One on One: Dr Christopher Hegarty

AMT: You’ve been CEO at ANCA for about a year and a half now. How’s it gone so far?

Christopher Hegarty: In general, very positive. It’s a great company, fantastic products. We have more recently faced some tough market conditions. That’s driven by the end of the smartphone boom; trade issues between China and the US aren’t helping, and Europe’s got its own struggles, so people are cautious. But we have some fantastic new products in the pipeline that will really grow our business, so I’m looking forward to the next upturn.

ANCA is a machine tool manufacturer, we make tool and cutter grinders, automation systems and metal fabrication, but our customers have demand for more products than that: other machines, other process steps. There’s a lot we can do to help around integration and automation, delivering an end-to-end tool production system, with no manual operations at all. That’s the vision. That’s what we’re aiming for.

And the beauty of that is it’s a much bigger market than just the machine part; it’s highly attractive for customers because you can produce higher quality at lower cost. And it plays to our strengths. ANCA has a very strong background in software and control systems. We’re extremely good at software. We’re very good at automation. And frankly, most of our competitors aren’t; they bought their control systems in, so software’s not a core skill. For us it really is.

 

AMT: Tell us about your background before coming into ANCA.

CH: I’m an electrical engineer. I studied at University of Queensland and then UC (University of California) Berkeley. I initially went into consulting with McKinsey for five years, then moved into high-tech manufacturing in the semiconductor industry. In semiconductors there’s a continual process of technological change because they’re always pushing for smaller geometries, and that’s constantly driving you forward because the machines have to get better and better. So it’s a challenging environment. That’s where I spent most of my time, mainly in Switzerland, but also Germany.

Then for personal reasons we wanted to move back to Australia. I was at EMO and somebody said “You should talk to ANCA. They’re Australian.” And I had no idea. I laughed and said “Australian? You’ve got to be kidding. Austrian, right?” But I looked ANCA up and was very interested. I contacted (ANCA co-founder) Pat Boland, and one thing led to another. I never thought I’d be back.

 

AMT: ANCA is a rare Australian advanced manufacturing business succeeding globally. What can other manufacturers here learn ((delete can))  from ANCA?

CH: I think, first and foremost, innovation is key. We’re a high-cost country. When I left Australia in the 1980s, we weren’t, we were relatively inexpensive, certainly compared to Europe and the US. The world has changed. Europe and the US are even more expensive, and we’ve joined that club. Asia is cheaper than we are, and they’re pretty good at what they do. So you’ve got to innovate: either manufacture the product cheaply even though we’re an expensive place to do business; or make a product so good people will buy it even though it’s expensive. Either way, you need innovation, in the manufacturing supply chain, or in the product.

That’s what makes ANCA what it is. We have a long history of innovation. We’re recognised as an innovation leader. And it’s imperative we keep that. We do everything we can to keep manufacturing costs down – that’s why we have a factory in Thailand as well as here. But if you ask customers “Why buy an ANCA?”, it’s the capabilities we offer. We just do things our competitors can’t. We had a Japanese customer here, a family-owned business that had only ever bought Japanese machines, but they’ve got new blood in the board, an American guy, who said they should buy outside Japan. They decided to give ANCA machines a try, and the gentleman who came from Japan for the run-off of that machine was absolutely blown away by the capability.

Local knowhow is also important. You need to be aware the world is very diverse, and the Australian way of doing things doesn’t play everywhere. You need to consider who you’re dealing with, their culture, their local practices and customs. I’ve certainly seen Australian companies shoot themselves in the foot by assuming everyone’s like us.

A third thing that’s equally important is that Australians can be very relaxed – this can be a great positive but also something to be aware of. Much of the world doesn’t run that way; it’s much more tightly stitched. If you go in only with that attitude, you could potentially be at a disadvantage. Instead, the expectation is you jump higher. Japanese or Korean customers for example are incredibly demanding; it’s a harder place for Australian companies to enter but as with ANCA it is very possible and worthwhile.

 

AMT: You’ve worked in manufacturing both here and overseas. What are Australian manufacturing’s greatest strengths?

CH: We have great attributes for getting things done, solving problems. I’ve seen that recently in this company. One customer was putting incredibly high demands on performance, and the team’s initial reaction was “We’ll never do that – but we’ll give it a go.” But we did, we got there. Over a couple of weeks, with people across the company working very collaboratively, and addressing whatever they could to get the machine running faster, they did it. That’s very Australian. Swiss or German companies don’t work that way. They’ll get there, but it’ll take a lot longer.

I think it is helpful that we’re very isolated. We’re used to making do. At ANCA, we essentially have no suppliers locally. A couple of machine shops, like Total Precision, but generally we do a lot ourselves. That’s a great way to be innovative, because necessity is the mother of invention. It makes us very practical. We don’t look for perfect solutions, we look for pragmatic solutions that are good enough.  Of course, there’s also a downside to this – lower volumes give less potential to optimise.  We have a large global supply chain for standard components such as linear rails.

Another one, and it’s strange to cite as a positive, is Australia’s got somewhat relaxed employment laws and practices, certainly compared to Europe where it’s generally much more restrictive, which makes companies very cautious. Here if you’re not sure about somebody, you can hire them and give them a try; if it doesn’t work out, okay, no harm done – they move on. European companies tend not to do that. If they have question marks about someone, they just won’t hire them. Again, it’s a strange one, but it makes us more flexible and it gives employees with “unusual” backgrounds a better chance too.

 

AMT: And what do you think are the challenges facing the industry here?

CH: One of the worst is the general perception manufacturing is finished in Australia. I’ve heard it so many times. But if you look at US manufacturing for example, in employment terms it’s shrunk over the last few decades, but in dollar output value, it’s grown enormously. That’s a combination of better processes; automation, meaning less labour; and higher-value products. So manufacturing is anything but dead. It’s not employing as many people, but it’s employing more highly skilled people, and therefore more highly paid people.

I’ve actually had this argument with people we’ve interviewed, who’ve said: “But how long are you guys going to be here? When are the lights going out?” And it’s like “Aarrgh… the lights aren’t going out. We’re growing.” But for someone at the start of their career, it’s a fair question. If you read the press about manufacturing, it’s generally not terribly positive.

The second big challenge is a dwindling supply, particularly in engineering, of people we want to hire. There’s just fewer of them being educated. For ANCA in particular, before the car industry shut down, there was lots of cross pollination. We have people here who had worked in automotive, and there were people who went from ANCA to the automotive industry. That isn’t happening anywhere near as much, and that’s a terrible shame.

In my background, the semiconductor industry follows the Silicon Valley model: you’ve got clusters of companies doing similar things, in a similar space. And there’s a lot of flow of people between them. That raises the bar for everybody, because knowhow flows around, people see different things, they go to new companies and face new situations, and they say “Oh at such and such, we did this. Why don’t we try that?” That’s been a very successful model for the semiconductor industry. But we don’t get enough of that, certainly compared to the US and Europe.

The third challenge is expertise. Australia has good universities, but they don’t co-operate anywhere near as closely as in Europe, or California. In the companies I worked at in Europe, we had good close co-operations with universities: academics and professors on call, long research relationships, PhD students helping us design our stuff and we’d pay for part of their education. In Australia we do some of that, but nowhere near enough. And relationships with universities here are much more bureaucratic, much more difficult.

We do work very successfully with the Advanced Manufacturing Growth Centre (AMGC) and have a number of active projects with them which have been working very well. However, my experience has been that when you look at our collaboration with universities more generally there is lots of opportunity that we are not yet realising. For example, in Germany, I was very impressed with the Fraunhofer Institutes. They’re fantastic, with deep knowhow, deep expertise. The CSIRO does what they can, but there’s not the depth of expertise compared to Fraunhofer.

 

AMT: What do you think Government could do to support the industry?

CH: First it would help if they’d even mention manufacturing. I’ve never seen anything in the press where manufacturing was the focus. There’s plenty about coal-mining, farming and tourism. If you look at the Swiss or German press, manufacturing’s a big sector, treated with importance. If our Government could do something to raise our profile, that would be so helpful.

One specific policy area – which I have to say I think has zero chance under the current Government – is that our business is very cyclical. We have ups and downs. Machine tool industries generally are like that. Two years ago we had a boom, now we’re in a downturn, in two years it’s probably going to be booming again. Our European competitors face the same problem. In Switzerland, they have government programs named Kurzarbeit, which means ‘short work’. A company like us that’s in a downturn and needs to reduce costs can approach the Government and apply for Kurzarbeit. If they approve it, the company only has to pay 80% of the employee’s salary, the Government pays 20%, and the employee works 80%, a four-day week, but normally gets their full salary.  Germany has a very similar programme. The benefit is we can hang onto people in the downturn who we otherwise couldn’t afford. And when things improve again, we get back to full capacity and go from there.

It’s a wonderful way to soften the blow of these swings, because sadly, what happens here, where there’s no such support, is we end up letting people go that we don’t want to let go, and it’s very hard to get them back. So to me, that’s proven extremely effective. And even though people say “The Government’s paying and that comes out of taxes”, the company performs better on the upswing, and then it pays more tax. You’ve just got to think more long-term. I know competitors of ours in Europe are doing this right now, and it makes me jealous.

Another thing, and the Swiss government is very effective at this, is working with companies, opening doors abroad, getting us into industry groups, getting openings, leads, introductions through ambassadors or trade representatives. We don’t get anywhere near enough of that from Government. We get some, but we could do with a whole lot more.

 

AMT: What are the key trends you see having an impact on ANCA and the industry?

CH: Well, markets always shift, but the situation’s become more dynamic. A big one is the automotive market’s move from internal combustion to either fully electric vehicles or hybrid electric vehicles. What you believe here depends on where you’re sitting: if you work for Tesla, you think fully electric cars will take over the world; if you work for Japanese manufacturers, you think hybrids will take over. That’s important for us because about 20% of our customers make automotive products: engine blocks, gearboxes and so on. Fully electric cars have fewer machine components than internal combustion engines, so if the world goes fully electric there’ll be a drop in demand for cutting tools. If, however, the world goes hybrid, with both gasoline and electric engines in the car, total demand will in fact increase. But no-one really knows which way that will play out. That’s a trend we’re keeping a very close eye on.

Another thing is the smartphone boom is behind us. That drove enormous volumes and a lot of innovation. An incredible amount of machining went into the iPhone case, using cutting tools made on our machines. Demand hasn’t dropped so much per se, but the installed base is now so high that they’ve got enough to cover the demand. And people also hang onto their phones longer than they used to.

The good news is there are significant increases in volume coming along, especially from areas like aerospace. Boeing or Airbus have full order books for 5-10 years, with many aircrafts being produced. There are up and coming competitors in China; in Brazil, Embraer that are well ((is)) established now. That’s driving a lot of demand, and the market’s changing because engines in particular – something we’re big in – have to be much more reliable, which puts tighter tolerances on machining, better control, better tracking and so on.

Another trend is additive manufacturing. A lot of people see it as a threat, because rather than machining something it can be additively manufactured. But no additive manufacturing process can produce a surface finish like machining. And it’s also an opportunity. One project we’ve got is to look at using additive manufacturing as an alternative to grinding. If you make a tool such as an endmill, you can only make shapes you can grind with the grinding wheel, but with additive you have many more degrees of freedom. You can make different shapes, you don’t have the limitations of the grinding wheel. And it plays into our capabilities in software. So I see that as a big opportunity for ANCA, not just a threat.

Another area is smart factories and Industry 4.0. There was a fantastic article in a Swiss newspaper recently about Fraisa, who are a ((is))  good customer of ours. They were concerned they could no longer manufacture profitably in Switzerland, that they’d have to move production somewhere in Eastern Europe. They approached ANCA and said “We’re looking for a fully automated solution to do this lights-out.” We delivered a solution that runs all weekend with no-one there, and they’re very happy with it. Fraisa’s CEO was out here and he said “With this solution, we can continue to manufacture in Switzerland.” And the skill level of the workforce has changed dramatically. Fraisa went from relatively unskilled 20 years ago to a highly skilled workforce these days. There are basically no unskilled people left. And they didn’t do it by firing them; they trained them.

That Fraisa automation example is a good one, but it’s an isolated system, a little automated cell. We’re looking at going beyond that, to cover everything. Fraisa’s a big company; they can afford to invest in that kind of thing. We want to come up with solutions smaller companies can afford. In the US, for example, we’ve got a lot of customers – ‘Mom-&-Pop’ operations – with four or five employees. There’s tremendous potential for them to increase profitability if their machines could run at weekends without anyone there, while guaranteeing a good product. That’s an important part of the smart factory solution, to guarantee what’s coming out is right.

 

AMT: What are your ambitions for ANCA going forward?

CH: In July we launched ANCA Vision 2025, including what we call Complete Tool Production, expanding our footprint for an end-to-end production system. It’s basically providing customers a turnkey solution where we deliver everything: all the automation, all the integration, all the consumables. That’s very exciting because that market is much bigger than the tool and cutter grinder market on its own. Customers typically have 10 to 15 steps a product might go through from start to finish; we currently provide one of those steps. A high value-add step, but only one. There’s a lot more that gets done, and that’s something that we’re going to address.

Then we’ve got ANCA Motion. We recently had some good interactions with a global automation systems provider in Asia, who we visited and presented to, and they were absolutely blown away by the capabilities ANCA Motion has –  absolutely world-class. No-one can match some of the things we do, especially things like linear motors, or in the CNC. There’s a big untapped market for ANCA Motion, a lot of potential for it to become much bigger than it currently is, and we’re pushing that very aggressively.

 

AMT: And what’s the most rewarding aspect of the job?

CH: Well I’m still an engineer at heart. I love taking an idea, turning it into a product, and making a lot of money out of it. You know: first it’s an idea, then we make a prototype, we get it working properly, then it sells incredibly well and people love it. That’s a great feeling.

Another thing I really like is listening carefully to customers about what they’re looking to get solved. What bugs them about what they currently do? What problems would they like solved? There’s nothing better than leveraging our technology to solve their problems in a way they totally didn’t expect – coming out of left field and blindsiding them, so they say “Oh that’s brilliant. I never would have thought of it, but it’s just what I want.”

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