by Claire Bushey
Caterpillar is an IMA member company…
Karan Patel’s parents were puzzled at first when he told them he was working for Caterpillar.
Patel, 23, is pursuing a master’s degree in information systems management at the University of Illinois at Chicago’s business school after studying computer science as an undergrad. So what, exactly, they wanted to know, was he doing at a company that makes earth-moving machines? Would he be safe out there in the field?
He reassured his parents that he would not, in fact, be stationed at a job site.
Instead, Patel is among a group of UIC students hired by Cat to staff a research laboratory at the school’s Innovation Center. They work at a table in a corner of the lab surrounded by whiteboards and multicolored Post-It notes, guided by Cat’s digital and analytics site director, Samantha Melchiori. They’re attempting to answer the same question as the Peoria company’s engineers: How can digital technology enhance not just an individual machine but the way an entire job site functions? And how would that be answered by someone who hasn’t been answering Caterpillar questions for 40 years?
The university and Cat both have something at stake. UIC’s Innovation Center has collaborated with Baxter, Morningstar, Wilson Sporting Goods and others to generate $2.6 million in revenue. But the Cat partnership is the most extensive so far, and with the state closing in on two years without a budget, the school’s hunt for alternative revenue sources has fresh urgency.
As for Caterpillar, the company expects the students to create new intellectual property—one to three patents a year—plus other revenue-generating ideas. The $350,000 it budgeted for the project this year, up from $150,000 at the outset, is tantamount to a rounding error for a company that last year spent $1.95 billion on research and development. But for this type of project involving students, it’s actually a hefty sum, says Caralynn Nowinski Collens, executive director of UI Labs.
This is one of many bets Cat is making. In 2014, it opened a data analytics lab at the University of Illinois’ Research Park in Champaign. A year later it formed a venture-capital arm to invest $500,000 to $5 million in early-stage companies. One investment, Yard Club, a San Francisco startup that rents construction equipment, morphed into a full-fledged acquisition in May. Cat also has a stake in Brad Keywell’s latest venture, Uptake, and opened a digital and analytics office in the Merchandise Mart in October.
Many industrial companies are spreading their bets widely these days, says Justin Rose, a consultant in the Chicago office of Boston Consulting Group. “There’s so much uncertainty, it’s good strategy . . . because you’re just not sure what’s going to pay off.”
Moreover, with students earning between $13 and $23 an hour, the company is “essentially getting the equivalent of whole teams working on this for the cost of one or two people they would have internally,” Rose says.
The lab, headed into its second year, seeks to tap the creativity of a generation not steeped in Caterpillar’s culture. It evolved from an interdisciplinary product development course Cat launched in conjunction with the university two years ago, to push ideas past the sketch-on-a-napkin phase to a higher-fidelity prototype. It has begun patenting one of the ideas developed by the students in last year’s lab. With the average corporate-academic course, “corporations view them as philanthropy,” Melchiori says. “This is different. There’s real, tangible IP that could be a lotto ticket,” she says.
Cat is doing well in the digital space, says Karen Ubelhart, an analyst at Bloomberg Intelligence. No one matches it or competitor Deere for research and development spending in the field. “They’re trying to go faster than the next guy,” she says. “They want to stay the market leader.”
But considering the growth potential of the industrial internet of things—Accenture estimates it will add $6.1 trillion to cumulative GDP by 2030—Caterpillar is likely to face competition from companies like GE or Oracle in the race to develop software applications for construction and mining equipment. Cat’s expertise gives it an advantage, but “nobody is going to leave it to the industrial companies because it’s too big.”
This year’s students are working on three projects. One is a wearable technology for worker safety. One is a smart lock that helps secure equipment. One improves how materials are delivered around a job site. The students can’t discuss the details; they’ve all signed nondisclosure agreements.
Source: Crain’s Chicago Business