Wind in the R&D blades

The Danish company, Vestas Wind Systems A/S, is the world leader in wind energy systems. Professor Torben Pedersen (Copenhagen Business School) has studied its recent strategy and most specifically, the concomitant reorganization of R&D

Vestas was founded in 1945 as Vestas Staal Teknik A/S, a manufacturer of household appliances and agricultural products. In 1979, the second oil crisis led it to start manufacturing wind turbines. By 1986 that business had taken off to the point where the company devoted itself entirely to wind systems, renaming  itself Vestas Wind Systems. Growth was substantial over the next 15 years  - Vestas created a dozen different turbines, ranging in capacity from 55 to 3000mW, and in rotor diameter from 15m to 90m.

However, around 2004, the purchase of another Danish turbine maker, NEG Micon, led to financial difficulties. A new management team under Ditlev Egel was brought on board. Engel promptly formulated his new strategy, "The Will to Win 2005-2008."

The strategy called for transforming Vestas from a Danish wind company into a global energy and technology company, with greater emphasis on professional discipline.  The strategy has proven successful  - in 2008 nearly 18,000 employees were generating some €6.0 billion in revenue (a 155% jump over 2004).  Vestas commanded nearly a quarter of the market, with its three closest competitors in the 10-15% range. A key element of the strategy was to place a greater emphasis on technological innovations. It is on the reorganization and expansion of the R&D function that Professor Pedersen’s case (see reference below) focuses.

Revamping R&D
The first step was to create a new business unit, Vestas Technology R&D.  A Finnish engineer, Strom Madsen, was called upon to head it. In keeping with the professionalization agenda of Engel’s strategy, Madsen set about unifying Vestas’  R&D  efforts. Previously, responsibility for R&D efforts had been decentralized across the various product centers.  They were now centralized under the Vestas Technology R&D roof. Professionalization took the form of stricter discipline applied to the various stages of the design and launch process.

Through organizational redesign, Madsen also sought to provide greater visibility into the innovation, production suitability and service performance efforts. Three sub-units were born: Global Research with responsibility for breakthrough innovations, Engineering and Products  with the mission of marrying product development to production and Operations with responsibility for enhancing the service business.

In keeping with Engel’s goal of building Vestas’ global presence, Vestas Technology R&D set about building a global research network. Between 2008 and 2009, five international research centers came online. The siting of these centers took into account proximity to major markets as well as availability of outstanding engineers.

The following chart summarizes the organizational and functional  dimensions of the revamped R&D function:

Globalized R&D
The first new R&D center, the wind energy’s largest, most modern center, was located in Aarhus, Denmark.  By 2010, the center was to be home to 900 people, or close to half of total research personnel.

Another center was created on the wind-swept Isle of Wight. This former blade production facility was transformed into a Center of Excellence for aeromechanical composites.  Under Madsen, research centers were classified as Centers of Excellence or competence centers in various skills, depending on whether they were to play a leading or an assisting role on projects involving the different skills.

Singapore served as home to a third center, for a number of reasons. First, the state of Singapore was intent on finding alternatives to fossil-fuel energy. Secondly, it lay close to China, allowing Vestas to remain close to scientific and commercial developments in the Asian giant. Intellectual property considerations had led Vestas to put off, at least for a while, the creation of a center in China itself.

The Indian center in Chennai offers an interesting story. Initially, the center was created to be just an R&D back office, leveraging the local concentration of mechanical and IT engineers. But the engineers surpassed headquarters’ expectations and Chennai was awarded increased responsibilities. To start out with, it was entrusted with product support for the V82 turbine, produced only in India. After starting out with 125 engineers, the brain count was to to reach 600 in 2012.

The last center was created in the energy capital of the United States, Houston. A quarter of Vestas’ 2007 sales originated in the US and so an American presence was desirable. Furthermore, Houston was home to a substantial base of experienced energy engineers which Vestas could tap into.

With the global network of research centers went a global network of university collaborations. Vestas awarded sponsorships to professors and graduate students engaged in cutting-edge energy research. Of these fifteen or so partnerships, a few were established with universities located close to the company research centers: Danish Technical University (DTU), National University of Singapore, India Institute of Technology (IIT) – Chennai, and Texas A&M.

In 2008, R&D expenditures totaled €228 million or 3.7% of revenue. And the task of coordinating the expanded, global  R&D network was proving to be an increasingly daunting one.  Professor Pedersen puts the readers of the case in Madsen’s shoes as he prepares for a weekly executive management meeting. How can Madsen manage the unit interfaces and exploit their synergies? In the face of growing pressure from competitors such as GE Wind and Siemens what more could he do to provide tangible R&D results?

Reference:
ECCH: Richard Ivey School of Business 9B09M079
"Vestas Wind Systems A/S - Exploiting Global R&D Synergies"
Professor Torben Pedersen and Marcus Moller Larsen
Copenhagen Business School

Published March 2010