other advanced manufacturing techniques be for GE in the future?

Marco: They will be extremely important. You start off by building a few parts and you realise the potential of these techniques. It allows you to speed up the cycle of design, prototyping and production.

Future of work


GEreports: The future of work is another thing that GE cares a lot about. Tell me about your research in this area.

Marco: This is an ongoing research project with my colleague, Stephan Miller, who is our Chief Manufacturing Scientist. We published our first paper on the Future of Work a month ago, where we articulated a framework for all the changes that will transform in the centre for the economy over the years. This view is really composed of three pillars. One is the Industrial Internet, the second is advanced manufacturing, and the third is the global brain. The global brain is about how companies start to tap crowd sourcing. Basically the way companies like GE begin to leverage talent that lies outside the narrow borders of their own direct workforce. This is another fascinating transformational change.

GE worked with GrabCAD recently, one of the open source crowd-sourcing platforms, on an innovation challenge to develop a lighter jet engine bracket. So, here’s a component, relatively small, relatively simple, but crucial because it fixes the engine to the airplane. We’d like a new design for this which must be 3D printed.  We had a large number of high quality designs submitted and we made some eye-opening discoveries. One is that the top 3 designs were submitted by people who had no background in aviation, none whatsoever. The top design was a sound engineer from Indonesia who provided a design that reduces the weight by 80% - something our own engineers had not come up with.
"...changes that will transform in the centre for the economy over the years."

/><br /> <br /> <em>Advanced manufacturing technologies will transform the future of work. </em><br /> <br /> <strong>GEreports: </strong><em>That must have been a humbling day for them? </em><br /> <br /> <strong>Marco: </strong>It was, and it’s eye opening because all of a sudden you realise that the competition can get better results much faster. Now, if you ask me as an economist, it’s obvious because it’s intuitive that the broader your talent pool, the better the outcome will be. But from the point of view of the company, it has some powerful implications because it means that for a company like GE that traditionally has done research in-house, all of a sudden you realise that by opening it up, things can happen a lot faster. Then you take the next step, which is to think that if things can happen much faster somebody will do it much faster. You have to take into account the risk that somebody else will do it instead of you and they will start jumping ahead of you.<br /> <br /> <strong>GEreports:</strong> <em>A start up?</em><br /> <br /> <strong>Marco: </strong>A start up or a different company or somebody else who steps in as an intermediary between the scattered distributed resources of companies like us.<br /> <br /> <strong>GEreports</strong>: <em>The idea is great but how do you make it sustainable?</em><br /> <br /> <strong>Marco:</strong> This is what we are researching and thinking through right now. If you think of doing this on a broader scale, then you’re asking people to potentially give you a contribution that might change the competitive edge and profitability of the company for the next 10 years.  Now if I’m a young engineer sitting outside I’m going to want to have a different incentive. I want to have a piece of the action, a piece of the upside.<br /> <br /> <strong>GEreports:</strong> <em>Intellectual property.</em><br /> <br /> <strong>Marco:</strong> Some IP, and have some equity stake. So we need to think of a different kind of incentive scheme.  We need to think of how to protect the IP because, again in the jet engine bracket example, you tell people, “This is the existing design and we want a better one”. But if you want the crowd to contribute more you have to open up a bigger piece of your operation.  You have to show them a bigger part of the project if you want them to understand it.  How do you protect your IP?<br /> <br /> <strong>GEreports:</strong> <em>So it sounds like you are trying to find out how to create a more structured innovation community, for want of a better term. Is that where we’re heading?</em><br /> <br /> <strong>Marco:</strong> It is, and we’re trying to figure out what is the best way of creating this. Part of the beauty and the power of crowd sourcing is the anarchy of it, the fact that anybody can jump in and therefore contribute. But it can’t be complete anarchy – it has to work for GE.  So you do need some regulations, some rules. Both in terms of safeguarding the intellectual property but also in terms of making sure the things work smoothly.<br /> <br /> <strong>GEreports:</strong> <em>Before we wrap up let’s talk about economics. If we look at global growth it’s actually quite small in percentage terms. Realistically how can business leaders think about stimulating growth in this environment? </em><br /> <br /> <strong>Marco:</strong> Part of the solution for me is going back to basics and realising as business leaders that growth starts with innovation.  It starts with creating things with greater productivity.  More and more business leaders understand this and it’s why you see it – you see it all over the place, and you see it in Australia. Great focus by business leaders to create more efficiency and productivity. The second thing is business leaders need to push this agenda at the national level. That will help political leaders and governments understand that to unleash innovation you need frameworks, policies, and regulations that allow the market to flourish. You need to invest in education, you need to invest in policies which are sustainable.<br /> <br /> Something that worries me as an economist is that in a number of countries, especially advanced economies, the temptation is still to look for easy solutions. The temptation is still to think, well, growth was great in 2006 so why shouldn’t it be great now, we have the same policies we had back then? And the answer is because those policies were wrong and that’s why you went through a crisis [in 2008]. Now we really need to go back to basics and focus on innovation, technology, infrastructure, education and here is where business leaders can play an enormous role, not just in their own operations, but also in driving the debate. The only way you can keep ahead is by having a large enough number of smart people who can push the process and stay ahead of the game.<br /> <blockquote>
GEreports: Thank you very much. 

Marco: Thanks a lot, it was a great pleasure.

 

Click here to read Part 1 of Marco's interview with GEreports.