How Industrial Giant ThyssenKrupp Approaches the Era of the Smart City

By Scott Kirsner |  August 23, 2016

It was Roald Dahl, the celebrated children’s writer, who first imagined a glass elevator that could travel “sideways and longways and slantways and any other way you can think of” in his 1964 book “Charlie and the Chocolate Factory.”

Just over fifty years later, in late 2015, the $47 billion German conglomerate ThyssenKrupp introduced an elevator, the MULTI, that could do precisely what Dahl had envisioned. The benefit? Elevators that could move horizontally would make new kinds of building designs possible; allow elevators to switch from one shaft to another; or transport riders from a skyscraper and then down into a subway station a block or two away. An early version of the MULTI elevator is being built into a new testing structure in Rottweil, Germany (pictured at right) that will be nearly as tall as the Eiffel Tower. It opens later this year.

The MULTI is just one way ThyssenKrupp, headquartered in Essen, Germany, is envisioning the future of buildings and cities. The company, which makes steel and automotive components in addition to elevators and escalators, traces its roots back to the early 19th century. But the future, according to Patrick Bass, chief executive of ThyssenKrupp’s North American business, will be all about open innovation, gathering data from Internet-connected products, tackling new opportunities like a startup would, and innovating differently in different parts of the world.

Bass, who came up through the R&D ranks at ThyssenKrupp, is the first American to head the company’s North American subsidiary. We sat down with Bass at the recent Fortune Brainstorm conference to talk about how he’s working to change the way ThyssenKrupp thinks about itself — and what’s possible.

InnoLead: This is a big generalization, but many companies that have research and development organizations feel like the cycle time of R&D is too slow for 2016. They feel like the culture of R&D can be a little bit too insulated. There aren’t enough openings to the outside world — do they know about a startup that is here at this conference that they should know about? Probably not. What are you doing, or what do you think needs to happen, to change that equation — the cycle time and the openness to the outside world?

Patrick Bass at ThyssenKrupp’s North American HQ in Chicago. Photo by Paul Elledge for InnoLead.

Patrick Bass: There’s been the buzz around about open innovation. I think it was just a buzz for a long time, but companies have figured out now that they really want to break down the walls, you have to go into an open innovation [model.]

Some companies now say, “Let’s do some university partnerships.” You literally are saying, “Look, I’m going to give the university X dollars for research in this space, and it’s going to be open research, but we’re going to both gain value out of that. We can’t do everything all by ourselves.”

But to your point, especially in North America, a lot of the innovation is business model-based, and you have to be looking at the startups. You have to know what’s going on in Silicon Valley.

How does ThyssenKrupp get to be in a strategic partnership with Microsoft? This 200-year-old German-based, very stodgy kind of company, all of a sudden comes on the map to say, “We’re a strategic partner with Microsoft. We’re both transforming our companies [in the realm of] IoT.” That’s a pretty radical shift.

From Products to Competencies

InnoLead: Does open innovation, and new partnerships, require you to think different about how you’re organized, and the business you’re in?

Bass: Absolutely. We’re not an elevator company, we’re transportation company. To be a transportation company, we have to understand buildings. We have to understand cities. Why shouldn’t we be linked into a smart city? We’re a transportation provider.

[In the past, for us,] everything was product, product, product. Forget the product. The product’s really not important. The product fuels your [revenue], but really you have all these competencies. As a diversified industrial company with engineering at your core, these competencies could be quite powerful if you pull them together.

One example of that was realizing, [that] the elevator systems as a transportation company are limiting building design today, based on heights, based on flexibility of movement, based on just a couple of cars and a hoistway. If you have to take it out of service, you lose all that capacity.

We said, “How can we change this? How can we look at this differently? You know, geez, we have one division over here that has maglev technology. We have one division over here that has bearing technology, and bearing and motor integration from wind power generation. Gee, we can start taking these blocks and put it together into something radically different.” That became MULTI, an elevator system that moves in just any direction you want it to. You can change building design radically.

InnoLead: Is that spec’d into buildings, or live in buildings today?

Bass: Well, what we did on top of that is said, “Look, if we’re going to be a transportation company, we need our own high-rise building.” We built not just a test tower, we built an entire high-rise building that’s actually being completed by the end of 2016. It’s 240 meters tall, in Rottweil, Germany. It will be a showcase, and it’s also for us to understand how does a high-rise building work, how is it constructed? We’re the owner, we’d helped design it, and we actually got an award from the Council on Tall Buildings and Urban Habitat for how this building was constructed.

University Relationships

InnoLead: Are there some concrete ways, whether it’s in North America or in other parts of the company that you’re trying to get beyond just funding academic research, which lots of companies know how to do? Are you doing other kinds of open innovation challenges or trying to open up the traditional R&D world to new the stuff?

Bass: Absolutely. The partnership with Microsoft is one. Before, we had our kind of preferred couple of universities [that we collaborated with.] Now, every region has at least two university relationships.

InnoLead: Is that a goal you set? “You can’t be doing development or research without knowing what’s happening in the academic world and getting some help from them?”

Bass: Absolutely. Focusing on getting out there — positioning the brand, to say we want to drive engineering tomorrow together. We want to advance our customers by technology, quality, all these things.

We took our whole executive team to Silicon Valley and said, “What’s going on here?” Not, “Oh, here’s this product or that product.” What’s going on here? What do you see the startups doing? What’s the buzz and why?

InnoLead: What was the benefit of that, from your perspective?

Bass: It changed the mindset. It shifts you from a product-focused group, because it’s easy to focus on product, because that’s the monetary value today. It shifts you from that to more of a competency player.

We are in Germany. We’re seen as “the steel company.” It was a radical shift for us to go into carbon fiber reinforced plastics. Basically, we pulled a few people out of steel, we pulled some people out of material services, out of components. We put this nucleus of a dozen people together and did a startup.

A Startup Within a Big Company

InnoLead: Were there things that you did that you felt worked really well, or didn’t work well, in terms of trying to create the freedom of a startup, but inside a large, publicly-traded company?

Bass: One of the things that worked well is we really pulled resources from all the different groups. It wasn’t so straight and easy in the beginning, because they were coming at us saying, “No, no. This is the direction we go, because I’m the materials expert and we go in this direction.”

But when you co-locate, and you put those people all together and say, “Look, we want you to discover,” and you read the people to say, who’s fulfilled by discovery? There’s kind of two different engineers. There’s an engineer who’s fulfilled by having a tangible product, and “I help create this tangible product…”

InnoLead: And I make it perfect and precise.

Bass: Right. Then there’s the engineer that is very fulfilled by discovery. “I failed today, I learned something and I’m fulfilled by that.” You have to know those two different types of engineers. In the startup mode, you have to find that fulfilled person, the latter kind, and then once you have the discoveries and you have the competencies established, then you mix in some of the [first kind to] bring it to conclusions and products, because you can also have the opposite.

When you don’t bring some of that “I need to design a product” perspective in, you get caught in this endless loop of, “We can always find something new, make it better,” and you don’t get to the business value. It’s a mix.

InnoLead: Did you let them interact with customers in some way?

Bass: Absolutely. In the very, very early stage. As soon as we actually started learning how to process the material in some form, we immediately started engaging with our current customer base to say, “Do you have a need? Here’s what we think carbon fiber reinforced plastics could do in regards to weight savings. Is this real? Is this interesting?”

We started that roughly four years ago. Today it’s a spun-off, separate business with orders. It’s a P&L that is driving value for the organization.

Innovating Differently Around the World

InnoLead: How else have you been changing the way you approach innovation, as a company with a global footprint?

Bass: When I was [at the elevator division], one of the first things we did was separate development and research. We have dedicated research and innovation centers — decentralized and placed regionally — because you’re exposed to different things.

What’s happening in China in regards to technology is much different than what’s being innovated on in North America, and much different than in Europe. And yes, technology is definitely progressing and happening in China. A lot of people say, “They’re the copiers.” No, they’re not. The copiers have become the innovators.

InnoLead: What’s the significance of separating the R from the D?

Bass: The development is dealing with product. They have set timeframes and deliverables, and then they have to maintain that product. You feed off of competencies from the research centers, and you disrupt your development cycles, and you rotate people. If you separate it, you have to rotate peopl —  otherwise you get stale, and they don’t understand each other and then they get into a war. If something comes out of research, and is handed over to development, they may say, “Oh, sorry, it’s crap, it won’t work.”

InnoLead: The not-invented-here syndrome…

Bass: Exactly. You have to do a people rotation. But I think today, to close the gap, you have to decentralize. You have to think global, but develop local. You really have to embrace open innovation, not only with universities, but with other companies, with startups, with partners — like a steel company and a software company in a partnership.

‘Every One of Our Businesses Could be Disrupted [by IoT]’

InnoLead: What’s the goal of that Microsoft partnership?

Bass: It was the fact that we wanted to get into the IoT field. Our board has said, “We have to put digitization at our core. Every one of our businesses could be disrupted, so we need to become an IoT company.” We’re not an IoT provider, but we wanted to have IoT solutions.

We went through a number of different companies as far as potential partners, and we landed with Microsoft in the end. It’s been a phenomenal partnership. With our MAX system, for the elevator division, we are connecting somewhere between 100 and 150 elevators a day here in the US alone, to be able to do preventative and predictive maintenance.

InnoLead: You said, “Look, we’re not going to build this software competency necessarily within our company…”

Bass: No, even if we could, we probably wouldn’t do it that effectively or efficiently. We didn’t know what we didn’t know. Microsoft was, at the same time, interested in enterprise partners and they wanted to really promote a platform.

IoT, in a lot of cases, is a portal, or it’s an app, or it’s some nice-to-have differentiator. It’s, “I can make your experience a little bit nicer.”

InnoLead: But with your example, the upside is reducing elevator downtime and probably a lot of other tangible things?

Bass: We’re providing customer value through better uptime, less disruption. It’s a big customer win and it’s a huge efficiency win. When [a maintenance person] goes to a facility now, they know what they need to bring. We know what we need to do and we know what we need to do before it breaks, so we don’t have to have this unscheduled emergency visit that is costly.

The Role of the Customer in Innovation

InnoLead: We hear a lot of companies these days talking about innovating with customers. Is that something you practice?

Bass: The customer is one of the biggest innovation opportunities there is. You have to have a customer in your innovation. The idea of “build it and they will come” — it happens sometimes. When it happens, it’s spectacular. But it also fails more often than it is spectacular.

Does your customer always know what they want or need? No. In fact, if you’re really open and honest with customers, your customer will say, “I need you to tell me what I don’t have and what I need, and then we can decide if there’s enough of a value for what needs to be invested.”