Çağlayan Arkan presents the Art of Possible: What’s next for industrial innovation with Honeywell
(upbeat music) - Hello and welcome. I'm Çağlayan Arkan, Vice President of Manufacturing at Microsoft. As manufacturers continue to address the massive disruption from the pandemic, they're looking to the future.
Digital transformation is happening faster, it's happening within every area of the core value chain from R&D, Design and Engineering to factories, to the end-to-end supply chain. And it's happening with Sustainability top-of-mind across the board. This is an evolution from years to months, and even weeks in some cases in terms of the speed of transformation and Time to Value. Driving this are disruptive technologies such as the Cloud, Artificial Intelligence, Industrial IOT, Mixed Reality and the list goes on. Smarter, more agile systems that help machinery adapt in real time to changing conditions are critical to today's era. Being able to maximize IOT data, turning AI powered business insights into business value quickly, and business resiliency and continuity all very, very critical.
So today, we're talking about how these capabilities are shaping the future of industrial manufacturing and supply chains. With me here today is Stuart Morstead, Vice President and General Manager of Honeywell Connected Industrial. I am pleased by the progress we're making as a partnership building on the foundation on our already longstanding relationship with Honeywell. I'm delighted to see Honeywell transforming fast as a company while helping Honeywell customers accelerate how, and as they transform with the Cloud.
Stuart welcome, thank you for being with us here today. - Thanks Çağlayan, great to be here. - So Stuart, let's start by getting to know you a little bit. Your background, your role at Honeywell. - Sure.
So at Honeywell today as you mentioned I'm the Vice President and General Manager of Honeywell Connected Industrials. In that capacity I have the privilege of leading a 1300 person global team every day. And we're very focused on, as we like to say, our mission is to help our customers have their most efficient, safest, productive, best day on the job. And so while much of that is focused on a heavy industry, and we have a sizable presence as you know, in oil and gas, we're also increasingly doing work in minerals and mining, also in chemicals and other asset intensive areas. Personally, I've got 30 years plus in the oil and gas patch. I like to say I cut my teeth coding on an IBM 30/90 back in the early 90'S CICS and COBOL.
Most recently I came to Honeywell from Arundo Analytics where I co-founded, and was the President Chief Operating Officer for five years. And prior to that, spent a couple of decades in management consulting including a decade at McKinsey. I think what we're most excited about today in Connected Industrials is the opportunity we have to push much more aggressive posture around open systems, to push much more aggressive posture around open systems, around Cloud deployment models, and really getting to the promise of a connected enterprise. - That's fascinating.
And I was excited to see you join Honeywell together with a number of executives joining Honeywell. I know you're there for a reason. What's the vision Stuart? - Well, I think it is a bit of what I was describing. I mean, we have an extraordinary history at Honeywell. It's a tremendous brand, out in the marketplace every day delivering value, and have been for decades.
I think as we look at the future, I think the future is it's more open, it's more extensible, it's about interoperability, it's about having the right ecosystem. For the techies in the crowd it's probably a lot more API driven and less proprietary. Our customers, like Honeywell, are going through tremendous transformation at this point.
For the paleontologists in the crowd I would joke it's sort of a Cambrian moment. We have this massive explosion of innovation. We've got the compressing cost of storage and compute, democratization of data science, proliferation of sensors, and all that kind of comes together in this Petri dish which allows extraordinary, its extraordinary opportunity but also risk. And we think that our experience, And we think that our experience, the domain expertise that we bring, the history of execution coupled with things like data-driven models, AI, et cetera, et cetera, we have the right sort of alchematter to really help our customers. We've been talking about digitization, Çağlayan for 5, 10, 15 years, and we continue to sort of say it's this new, new thing.
I think I've got one customer said to me, "Stuart, we got," he said, "I've got more pilots than Lufthansa." But we need to change, the game has got to change. And I think when we're coming out of the pandemic that we're in currently, I think there's going to be a more acute focus on ROI. There's going to be a more acute focus on accountability. And so I think well, to maybe paraphrase Churchill, it's not the end, it's not the beginning of the end but it might just be the end of the beginning as we sort of get in the latter half of 2021.
We're going to see some real shifts. But coming back to your original question, I think the future for us and for our customers, it's ecosystem driven, it's extensibility, it's openness interoperability. And it's also going to be far more data centric than it's been in the past.
- Love it, love it Stuart. Honeywell is such a powerful brand in this whole kind of, if I may categorize it as industrial space. But when you look at, I don't know, cockpit share and aerospace, when you look at the footprint and the market share in the buildings and facilities around the world, in industrial, in chemicals, you alluded to some of the verticals yourself. What are some of the trends that you're seeing if you want to go a little bit deeper in terms of the transformation that's happening to some, perhaps specific to some of the clients or verticals, what are some of the things that you're hearing from your customers? - Yeah, well look, it's a dynamic lively environment to say the least. And I think you're right by saying that there are specific nuances related to every vertical. But if I were to sort of step up, I think one thing we see across the board obviously is increased volatility.
Unprecedented changes in the macro environment whether that's COVID or the impacts on supply chain, regulatory shifts in different environments, commodity volatility. All these things are forcing executives to think through their cost structure, how to variabilize it. And it's also sort of pushing the question of how do I create a telescopic view of my entire value chain? So in other words, how can I at success at levels of granularity enable that site leader to see the units under his or her control, a plant manager to see across maybe multiple different units.
A VP of operations see across many different sites. And then ultimately in the C-suite, how do I get information across all of those elements? And we think of that in terms of enterprise performance management, it's something you're going to see more from us in the coming quarters. So that's one thing.
I mean that's just traumatic volatility. Also, it's hard to have a conversation these days without mentioning Sustainability and ESG. I hosted a panel a couple of weeks ago with one of your colleagues, some very insightful thoughts from Microsoft around what you're doing on the whole topic of ESG. But look, we've been at that since 2004. I mean our head of Sustainability at Honeywell has been with the organization 17 plus years. It's a long journey but we're now seeing in many stakeholders stepping up and demanding, there's expectations from investors in other parts of the community around seeing commitments around to get to sort of net zero on carbon emissions.
And when you then break that down further sort of beyond that general sense of Sustainability, and commitments like that, when you take it down to a specific vertical level, you see very high demands from a variety of stakeholders. you see very high demands from a variety of stakeholders. We take mining for instance where resource consumption issues like water conservation, energy efficiency, these are all absolutely critical to running the business. They're critical to the communities in which these businesses operate. And they're increasingly a critical part of the way that the performance of the organization is monitored. And importantly for us and importantly for Microsoft, there is a tremendous opportunity with the solutions that we're jointly developing to address, to both facilitate and then create transparency around that.
I think electrification sort of generally across these areas and energy consumption is another area. We're seeing hydrogen as sort of the topic of the day, whether you're talking about blue hydrogen, or green hydrogen, or gray hydrogen, seems like every day is a new flavor of hydrogen. But this is a sector where if you look over the next 10, 15, 20 years, it's going to explode in growth. And so when we talk about Sustainability as being a significant trend that all stakeholders are focused on, there are different nuances by vertical. are focused on, there are different nuances by vertical.
But we see an opportunity to apply solutions that we're developing inside of Honeywell, and collectively with Microsoft to really move the needle on performance. So that's another area that we see as a big trend. A third area that I would mention is I think we're finally starting to see the crew shift. We've been talking in oil and gas about the great crew shift for at least 20 years, maybe longer. A lot of us thought it was going to happen in sort of the late 2000s. And then a little thing called the financial crisis came along, and folks felt a bit insecure about how were they going to pay for their retirement, and so hung in there a bit longer.
And so in oil and gas, we've had sort of a delay of maybe some of the boomers exiting the workforce but that's now particularly with the pandemic, and sort of people reassessing in some cases, their lifestyle or what do they want to do with their remaining years. We're going to see that crew shift. And so that is again, an important topic for us to address. Technology can play a very important role there.
We, as an example have got a new solution that we're rolling out in Q3 around what we call the connected worker. Specifically it's a worker assist product which will allow industrial users to bring sort of their best, most experiences remotely to the frontline to enable service techs in whatever location they be. So that third element that the demographic cliff that we're seeing and incredibly important. And then a fourth one which is sort of underlying all of this of course are some of the technical trends that we see that can enable this.
And one I would throw in that I didn't mention earlier is this notion of cybersecurity which obviously there are many, many rogue actors, and the old song about there's two kinds of organizations, there's those who have been hacked, and those that don't know they've been hacked. And so that's obviously increasingly important in the agenda for all stakeholders as we try to make progress against some of these secular trends that I mentioned. - All of this is just telling me, in your McKinsey day Stuart, I remember you talking about a $50 trillion opportunity in our space. And in aggregate, if you take a higher level view of what you laid out, it's just a bottomless opportunity in terms of the transformation our partnership can provide. So with that, if you come to Microsoft and Honeywell as a partnership, technology and that deep business knowledge, and industry expertise that Honeywell brings to the table, I think it's fair to say we have an enormous opportunity. Can you share some of the examples that our partnership is delivering or working on in terms of some of the benefits, some of the value or outcomes that we're driving? - Well, I think one thing, I want to frame one in sort of a general view which is that the work that Microsoft is doing in building out the infrastructure for global Cloud deployment is extraordinarily important.
We have customers today that are on premise who are going to be on premise for many years. But as the infrastructure that you provide becomes more robust, and in some cases you have centers that are dedicated maybe to a specific geography with very tight controls around that, it just reduces the friction for us to be able to deploy Cloud-based solutions into areas that maybe there's historically for regulatory or other reasons been reticence about adopting Cloud. And that's important because well for some Cloud is an economic model, I think the most exciting thing about Cloud is the pace of innovation. And of course, if you're on on-premise software, you're dependent on the next release. And in some cases the very expensive process, and time-consuming process of making those release updates versus in the Cloud where it can be, depending upon the environment literally seamless. So I think there's a general thing that you are enabling, that Microsoft is enabling in the marketplace which is incredibly important as we are laser-like focused on enabling customer value unlock.
When we talk about specifics, one of the things I like to point to very recently is a great example of our combined OT IT strength is what we're doing with Dynamics 365, where recently we have been delivering predictive service faults from Azure based predictive maintenance software. But we now can push that up into Dynamics 365, and that allows a customer to take the output of an AI driven to the scheduling service, and more effectively deploy their techs, and remote support with subject matter expertise. And so I think it's a great example of a few things. One, it's that Cloud-based deployment model. Second, it's the combination of sort of the OT IT strength that we jointly bring. And I think third is sort of indicative of where we want to take a lot of these AI solutions which is not to just provide an interesting insight but actually close the loop.
And it may be human in the loop, and at some point it will be fewer humans in the loop, but close the loop to get to action. And so again, a bit of a riff there on, you know, while we talked a lot about AI, and we talk about pilots and these things, what customers want to get to is where they see the ROI is where we close the loop, and we help them get to action. And so I'm excited about what we're doing in that field 'cause I think it really is indicative of the change that we can do together. - Absolutely. That's very well said. I actually observed that technology implementation.
So being prohibitively expensive in the past, and the timeline was like years and years, and sometimes never ending projects. Now we're collectively delivering value, one outcome after the other, one use case after the other in a matter of weeks. And that's just fascinating going back to your observation about innovation, and that digital feedback loop in enabling one value extraction after the other, that's just fascinating. And I'd like to say Stuart that we're just getting started, and our partnership is getting better and better by the day. And I think we're setting a lot of benchmarks. I think we're delivering a lot of value, and you just laid out some of the value pockets across some of the verticals Stuart, beautifully as you always do.
What are some of the parting thoughts or call to action for our audience here today? - Well, I think one thing we probably haven't touched on which is near and dear to my heart, and I know that you're passionate about as well is how do we in an OT IT, that intersection of OT IT and probably also from OT, how do we begin to create a system of record? When I think about what happened in the late 90s with ERP, effectively in ERP we created a giant database. And for the first time we were able to break down some of the organizational silos between back office functions. And when we did that we found tremendous value unlock. And I don't want to minimize the sort of the complexity of the implementation and the challenge, but there was a massive value unlock that organizations experienced.
And then in the early 2000s we sort of went through a similar thing on CRM where for the first time we sort of had a central view of the customer. We could start to enable processes around that in a way that we hadn't before. I think our point of view at Honeywell is there's a similar opportunity around OT, and the intersection of OT IT.
And so we believe that an OT IT system of record is going to be a transformative. I talked about that Cambrian moment, at the center of that Cambrian moment that's coming to OT. And as a guy who grew up in IT, and used to joke about OT being Shadow IT, Shadow IT is coming out of the shadows. I mean, it's the next big thing. And I think that the system of record for OT and OT IT is going to be absolutely fundamental.
And so we're very focused on that, and we're working with you on that. And as we look at the next couple of quarters, that's something you're going to hear a lot more from us about, and it's not just an historian, it's not just an industrial historian. It's the knowledge graphs that go around it, it's the foundation for doing advanced analytics. And we think it's going to be transformative from a value unlock perspective in OT as OT again comes out of the shadows. That's very well said. I will observe that as we saw the transformation through ERP and then CRM, you laid out those very articulately but then those becoming silos themselves.
And for the first time I think just from a technological capability, the ubiquity of that kind of compute, the affordability of that whole analytic space. I think for the first time ever, I'm an industrial engineer by background, and so I like to say for the first time we are able to optimize at global level, and connect that entire enterprise, not only the enterprise itself but perhaps the value chain. You and I discussed that once you have a value chain kind of view of the world, you actually cut across a number of industries, so many different players with so many different capabilities. And we collectively are uniquely positioned I would say to actually bring those new value chains to life. And it all starts with data, and obviously enabled by AI in a big way.
And it's just I think we're all fortunate to be doing what we're doing at this time in this historical kind of junction in history. So Stuart, I cannot thank you enough for your time today, for sharing your vision and for the partnership. So I'm looking forward to our continued progress, and impact in the market with us helping our clients here. So thank you very much. - Great to be with you today Çağlayan, very much appreciate the opportunity.