Uncovering innovations to accelerate the energy transition

Speaker A: Thanks for joining the Ross Republic podcast. My name is Adrian, I'm partner at Ross Republic. Today we're joined by Eleanor Hedstroom. She is the director of the Wetzela Next Business Lab. So first of all Ellie, thank you that you take the time. How are you doing?

Speaker B: Thank you for the invitation Adrian. I'm doing very well, thank you.

Speaker A: Great. Yeah. So for the listeners that uh, don't know the Wetzela Next Business Lab and Wetzela in general, maybe a few background information and then I'm going to ask you of course uh, to provide your own perspective and more background about the next business Lab. But Wetzela is headquartered in Helsinki in Finland. It's a global leader in innovative technologies and lifecycle solutions, especially for the marine and energy markets. Wetzel has over 17,000 employees across almost 80 countries. Um, and it's shaping the decarbonization of both industries. So the expertise is really in advanced uh, engine power plants with a total installed capacity of 79 gigawatts to give some perspective but also cutting edge solutions for over 40,000 vessels worldwide. And its mission is really to enable sustainable societies through smart technology, driving efficiency and environmental performance in a rapidly changing world. So this rapidly changing world is going to be a key topic today and how the next business lab drives that forward and helps to react to market changes. And maybe two more words about Ellie. She was before, before she was the director at the uh, Vessel Next Business Lab, a senior manager for the new business portfolio within the energy division, driving new business innovation activities to implement a vision and a strategy towards 100% renewable energy future. So let's maybe give the listeners your perspective on the next Business lab and maybe also a little bit uh, um, B energy and how that all fits together and then um, maybe share some examples on how your day to day looks like. I think that would be super interesting for the beginning to get some perspective of your work.

Speaker B: Well I usually start by saying that I wear three hats. Uh first I lead a small team that scouts for growth companies university collaborations to tackle the challenges that the energy business units have. And we are divided into three business units. Engine power plants, energy storage and optimization and energy services. The second half involves developing our competencies when it comes to innovation. And we are now focusing on capabilities like ideation, incubation and acceleration. And the third hat which actually has taken up most of the time uh, for me this year it's the uh, Wise Ecosystem and vice stands for wide and intelligent sustainable energy and it's a business Finland funded initiative uh, with the goal of developing zero emission balancing power. And versala is investing 100 million euros into this initiative. I would say that my work is quite versatile. One day I might start with a meeting with an external partner, work on capability frameworks, or then join some internal meeting to steer our collaborations.

Speaker A: I think that's a great introduction. Um, and I also read online that the Bachelor Business Lab, obviously like many other industrial companies, went through a lot of or some rethinking and um, repositioning how it can best support the core business. And I think that some topic that is very challenging but also exciting for many companies these days, especially given the challenges in the macro industry and especially in Europe. So can you share a little bit of background, how that worked and um, the position of the next business lab today in terms of serving the business.

Speaker B: The repositioning of our lab was actually a response to Varzela shaping its strategy the uh, Varzela way. Um, and it outlines our purpose so enabling sustainable societies through innovation and services. But it also outlines the target position and we are focusing on decarbonisation both of marine and energy with 5% annual growth, 12% operational margin and also to become carbon neutral in our own operations and in practice. We defined that the end to end responsibility for innovation process in Varcell Energy lies within the business units. Uh, framing the next business lab then as a support function. And this provided both clarity on the budget resourcing but also on the governance on innovation. And we have also realized that some of the functions. I have learned that um, when it comes to innovation, some companies, uh, sometimes it's centralized and sometimes it's decentralized. Uh, and we have realized that some functions, they are managed on a corporate level like mergers and acquisitions and intellectual asset management. But most of our innovation functions also need to be close to the business unit to be more effective.

Speaker A: Okay, makes sense. Yeah. I also noticed that in some cases if it's too far outside and not so much a support function but really more isolated, decentralized, um, it's also challenging in the way that it needs a lot of budget and time horizon to really um, generate returns in that sense. So in whatever way, if there's like new customers, new types of new revenue streams, um, and yeah, especially in the last years I think many of these labs have been rethought and reshaped not only at Vetcella, but uh, many of them actually I saw um, also my work moving closer to the core business being really connected to business lines who have their obviously own based on the strategy agendas, roadmaps and goals that they want to achieve. But in a day to day business, I know it can be really challenging to have the focus on themes and technologies and new business models that are a little bit stretched that might be relevant in the future. So serving them with that kind of support capacity I think is a nice way to help these business lines to reach their goals. Let's maybe zoom out a little bit before we uh, go into the details of the next business lab. I um, recently also uh, wrote a blog post about the zero interest rate decade which was very transformative for many businesses in Europe where capital was very cheap and they could invest a lot in, in more explorative innovation, which is where I think this repositioning came from. Because now we're suddenly an environment where capital is very expensive. Plus there's a lot of pressure on the cost side at many larger corporates. So what was invoked before was a lot of new types of business building, developing own technologies which became too expensive. So many stopped that. And now what's also very in vogue is of course rather than developing a lot in house to work with external providers and uh, it's now labeled venture clienting. So really as large corporates, um, using external technology companies and growth companies as suppliers and becoming their client. And I think given all these options and also the whole macro environment and you went through the exercise to really rethink, how can Vercella next best support the strategy and the business lines? What's your overview like a general view on innovation and um, how in these market cycles such labs can best support the business.

Speaker B: Yeah, thank you Adrian, that is a very good question. And maybe I illustrate this by an example on how we have looked at this. Of course you need to analyze alternative futures, uh, that we have done by for instance an Energy Scenario 2035 project that actually took the whole last year. Uh, and there we made then decisions based on this and other monitoring, uh, activities we're doing that. What should we act upon and what should we monitor. And then the second step is of course we want to involve our organization to contribute. Uh, anyone can contribute with ideas, insights through uh, a platform, a software platform that we're using in Vercella. Uh, we are located in 180. So it's very important to enable innovation throughout the organization. And that is one way uh, of enabling that. So that could be, for instance that there is a technology challenge that the business units don't see that they can't solve by themselves. And then our Scouting and exploration process actually comes into play. My team, next business lab, then scout for suitable partners to meet this challenge. We create a long list that then turns into a short list and then we decide together with the business units which companies do we explore further and we meet with the ones that, where we see the biggest potential for collaboration. Uh, in many cases this ends up into great insights, uh, maybe insights that we shouldn't proceed with this. Uh, it can also be quite frustrating actually for the organization and for the team members to come to that conclusion. But it's really good to make strong and validated decisions for the future. And you know it's not, not the uh, not the failure to come to that decision. But of course we want to collaborate on projects together with these partners, uh, or selected companies. And then let's see what that can lead to. It can lead to for instance in some cases it's been leading to acquisitions even in the past. Uh and then we will repeat with some other challenge and um, then when it comes to that revised ecosystem that I mentioned in the beginning that we have uh, launched this year, so there we of course want to work also uh, with less mature companies uh, and support them. And uh, that is one of the capabilities we are building uh on so taking what we are quite good at in our company. So one of them is knowledge sharing. Uh, we usually do that with our suppliers and uh, partners that we share our insights and work together and inspire them and help them to develop. So that is one part of the puzzle. We have also been building thought leadership with many companies throughout the years. Uh, for instance in the Dubai Expo, uh, where we did a collaboration with two startups and showcased the power to X process, just to mention a concrete example. Um and then we also have fantastic opportunities. Of course we can do pilots at sites around the globe but we can also take them here to our um, lab here in Warsaw where we have facilities where we can work on the prototypes and develop them further. We both have office space but we also have garages that uh, we offer for partners. And then the final thing where I think we can learn together actually and that is how to build strong business cases.

Speaker A: Um, actually I think uh, that's great that you have the super like streamlined process in place to scout and onboard growth companies and coordinate the collaboration with the business units. I once worked with a large bank uh in Europe where we also identified a really important business uh, opportunity and it took a long long time to kind of understand that potentially there are companies out there that have developed a really useful technology out there that uh, the bank could use, for example. And we did a similar approach that we came up with a long list and shortlist and invited a few of them to pitch and found also good solutions. But in the end, unfortunately it was easier to just build something in house than to partner with a growth or fintech company because it essentially had to go through the um, established procurement channels. Of course as a regulated institutions, that's important. But it would have for example expanded the, the go live date over a year just to really make sure it uh, is properly assessed and integrated. Um, so in the end it wasn't possible to partner with a growth company. And in that um, project I learned the importance of having these very specialized teams in place that help you to procure solutions from growth companies, which is really different to procuring some solution from a large established vendor. So really from your risk frameworks to your procurement process overall, how you deal with them, how you work with them, um, maybe that you don't throw them like a lot of Excel sheets where they have hundreds of pages to fill out and lead them through it and especially help them of uh, navigating the stakeholders which a company like Wetzel for example, um, if a golf company wants to work with you, they need someone to really show them who they need to talk to, who needs to be convinced and so on. So um, I think that shows that there is a huge value add for the business in terms of helping them to really work with these growth companies. Um, has it just one question that I thought about when you explained that you um, come up with ah, long list and shortlist and then help the business lines adopt new solutions. Has it ever happened that you didn't find a solution? I mean potentially it can lead to the insight that there is a market need for it. If Versla has it, maybe others have it as well. So maybe you build it in house if you think you can do it. And kind of this whole incubation topic, um, um, I think these incubation activities have decreased a little bit because it's expensive to build your own things. But has it happened that you then realized, okay, we couldn't find a scale up, maybe we build it ourselves. Or did you then just say, okay, this is too big of a technical challenge, for example, and you need to monitor and see maybe in the future if something comes up?

Speaker B: Yeah, that's a very good question. I, uh, believe that then one needs to step back and look at the big picture, uh, and see is the right partner A startup, a grow company or is there a more mature company there where we could work together on developing the solution, possibly even in the wider ecosystem. And um, then there are different type of ways of working that one can do that through the wise ecosystem. That is one concrete way where we can work on co innovation projects together and enable them also to seek back parts of the funding from Business Finland. So I would recommend that to take uh, a step back and look at the big picture and revisit the strategy uh in those cases and try to get forward based on the best solution at hand.

Speaker A: And one other point that you uh, mentioned which is I think super important, the value of these business labs in scouting the market and also helping the business lines translate challenges and needs into a concrete opportunity that maybe other companies out there can help you solve. That is an amazing pipeline for M and A activities as well. Since you mentioned that can lead to acquisitions uh, down the line. So there's a really nice interplay between having an operational challenge or business opportunity that is discovered, uh, ideating that with a business lab and people like yourself finding potentially solutions that are up and coming. And obviously you are in a position where you can make acquisitions. So essentially that can be a quite interesting pipeline as well. But um, it actually needs also quite tight collaboration with the M M and A team as you said which is now internal. So it's a huge as always an innovation stakeholder and networking topic. But I think that can be a very effective combination of various innovation paths, M and A partnering but also building yourself like with the wise ecosystem. And I think that's a little bit the um, art and the challenge that innovation has to find the right vehicle for innovation to understand what's out there and to, and to combine it smartly. Um, but to make it also more concrete in your case if you go to the Vets or Next business website, I saw you looking specifically for monitoring and analytics solutions, sustainable fuels and predictive maintenance solutions. Can you collaborate a little bit on um, success criteria down the line that you found so far, uh, as really important to make sure these collaborations work well and I guess essentially also what kind of criteria you look at when you assess these potential partner companies?

Speaker B: I think it's case by case of course. Uh, but there are some key success factors that makes a partnership work. You need to have alignment on the goals and you know what do you want to achieve. You need to create sense of the problem you want to solve, uh, together you need to create trust because that is the foundation, um, and you create Trust in my opinion through effective communication because you need to trust in each other and the capabilities, the intentions, you know, the commitment that the boat make to the partnership. But of course when it comes to Varzela, which is a technology company, there can also be challenges. Um, when you think about a small company and a big company and to tackle those challenges, one of the things we have done is to establish these cross uh, functional teams that work on the initiative that's at hand and also that enables us to secure that we have resources on our side to work together with uh, the smaller partners. Then we have also defined criteria. I think that's very important in the beginning that you define clear criteria on what you want to achieve. And on the web page we have on high level so we are targeting our customers and our uh, markets. We like to decrease cost and also bring technologies faster to the market. So it's also about speed. But then we can also look at technologies where we see that it can have a potential for the future. If we see that this is a technology that will make sense, maybe not today, but it will have a crucial part for us in the future. So those we are also exploring. And one concrete example of an um, scouting exercise we did on uh, storage. So there we listed a few criteria and there are quite many. There are actually six. Um, so I would just say on a high level that what they contained. So we were looking into the availability auto raw material and manufacturing, uh, the scalability, applications, manufacturing recyclability. There comes both sustainability but also opex into play. Um, of course the attractiveness, revenue generation and life cycle cost. Um, sustainability is very important in the storage space. So looking at the whole life cycle emissions and also the ethical sourcing and then finally safety which is a very important topic when it comes to, to new storage technologies. There are these kind of high level themes and criteria. But then it is always case by case and then we really drill down into the details and the long list of criteria that need to be met.

Speaker A: Essentially you scout them globally or is this them are focused on like central

Speaker B: Europe or we'll scout globally because we want to understand what's out there. But then of course when it comes to projects and initiatives, uh, it depends we have our energy storage organization is mainly based in us so that time zone that works well for them, that can be then an advantage if we find a partner that works according to that. But then when it comes to our um, engine based power plants, so the development is happening here in Warsaw. So then of course it can be that the time zone that is closer to, to hear in practice works better. But we always look globally and we look at all the potential companies, uh, that that's out there because it's also about learning and understanding how the market space look.

Speaker A: I can imagine that if you scout for new solutions out there, it's probably very technical teams or maybe spin offs from universities sometimes so they're early stage and then suddenly um, potentially see the next business, uh, lab an opportunity to work together with a large industri and I guess anyone who's ever tried to make that work between young uh, driven teams that work on growth, uh, in a growth company versus a large corporate with all the stakeholder management and rules and compliance in place, what kind of challenges can you share that you saw happening in these type of collaborations? And maybe for the listeners that are insomnia solutions, what did you do to overcome these typical challenges when you bring uh, let's say tech startup and help a business line to assess and adopt maybe their solution down the line?

Speaker B: Yeah, of course. I think we just need to accept that there are cultural differences uh, between a corporation and a university and also in growth companies and emerging companies. Um, so I think one way you can overcome that is to create clarity and alignment. Also looking to define what is success and what does success mean for each partner. I also think as I mentioned that business cases is a thing we want to develop, uh, where we see we can become even better in this uh, area uh, together with others and uh, we have started the journey. We already today have a co creation playbook where we have all our uh, templates, for instance NDAs and so forth. They are available on our web pages. So that also enables transparency from the beginning.

Speaker A: Sounds interesting. Um, maybe one word about the culture since you mentioned it. How do you foster that culture? I can imagine when you say alignment is super important. You mentioned it several times. I fully agree. Um, tangibly. Does that mean you bring in the stakeholders from the business and do workshops with that uh, growth company? Um, I guess it's a lot about communication and then also bringing people into agreement to which. Yeah, um, and of course cultures in that sense kind um, of um, just different obviously because the companies are so different stages and the environment is different. How are there like any examples on the cultural side that you try to enable that match between growth companies and the core business?

Speaker B: Yeah, I think here um, I actually have a competitive advantage with our history. So the energy business is built by working together with suppliers and we have done that for so long time and I personally believe that growth companies, it is just another form of a supplier. Um, it needs more attention to certain aspects. Um, and uh, I think that there is where Nick's business come into play to bring the bridge and the linchpin between these different worlds. In the end it comes down to people and it's people working together. Then you have processes and frameworks that you need to comply with and to get them to work. Uh, and to do that you need to spend time together and invest in taking the time, meeting, clarifying things, put things on paper and ensure a continuous dialogue and communication.

Speaker A: Yeah, I can imagine it's a huge advantage if it's already in your DNA to collaborate with externals. Because I sometimes if, if you're too vertically integrated and you've done for 50 or 100 years and owned your value chain really strongly, then I can also uh, sometimes see this not invented here syndrome that, that it's just that people don't think other companies out there can be integrated seamlessly into the operations or shouldn't because you can do it better. So to have that already is uh, ingrained is a huge, huge advantage. Just uh, from a cultural perspective I think to uh, be open for collaboration in that sense. So yeah, I think that's, that's super interesting. And I think that topic of large companies really professionalizing their scouting and searching activities in the area of growth companies and especially tech companies that can advance your own strategies, um, that's a huge topic that will only grow in importance going forward. And I know many companies are working on these type of projects. So maybe before we wrap up, is there any key final advice for other labs, uh, maybe also based on what you talked about now after your transformation, after the new strategy has been set up and you're supporting it with the next business lab, um, who might be looking to implement similar, um, innovation strategies, uh, how to get that done successfully.

Speaker B: Based on my experience from Varzela, I think it's very important to have a close connection and collaboration with various people within the organization because that will create success and creating shared value. Um, and also acknowledging that the different organizations and other companies, they might have their own approaches. So you need to look at the context of the company you are working for and understand what is the value you want to bring.

Speaker A: Yeah, I fully agree, especially on the point again on this whole stakeholder collaboration. I fully subscribe to that, to really be close to the business. Because one of the key um, mistakes maybe that happened in the past was uh, really that you had a lot of companies running these innovation activities too separated from the core business, um, hiring really separate teams and separate governance. And eventually, I think if you're doing your job well, you will eventually transfer some of the products or solutions you're building back into the core business because that's maybe where you can have immediate impact. But if it's too separate and there, uh, hasn't been the strong collaboration from day one, then it's really tough to get that going and to just hand it over and say, here's something we developed and have fun with it. And it never really works. So to have the strong collaboration. And as you said, since your business, uh, lab is really, um, serving the business lines that creates this direct alignment from day one. So I think that's a really good, um, insight to take away. So, yeah, thanks, Eli, that you took the time. I learned a lot, um, and wish you all the best for the future. Thank you.

Speaker B: Thank you, Adrian. Very happy to be here to share my insights. And I wish that we listeners, uh, best success in their future innovation endeavors.