Why Modeling Sustainable Industrial Ecosystems Is A ‘Great Business’ For AVEVA

Caspar Herzberg appears to be a man on a mission in a pretty bullish mood. As the Chief Executive Officer of industrial software and consulting firm AVEVA, he recently oversaw his company – now a wholly-owned subsidiary of Schneider Electric (EPA: SU) – post a record annual recurring revenue growth of 20% in 2023.

It’s not just that his “business is great”, he also happens to be in “a great business” – that of providing technological solutions for sustainable industrial ecosystems, Herzberg tells your correspondent in an exclusive interview.

“Wherever you go sustainability is a massive topic, and that’s great for a business like ours. What we offer fundamentally is software to make businesses, governments, infrastructure managers or site operators more sustainable, enhance their low carbon credentials and improve throughput. That’s very welcome in today’s world.”

Coming from a historic background in computer aided design, AVEVA provides a whole spectrum of industrial software from digital twin technologies to AI or artificial intelligence-based solutions and predictive analytics. Its key markets include energy (both traditional and renewable), shipping, chemicals and petrochemicals, mining and food and beverage.

“All these sectors are feeling their own societal pressure to change the way they do business and manage their operations. As their industrial software partner, we have a simple underpinning for all the products we offer them – enabling of operations that not only lower carbon footprints but also vastly improve throughput, and by default improved profit margins.”

Herzberg says the best bit of energy is the amount that you don’t use or rather conserve through efficiency savings. “The need to take out unnecessary consumption, reduce process waste while getting the same or better quality output is what everyone in industry and manufacturing is looking for. We provide them with a digital backbone for achieving this.”

Providing a digital backbone

AVEVA offers its services along three software silos – designing of assets, achieving the results faster, and operating assets more efficiently. This service offering – banking on a fair bit on AI and big data analytics – is further spread across their five key corporate pillars – operations, maintenance, forecasting, revenue and collaboration.

“If refineries can cut downtime and emissions, and shipbuilders can produce ships faster with more durable composites, what is not to like? Following on from a record 2023, we have in place five-year plans for annual growth in the region of 16% to 18%. That’s significant organic growth. While the energy sector is a major part of our client portfolio, we are targeting significant growth in manufacturing.”

“I also see our software offering moving into the buildings and construction segment with the rise of smart buildings and our intellectual property moving into infrastructure, perhaps not immediately but sometime in the not too distant future.”

Herzberg’s pitch to the wider industrial complex is to “identify, compare the options and plan for a low-to-zero carbon future” in collaboration with AVEVA whether for greenfield or brownfield sites.

Over the next five years, the company intends to invest more into its three business silos and five corporate pillars, although Herzberg would not say how much given there is no longer any need for public disclosure. Up until January 2023, AVEVA was a London-listed blue-chip stock before its complete takeover and delisting by majority shareholder Schneider Electric.

However, the AVEVA boss is comfortable in sharing that his company will spend just over 25% of its headline revenue on research and development. “We are an R&D driven business both in people and technology.”

Politics of AI and climate change denial

One of the company’s key products is called AVEVA Connect upon which it builds its own software solutions and gets customers to embrace AI technology that suits their operations and their budgets.

For the uninitiated, there are two primary AI pillars in the industrial complex. The first is Generative AI, or AI capable of generating media / text using generative modeling, and subsequently learning from it to generate new models or executable data that may have similar but often improved characteristics.

The second is Predictive AI or the use of data and analytics-based machine learning for the identification of patterns (e.g. past events and processing) and make forward predictions (e.g. about future events and processes, suggested improvements in throughput, best times for maintenance).

Both are proving pivotal for companies looking to lower their carbon footprint via time series data and analytics for machine learning, says Herzberg. “Using time series data to feed the predictive analytics makes us cover the entire life cycle of an industrial project – process simulations, planning, expansion.”

But as the politics and scaremongering around AI refuses to go away, it is something the company is learning to live with. “Political discord around AI might be new, but the technology itself isn’t. It has been around for quite a while. AVEVA has been working on industrial AI solutions for 12 years and counting. We have to accept some negativity surrounding it and respectfully make a positive case for it.

“Ultimately, AI is a self-reinforcing algorithm and really nothing more than that. Its quality depends on the data that we as human beings input. So rather than AI cutting jobs and taking over the world, I separate fact from fiction and actually see more (not less) human work going into it from data management to interpretation.

“We view AI as an ally and a vital support tool for efficiency. Furthermore, I would also be very surprised if we run major industrial processes, especially where chemicals and hazardous substances are involved, fully on AI. For me, an “outcome based” approach to AI takes away the fear.”

And AVEVA for its part is hiring more people to manage the interpretation of what AI proposes for its client solutions. “We have accelerated our STEM [“Science, Technology, Engineering and Mathematics”] hiring, apprenticeships and internships programs.

“We are deeply focused on talent retention, especially for female talent around parental leave and how to make diversity work across all our major global regions. The need for experienced people and retaining that institutional knowledge within our workforce is not going to go away. In fact, it would arguably become more important.”

Use cases for industrial AI are vast – from saving time on flipping physical instruction manuals in times of need and replacing them with targeted digital props for a particular task or training in a factory, to combining time series data for power grids with weather data to predict the impact of weather systems to help model and fortify them for climate change.

But climate change itself is another political hot potato. “Net zero targets may vary from country to country, or company to company. But one of the things that strikes me is that within a fairly short period of time of around five years – the percentage of climate change deniers has significantly declined.

“Of course, naysayers do exist. But even within energy producing countries (and companies) there is a recognition that something very difficult is on the horizon and needs to be addressed.”

Herzberg says AVEVA remains as vocal a proponent of AI as it is for sustainability “both as a company, and as part of the wider Schneider Electric group which has pedigree in efficient, optimized and sustainable electrification.”

Being number one

Just over a year on from Schneider Electric’s takeover, things are running smoothly for AVEVA. “Since their initial investment via a reverse takeover in 2016, Schneider have been great partners and owners. No practical difference has been felt. I still report into a board which has external members too, and I’d say we have met the expectations of our sole shareholder.

“If you take AVEVA’s total business – a third is in design, a third in operations software, and the final third in time series data acting both as a digital historian and as the input for much of the analytics (whether it’s our own or the operators’ or any other kit they may be deploying).

“Last year, all our business segments grew at about the same rate and we are the only software vendor that offers all three at scale. Our global corporate challenge is not to become complacent and keep innovating.”

In meeting that challenge, AVEVA may have an ideal boss in charge – the multilingual Herzberg, a German native brought up in Egypt, who speaks Arabic, English and French fluently too. Being a former army officer, he also knows more than a thing or two about managing stress and leading people.

“I’d say an early morning run helps me focus on it all. I am a bit grumpy when I don’t get a run in. Running works also well with travel because you can do it anywhere security restrictions permitting.”

He says past experience at Accenture, Cisco, Schneider Electric and now AVEVA has held him in good stead. “Over the decades, I’ve learnt how to be customer focused, entrepreneurial and a manager of profit and loss for operations spread across over 70 countries. The concept of “smart cities” has many fathers and mothers, and I count myself among them.

“It’s a real privilege to do what I do and interface with so many people from different walks of life. I would say it is hard to find an industry or country where AVEVA is not deployed in some form. My vision is to make AVEVA the clear ‘number one’ in every aspect of industrial software that customers demand, especially sustainability solutions.

“The most basic step in that journey is to never take people for granted. I’ve never done so as a person and certainly have no intention of doing so as a 100% customer focused industry executive in such a competitive market.”

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