John Deere tractors are getting smarter all the time

  @FortuneMagazine September 23, 2013: 1:40 PM ET
LEA16 sam allen
(Fortune)

Among the greatest blessings of rising global prosperity is better nutrition for billions of people, but with a catch: the challenge of sustainably producing the extra food that increasing numbers can finally afford. It's a giant opportunity for the world's largest manufacturer of agricultural equipment, Deere (DE, Fortune 500). To grab it, CEO Sam Allen, 60, travels often to Brazil, China, India, Russia, and other populous, growing countries. A Purdue grad who joined Deere in 1975, he became chief executive in 2009. The stock has about doubled since then, beating the S&P (SPX). Allen spoke recently with Geoff Colvin about why Deere prefers that tractor drivers keep their hands off the steering wheel, about grooming young talent, and much else. Edited excerpts:

Q: Global agricultural output will have to double in the next 40 years with no more land or water than we've got now. How's that going to happen?

A: We think there's about 17% more arable land available in places like sub-Saharan Africa, the Cerrado areas of Brazil, the CIS [former Soviet republics]. But still it's just a small part. Already 67% of the world's fresh water is consumed by agriculture. We can't just say, "Don't irrigate." We believe the key will be continuing to improve productivity, mostly on existing land. That's going to come through a combination of seed genetics and smarter agronomic decisions, and those decisions are going to be enabled through the use of data coming off equipment that's getting more intelligent all the time.

How precise is agriculture getting?

On our equipment -- large combines, large tractors, large sprayers -- we have proprietary GPS that enables what we call auto-steer. We don't even want the operator to touch the steering wheel. Going up and down a field a mile each way, if the farmer has a 60-foot boom on the back, 30 feet on each side, there'll be only a two-inch overlap. Prior to this, a farmer would have overlapped by at least six feet.

Deere: Smart tech coming to big farms

Technologically, where are Deere's greatest opportunities now?

The greatest opportunities will always be around our big, highly productive equipment, whether it's construction equipment or forestry equipment or large ag. In the case of large ag, it will be about enabling tractors and combines and sprayers to work smarter, faster.

What is really interesting now is what we call smart implements. In baling straw, for example, there's an optimum moisture content, and as the straw's moisture content changes, you want the bale to be denser or less dense, which means you want the tractor to go faster or not as fast. We've just introduced a baler that has sensors on it that are sensing the moisture. The operator in the tractor does not touch anything, and the baler sends a signal to the tractor to go faster or slower.

Deere is becoming more of an infotech business. Does that change the way you manage it?

Most people don't realize that one of our 8000 Series tractors has more computing power on it than the first space shuttle. We have reorganized so we can have a group that does what we've traditionally done well, which is the hardware and the embedded software that goes with it, and another group, where I've brought in people from places like Microsoft (MSFT, Fortune 500) to help us with the application side of this.

How would you advise a young person today who wanted to rise to the top of a big global company like yours?

Focus on understanding what you don't know, because if you don't, some people in your organization will probably let you go ahead and go down that path, and you're going to be in trouble. You've got to build relationships with people -- that's critical -- but then you've got to say, "Okay, I do understand this, but I really don't understand that, and I've got to let people know that and have people help me."

China's great food dilemma

Water is fast becoming one of the most valuable commodities on earth. Can the technology help conserve water?

Yes. A number of people are going more and more to no-till [farming]. And with no-till, you conserve water since you're not busting up the ground.

We do have an operation in precision-drip irrigation. It's much, much more efficient than what's done in a majority of the world today, which is just flood irrigation. You've got a great window into other important parts of the global economy.

You have this big construction-equipment business, for starters, that gives you an opinion on housing starts in the U.S.

It's starting to improve a little. A normal year in new-housing starts is 1.6 million, 1.4 to 1.6 million. We were in excess of 2 million right before the Great Recession. We went down under 600,000. We're back up in the 840,000 to 880,000 range. And we're thinking that it's not going to come back quite as quickly as some people might think. With a 2% GDP growth, you're just not going to see things turn around overnight.

Agriculture worldwide is a high-growth business for as far as the eye can see. It will attract a lot of competitors. Ultimately what is the source of Deere's competitive advantage?

I'd like to say part of it is our 176-year history, and some people would also say that can be an Achilles' heel. But I do think our values keep us well grounded. Clearly one of our competitive advantages is our great dealer network. And we're really good at developing strong dealers. It's a source of sustainable competitive advantage.

And then we do a really good job focusing on productivity, up time, and low total cost of ownership. That's our value proposition to the customer. And we try not to deviate from that. We invest a lot of money in R&D. We're about $1.5 billion a year right now. We invest a lot of money in new product programs, a lot of them now tied to emissions.

But those are what I call bookends. In the middle it's about having a very highly aligned, highly engaged, committed workforce -- that's the 176-year part. That's the culture that's Deere, founded in integrity, commitment to quality. It brings that type of person into our organization. Highly aligned, highly engaged people are our major advantage.

Deere: Dealer network gives us our edge

One of your stated priorities is growing talent in the company. How do you persuade the best young people to come to work for Deere?

We've tried to really articulate our higher purpose -- we're committed to those linked to the land, enabling human flourishing by letting farmers do a better job feeding the world, letting contractors do a better job sheltering the world. Probably right now, more than at any time in my career, that message really resonates with today's kids who are coming out of school. So No. 1, you've got to have the type of company that somebody wants to come to.

Then when we have a new group come in and I speak to them, I say, "One of the first things I want you to do is really get to know us quickly. And if you don't think you like us, leave, because it won't be the type of company you want to work for. And we want people that really want to work for us. And the good news is if we keep you the first year, we have no turnover after that."

I think the other thing that has really helped us now is being global. It's an opportunity to get talent from all around the world. And when you start going to the Indias and the Chinas of the world and talk about working for a multinational and talk about working in agriculture, you've got a great chance to attract talent.

You went to college on what's called an Evans scholarship, which goes to caddies. And I know that you have been a great supporter of this whole concept. How was it important to you?

Evans scholars have to have economic need, so you come from middle income or lower, and then you have to have good academics. And then you have to caddy for at least two to three years at a minimum, a certain number of loops. And I had grown up around golf all my life, so that part was the easy part.

A second thing is you end up, you're in a house together, and there are about 46, 48 of us at the time I was there. And you don't get to choose the house you're in, and you don't get to choose who you're with. And so there were people from inner Chicago and a number of different backgrounds. Probably one of the great things for me in that was in building an appreciation for inclusion.

The Leadership series: This is the latest interview with a top executive by Fortune senior editor-at-large Geoff Colvin. See video excerpts of this interview at fortune.com/leadership -- plus find Colvin interviews with Charles Schwab, the team of Jeff Immelt (GE) and A.G. Lafley (P&G), Pimco's Mohamed El-Erian, Novartis CEO Joe Jimenez, Whole Foods co-CEO W alter Robb, and many more.

This story is from the September 16, 2013 issue of Fortune. To top of page



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