Finally! – a company that stays committed to innovation even in tough times
What should a company do with their innovation initiatives in tough times like this?
Unfortunately, most companies respond to tough economic times by cutting deep –often too deep – on their organizational innovation capabilities, and this time around has been no different. It has been somewhat depressing witnessing this over the last 6-9 months.
The answer to what companies should do was given in an article in the leading Danish business daily, Borsen, and I was delighted that the advice was not given by a consultant or an academic. No, it was given by Niels B. Christiansen, the CEO of Danfoss, a global leader in development and production of mechanical and electronic products and controls. This company with 23,000 employees has definitely been hit hard by these tough times, having seen revenues of main divisions down by as much as 45 percent.
I know Danfoss quite well as I helped them develop their Man on The Moon competition, which is a great tool for identifying and developing ideas as well as the people you need to drive the ideas to revenues. Check this link: Corporate Business Plan Competitions – an initiative to identify and develop intrapreneurs and create open innovation
I also have Danfoss people in my network groups in Denmark, and they are great contributors as they come from an organization in which the founder, previous CEO and still owner have worked hard to develop a strong innovation culture.
However, as I have been following Danfoss during this crisis in which they have had to lay off about 5,500 employees, I grew more and more nervous on behalf of their innovation initiatives. I have been especially concerned for Danfoss Ventures, which invests in business plans and start-up companies to create future growth within the Danfoss Group. It is also the department that develops the entrepreneurial skills, tools and behaviour of Danfoss employees.
What did Niels B. Christiansen do? He not only talked; he also walked the talk when he announced that Danfoss continues to support Danfoss Ventures in the tune of USD 30 million a year. This is on top of the R&D activities within the Danfoss divisions.
Christiansen especially got top marks in my book for two quotes. The first one: “We decided not to cut drastically into Danfoss Ventures because we believe the product development here contributes with projects within energy and climate solutions which could bring in future revenues.” Invest now, reap in the future. It is that simple, but how many companies actually do it?
The second quote: “We have chosen to place the Danfoss-costs of investing in ventures and product development in a separate company in order to give the people in this unit the freedom to develop projects without the burden of financial issues in the divisions and the ways things were done in the past.” I agree. You need independent units that make the more radical innovation happen as a supplement to the more incremental innovation that usually takes place within the core of the company.
This is a CEO that makes me believe Danfoss is serious about innovation. I think employees, partners, customers and competitors pick up the same signals.
I worked for Crisplant for 10 years in the US. I can attest that Danfoss is an excellent company. In fact, most of the Danish companies that I have grown to know, especially for the Aarhus/Aalborg areas are excellent companies. I would jump at the chance to work for a Danish Company again !
Nice article. Didn't Niels run Dator?
Mid venlig hilsen,
Dave
Hi Stefan
It is always interesting when companies decide to continue their investment in innovation in spite of the hard times.
However, I think it is much more interesting to speculate why Danfoss and Grundfos are continuing to invest quite large amounts of money in innovation project that may be profitable in 5-10 years. As you, I know Danfoss and especially Danfoss Ventures and their strategy quite well form my MBA studies (did my Masters within Corporate Venturing in DK).
I think the key reason for not closing the venture activities down in hard times is due to the owners of the companies. They are both family owned and I know how important it is for especially Jørgen Mads Clausen (now chairman) to invest in the future. He has the courage to do it. Ho does not have to pay attention to the stock market and keep the shareholders happy all the time. The same is true for Grundfos and their venture activities.
Look at Coloplast and their attempt to start up venture activities through Coloplast Incubation. They allocated a great deal of money when they started and promoted it heavily internally and also to a certain part externally. When the times got tough for some months ago, what do you think happened? Yes – they stopped the funding and it is now kept to a minimum.
Coloplast is a public company and the former and new CEO did and do not have the courage to make really long term investments in innovation/venturing activities when the times get tough. If the CEO can not show positive short term results 4 times a year – he is not going to survive that long!
That venture activities and therefore long term innovation projects are closed down in hard times is not unique. You can find loads of examples in the business venture litterature about this.
But I speculate if there is a correlation between the outcome (closed down or not) and the ownership structure of the companies.
Keld, I agree with you on the correlation on ownership and comittment to innovation and it is very strong in the Danfoss case.
However, Danfoss has been hit very hard recently and it is just encouraging to see they stay very committed to innovation and Danfoss Ventures. I hope Danfoss can become a model of inspiration to all companies – family owed or not – in a few years when times have changed and the benefits start rolling back.
Stefan
Keld, it's a very interesting point about ownership.
Never the less, I sure hope this kind of commitment to innovation will result in a competitive edge for Danfoss in the near future. It makes so much sense to invest the time, effort and money in innovation and futures studies in times like these. As Stefan said, we can only hope this will encourage others to follow.