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Patrick Jeantet: industry – March 2019

By: Lesley Brown 10 May 2019 no comments

Patrick Jeantet: industry – March 2019

“We are not living in a post-industrial world. Looking to the future and the challenges industry faces, the winners will be those who successfully converge the virtual/digital and complex systems.”

In Les nouveaux industriels (The new industrials), published in March 2019, Patrick Jeantet, chairman and CEO, SNCF Réseau, challenges popular beliefs on de-industrialisation, the ‘all-digital’, and the end of work.

Instead, he is in favour of revising industrial strategies. Going against the prevailing declinist mood, his vision contributes to discussions over the future of Europe’s economy in a digitalised world.

During a JEDI MoonShot Day in Paris, in March 2019, Joëlle Touré, delegate general of Futura-Mobility, caught up with Mr Jeantet to find out more…

JT: Why did you write Les nouveaux industriels?

PJ: I want to drive home several points. My belief that industry remains an essential driver of economic and social progress in the 21st century. That we are not living in a post-industrial world. This is a fake idea, fake news suggested by some figures like the stock values of certain companies. Twenty years ago, maybe five or six industrial companies ranked among the world’s top 10 groups. Today these top ten are dominated by digital companies.

Why has the GDP share of industrial companies decreased when the productivity of industry is huge?

Look at the German and US economies, for instance. In Germany, industry generates around 28% of the GDP and this share has remained more or less stable for the past two decades. Meanwhile in the US, it has substantially decreased from 23% to 19%. Germany has a trade balance that is 7% positive in terms of GDP, while it is 5% in the US.

These figures show how Germany is a true industrial country but this is not the case for the US today. They also prove how industry is vital for national economies. I insist on this point in my book because the media focuses too much on virtual technologies and digital enablers these days.

JT: How can industry reinvent itself in response to our changing world?

PJ: Looking to the future and the challenges industry faces, the winners will be those who successfully converge the virtual/ digital and complex systems. Because the capabilities of industry groups lie in managing complex systems.

Take Vélib in Paris [bikesharing service provided by the city council], for instance.

Following a tender in 2016 to renew the service [contracted up until then to JCDecaux], a start-up won. Then there were many industrial failures. While it was a good idea to have a start-up for the bikes, deploying this new technology across the streets of Paris involved a complex system that the new company couldn’t fully manage.

Now the system has been fixed and is up and running. But it just goes to show the importance of being able to manage complex systems and reap the benefits of digital technologies; a dual role I believe is key to the future of industry.

The GAFA are doing just this. Amazon is one of the most successful digital platforms today. It owns the world’s leading logistics company, certainly in terms of quality and the ability to deliver. The backstory to its development shows how the virtual universe is moving step by step towards a more industrial universe.

Likewise for Google and the Google Car it is developing in Phoenix – even if still in the testing phase, I think this kind of vehicle will form part of tomorrow’s mobility. But most importantly, Google is currently producing its own AI chips in order to have the chips the most adapted to their AI algorithms, They implement the combination of soft with hard.

So you see, even though France and Europe may have lost the initial industrial battle, which was all about B2C, virtual and digital systems, which the US dominates and China taking over, today we have an opportunity to win this second bout, the B2B battle.

JT: In Les nouveaux industriels you talk about ‘e-industry’ as the main tool for this process of reindustrialisation. Could you explain further?

PJ: Yes, my thinking behind this concept of ‘e-industry’ is based on three guiding principles.

One is evolution – how existing companies can manage and improve their core products, which typically generate the bulk of their revenue, while developing disruptive innovation in parallel; disruption innovation that will most likely kill off the core business/products over time.

This evolutionary process is a management challenge and represents something of a management enigma, since it means having within the same organisation:

  • managers and/or engineers who are developing and continuing to improve the core products, e.g. a high-speed train, plus
  • another in-house team that is initially spending a lot of money generated by the core products to develop new products/business that could eventually kill off the core product/business.

To pull off this challenge you need a CEO who is a strong and charismatic leader. She or he must articulate a common vision to drive forward these two movements in parallel, and harmony! This is no easy task because those working on the core product side are bound to say “Look at that innovation lot. They are burning money for nothing, on things that nine times out of ten will fail”.

This is the reason why I’m pushing hard for SNCF to explore technologies other than high speed. It has already taken shares in Hyperloop, although not enough in my opinion! I would like us to explore more the magnetic levitation (Maglev) technology too, because this may well make a comeback in. I don’t know, I’m not sure, but if it does prove a future transport solution, it will cost less than high-speed rail. So we need to be in control of this technology.

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Also part of this evolution principle is awareness of digital platforms.

Around 20 years ago, when SNCF developed its ticket booking site voyagessncf.com [rebaptised OUI.sncf in 2017], it created a team that was fully independent from all the company’s other business segments, especially ticket sales in stations. At the time there was an outcry because people were afraid the website would put all the ticketing staff out of a job. But it nevertheless went ahead because the development team reported directly to the CEO of SNCF.

Today, we want to create a digital platform integrating all the different transport modes [new version of Oui.sncf launched in June 2019]; one that will become the go-to destination for multimodal travel, i.e. public transport, rail, tickets, journey planning, personal preferences, etc. The team currently developing this platform is reporting to the TGV (high-speed rail) department at SNCF. In my opinion this is questionable.

If in the future, Trenitalia [Italian rail operator] starts operating on the high-speed line between Paris and Lyon, will this service be included on the SNCF platform, or not? Questions like this should not be ignored. The answer to this question has, of course, organisational consequences.

This leads to guiding principle number two – the need to adopt a different organisational approach when working on innovation. This includes having a multi-disciplinary team and nurturing commitment.

You have the old and new schools of thought and must manage both as smoothly as possible. No easy task!

Traditionally, when working on innovation in a company like SNCF, you set up a big engineering department, hire programme managers, then develop your high-speed train. The process takes a long time. To remain competitive today, you need a completely different approach, one that involves a multi-disciplinary team with people coming from sectors other than rail. This is the case right now as we develop the autonomous train, which is far more complex than an automatic train.

SNCF is working with the automotive industry because it has already developed things that we have not. This kind of multi-disciplinary approach is a must today.

You need commitment too. This means encouraging employees and the entire company ecosystem – partners, public authorities – to get involved. By so doing, you can bring about cultural change that supports innovation.

Thirdly, for this e-industry it is important to industrialise and create some custom-made solutions in collaboration with customers at the same time.Both are vital for the future of industry.

JT: You also talk about ‘low carbon by design’. What exactly is this?

PJ:  The world is facing major challenges over rising CO2 emissions and climate change. In industry, what you do by design is far more efficient than what you add on or modify afterwards. So it’s quite simple – industry must always bear this in mind. For instance, today Alstom and Bombardier are developing trains with batteries and with hydrogen fuel cells. But bringing these new technologies into service involves adapting trains already in operation.

Of course it is a good thing today but this is an example of adding on that we must try to avoid in the future by thinking immediately in a  ‘low carbon by design’ approach.

According to the specs issued by SNCF for its next generation TGV, the TGV 2020, constructor Alstom must design a train that not only costs 20% less to buy and operate than its predecessor, but which must also consume 20% less energy.

JT: What does Europe need to reinvent its industrial model?

At European Union (EU) level, the industrial policy is not strong enough. We have succeeded in creating Airbus but the failure of Siemens and Alstom merger enlightens our weaknesses.

If you look at the US, since the country decided not to dismantle Microsoft it has become far less ideological; yes, it still fights monopolies, but with national interests first and foremost in mind. We are not doing this in Europe today. I hope the situation will change. We need a European industrial policy. There should be more initiatives like the disruptive innovation agency JEDI.

JT: You want industry groups to reinvent themselves. How realistic is this vision? And what about Europe’s chances of pulling off this challenge?

PJ: The younger generation is a driving force and they are digital natives. By this I don’t mean so much that they have smartphones, but that they are living the culture of the digital world, i.e. risk taking, customer focus, an open-minded attitude.

What I want is the ‘traditional’ world of industry to adapt to this digital age by adopting this mindset. Bringing together digital natives and the ‘old world’, which I come from, is proving quite interesting and could turn out to be quite positive!

Right now, three major regions are battling it out for industry supremacy. There’s North America, which was dominant but is losing ground – not necessarily because of Trump’s policies, but before him Obama was much tougher.  Then there are China and East Asia, which are growing rapidly.

Given these pressures, Europe has to take its own destiny in hand now. The problem is we don’t have a federation of Europe but individual countries. Also, European policy for the past two years has focused on Brexit. Europe needs more federative-style integration instead of its countries constantly bickering over different standards, different tax systems, and so forth.

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JT: How can France position itself in this new industrial world?

PJ: France has fantastic engineers! A lot of them have gone to the US, which is a pity, but not all of them. Together with some other European countries we have a long history of quality training for engineers, which puts us in good stead, in a strong position, because education is the basis of everything. It is the future.

Henceforth, in order to be efficient we must organise ourselves at company level, national level, EU level.

We must encourage the meeting of worlds that may appear at odds with each other, like rail and aeronautics, rail and telecommunications, industry and services. Involvement in organisations like the think tank Futura-Mobility [SNCF Réseau is a founding member] is another way of bringing these different worlds together.

I think France stands a good chance of positioning itself in this changing industrial world. But the country must learn to love and commit to its industry. To fully embrace digital modernity we need factories and start-ups!

Without rapid action, China and the US will seize industrial leadership. We have the card of reinvention up our sleeve – the new industrialists will win the leadership battle.

“The company of the future will be the one that grasps how to converge the real and the virtual to create complex systems that will serve its customers, serve the people” – Patrick Jeantet