Cambridge Startup Success Shows Challenge for Siemens CEO By Alex Webb

A British software startup created by Cambridge University academics is winning contracts in a space targeted by Siemens AG (SIE), showing how industrial giants can be outmanoeuvred by nimbler rivals.
Ubisense Group Plc (UBI) first displaced Siemens by supplying a system to track vehicles and production tools at a Bayerische Motoren Werke AG (BMW) factory in Regensburg in 2009. Since then, the U.K. company has won orders for more BMW factories and got a contract from Daimler AG in 2013. Last month, Ubisense pitched its sofware to the managers running Volkswagen AG’s plants.
“We’re having a really good time in Siemens’s backyard,” Chief Executive Officer Richard Green said in an interview. “BMW was their customer in the area we’re focussed on.”
That BMW has preferred Ubisense, with revenue representing less than 0.1 percent of Siemens’s 76 billion euros ($96 billion) in 2013 sales, highlights the challenge Siemens Chief Executive Officer Joe Kaeser faces. He has promised to ensure that the company doesn’t miss out on new technologies as he tries to update its products with Web offerings and digital monitoring that
can predict faults in machines and collect data.
Siemens says its size means it’s better able to push through large innovation projects. For example, the company’s latest generation of gas turbines -- an industry which is one of Siemens’s biggest revenue drivers -- required years of research by 750 engineers, a spokesman said by e-mail.

Photographer: Martin Leissl/Bloomberg

Siemens AG chief executive officer Joe Kaeser has warned that the Munich-based company... Read More

Cambridge Laboratory

Ubisense, which has 240 employees, emerged from the University of Cambridge Computer Laboratory in 2002. Its technology competes with Siemens -- which has 349,000 employees -- to inform manufacturing operations wirelessly what work each product requires at every stage. Siemens itself is offering similar technology in its so-called “Industry 4.0” product push to enable factories to lean more heavily on software to boost flexibility and improve processes.
“Large companies find it very difficult to pick up new technologies,” said Christian Stadler, a professor of strategic management at England’s Warwick Business School. “Typically the best recipe for that is to keep your options open and then to make some acquisitions.”
Green has experience of that approach. An earlier Cambridge-based software company he co-founded was sold to Siemens rival General Electric Co. (GE) in 2000. For now, his priority is to triple Ubisense’s sales to 100 million pounds ($160 million) by 2018.
Munich-based Siemens, which makes products from trains and gas turbines to medical scanners, has invested in more than 150 companies since starting a venture capital arm in 1999, typically no more than 5 million euros each time. A $100 million fund, dubbed “Industry of the Future”, was added in February.

Being Disruptive

“To try and do something disruptive is really quite hard for them, because often they’ll have to cannibalize their existing customer base,” Green said of industrial behemoths. “Once technology is mature, then they can take it to market, and that’s exactly what will happen with Siemens. Eventually they’ll find a company like ours that will make a very good acquisition target.”
Representatives for BMW and Daimler declined to comment on why they picked Ubisense’s product. A Siemens spokesman also declined to comment on why the carmakers went for Ubisense’s software.
Siemens is not bereft of innovation. In 2013, its 4.3 billion-euro research budget yielded the second-highest number of patent filings in Europe, lagging behind only Samsung Electronics Co. (005930), according to the European Patent Office. Yet translating that investment into growth can prove difficult.

‘Small Stuff’

“If you jump on the new technology, sometimes your customers will not be particularly excited when it’s still underperforming, your shareholders will tell you ‘Don’t waste your time on this small stuff,’” Warwick Business School’s Stadler said. “It doesn’t mean you don’t do any work in the R&D labs to understand what’s going on.”
Siemens’s deep ties with industrial companies around the globe and financial clout also give the German company an advantage that most startups cannot easily replicate. With Siemens CEO Kaeser deeming factory automation a key growth pillar, its palette of manufacturing offerings means its existing relationships with clients can pose a challenge for smaller competitors, Ubisense CEO Green acknowledged. That echoes comments from Kaeser himself.
“We are the incumbent and have a lot to lose,” Kaeser said in a July 3 interview. “The upside is that, whoever wants to be in that space, we are there already.”