Ep.1 - Nikolai Ardey / Volkswagen Group - "Innovation cannot be governed. It has to be connected.”

In depth interviews with the most influential innovation executives of the tech arena. Exclusive data and insights on major and emerging ecosystems all around the world. The hottest news on technology and open innovation at a global level. This and much more in every new episode. Welcome to Open Innovation Talks. Mind the Bridge chat with industry leaders.

I'm Alberto Netti, senior entrepreneur, university professor and chairman of Mind A Bridge and this is the first episode of Open Innovation Talks. Mind a Bridge chat with industry leaders. This podcast is about open innovation and is addressed to corporate executives, practitioners and startup CXOs interested to understand how to make startup corporate collaboration work. My guest today is Nicolas Arday. Nicholas is the head of Volkswagen Group Innovation. With Nicolas today we will discuss how to do very, very difficult things, that is organizing a central common innovation unit in a large group with 10 different global brands and how to generate synergies from the aim of Mind the Bridge. I'm Alberto Netti and this is the Open Innovation Talks. Today we have the pleasure to have with us Nicolas Arday, Executive director and head of Volkswagen Group Innovation.

Hello Alberto.

It's really a pleasure. What Volkswagen has been doing the past few years is really interesting and particularly interesting what Osvagn has been doing on innovation and specifically on the open innovation front. OG has been recognized among the corporate startup stars. 2022 a few months ago in London. And that means that you guys have been doing something quite interesting on the innovation and specifically on the open innovation front. We are pretty eager to deep dive into what you guys have been doing the past months and years and what you're up to. So the first immediate question for you, Nikolai, is just if you can describe the overall approach to innovation of a large group like Volkswagen.

Yeah, innovation at Volkswagen is a sophisticated network at first. So there are many brands belonging to Volkswagen Group and each brand of course has its own innovation activities and also entities distributed all over the world somehow. But we have one central common innovation unit, which is the unit I am in charge of. And there we are trying to generate as much as possible of synergies between the brands. So of course when we look to passenger cars, or to trucks, or to other business parts of our company, then there are of course common topics which are relevant to each of the brands, like decarbonization, like certain software technologies, things like autonomous drive, future interface and many more topics. And it's just worthwhile to coordinate on that and to share the resources between the brands. Doing all this research only once do it in a coordinated manner. On the other hand, if you would like to leverage innovation To a maximum, you have to be present on each of the hottest innovation hotspots all over the world and would not be very efficient to do this by every brand separately. So also from this angle it is worthwhile to have one central innovation unit to be present all over the world and the most relevant hotspots for our business and then to support brands in that regard.

So this is important because again the specificity of Postwagen is as you mentioned, to having multiple brands. And again there are brands with a pretty long heritage and post the world they have know how in terms of innovation. On the other hand, they have probably also desire of maintaining their own independence, flavor. That is what the brands represent and probably that's tiny typically creates issues in trying to to coordinate and leverage it. As you mentioned, there are some topics that are transversal that might be efficiently managed at corporate level. As mentioned, you identify a few of them and probably something similar that the modular isolation that brands like Volkswagen are doing across the different sub brands that they have and on the other end, the ability to cope with the different initiatives. Very important. First of all, you mentioned the presence in the different innovation hospitals. In which hospitals, in which regions are you directly?

First in Asia, in Beijing, in Shanghai, in Tokyo, in Singapore. So Asian footprint and Israel of course in Tel Aviv and in US Silicon Valley is of course mandatory in Belmont. And then there's something very interesting going on in Tennessee. So we have close cooperation with the University of Tennessee and the Oak Ridge National Lab in Knoxville, which is a fantastic facility looking into also mainly green tech and green energy supply topics, also chemical topics, battery technology and nuclear science and so on. This is also a very interesting hotspot for us. These are the locations we are present. And then there are other brands. For instance, Audi is active at the MIT in Boston and further also Audi is active in Berlin with the innovation unit. So we are collaborating in that regard. Yes. So it's also our responsibility as a group innovation to form and organize and connect this innovation network all over the group. This was not so established so far up to now, but we are just about to establish now an open innovation platform. All the brands and also tiny innovation units, which makes fun to work with, invites everybody an open innovation platform in order to connect all these topics, not to just govern them. Because innovation shouldn't be governed in a central manner, it should be connected and it should be an open network. So this is at first what we understand by open innovation, to connect innovation to be open within our group and then of course also towards the external innovation ecosystem.

I think the definition just used, open within the group, is particularly intriguing because this looks quite contradictory. But actually knowing large corporation and knowing the complexities in the Ardos and the multiple separate rooms division that large corporations do have, actually the proposition being open within our group makes a lot of sense and I believe there is a lot of effort to really make it work.

Yeah, there's a lot of support by our board, by the way. So they gave us the mandate to set up this kind of open network and they would want us to act as network player rather than to stay into our closed labs and to perform research on all these tiny molecules down there doing everything by ourselves. So we should better collaborate between each other within the group and also with the external innovation system.

If you had to provide some advice to some tips based on your experience and the outdoors of the work of connecting inside the group to some of your peers and colleagues, what would be the top ones? What you have learned in the past few years trying to connecting the dots?

That's a difficult question. It's not so much my style of work to provide tips to. To other colleagues how they can do better, but it is. Well, it. It is a lot of fun to be part of this international innovation network. And what I would suggest to everybody is enjoy to collaborate with Chinese colleagues, with Israel colleagues, visit those sites and fortunately now we can also enter China again and that will be my next visit on of course, as soon as possible to visit my colleagues there. Out there, it's so important to meet in person and to be there to breath the spirit of this ecosystem. It's not sufficient to do it from your desk in your home base.

Just to think I was in Tel Aviv a few months ago. Actually we are opening our innovation center in Tel Aviv as Mind the Bridge. And I had the pleasure to meet with em, that is your colleagues over there. And she presented me the Connect Volkswagen Group innovation that is based in Tel Aviv. And then in Tel Aviv you have also the Porsche APX accelerators. Can you explain what is the goal and how these two models are working? Because I found that pretty drastic.

Yeah, sure. At least for Connect, I can provide the details. I'm not so deep into the APX activities, of course I know closely what what they are about and what their targets are. But if we start with Connect, this is an office which we have there already for several years and meanwhile are established there. It's a group of around 10 employees who are really entrained in the local innovation ecosystem. They provide challenges There they perform hackathons and they do all the scouting in this ecosystem all over Israel. And having this established, they are also invited by and taken seriously by those startups. And this is a really valuable asset for us because this gives us the access to those companies. And while they are doing POCs locally in Israel in connection or in collaboration with the headquarter in Wolfsburg or any other of the group and via these POCs they try to help those companies to launch scaling projects together with the brands in order to help them generate business. And this is way to speed up this innovation because the ecosystem in Israel is a very special one feeded by the military science, which is there really an outstanding manner and then the Israel spirit of startup and the generous spirit of innovation in Israel, which is really very special. And they established to be the second largest startup community all over the world behind just the Silicon Valley. And so this is already a good reason to be there or a must to be there be there. And of course there's also Goda active Goda Digital lab in Israel and also Porsche Digital and all three labs are collaborating really closely. We even are thinking to collocate also. So this is of course a community there. And the Porsche APX is. This is a very open and very early phase as early seed incubator somehow. So they are at first investing, as far as I know in early seed companies, but mainly they provide those portfolio companies access to the resources or the to perform their POCs and scale up projects together with Porsche and the Axis Springer company. Yeah, and this is exactly what an early seed company needs because they don't have the infrastructure normally to perform those POCs and they often also need help in terms of consulting or in business aspects. And this is what they provide to my knowledge. And this is a very good idea. Yeah, it's very similar to the approach also of the SEAT activity in Barcelona where they also. This is based on challenges they perform and then they select a certain number of companies. I think in the first cohort it was seven companies who have been awarded to get them the support to be also coached to get access to the workshops and to get also a certain funding for their early seed projects. So this is an early seed activity which brings startup spirit and corporate spirit together. It's inspiring the corporate on the one hand and it's also supporting in a way in a very early phase.

So when you then Porsche APX together with Axpring and start for B from Seattle mostly focus on early stage acceleration while connect as well as the Digital Lab of Scott are mostly focused on what today is called a venture client, mostly technologies and then bring it into the sphere. The other component typically among the different open innovation tools are investments. Again the accelerators are doing small early stage investments. But as far as I know There is a 300 million fund that Volkswagen as a group has invested with specific focus on decarbonization. Can you tell us something about that?

This is in the final stage of launch at the moment. So we plan to be ready for investment to the end of this quarter. So this will be a completely independent CBC structure. Independent in that regard that we don't control and don't govern it on behalf of our group. So this has to be an independent pre construction to take quick decisions on certain investments. But they will get strong support from the group in a way that we provide them our scouting network all over the world. We provide them our competency and AI tools to evaluate companies, to also evaluate the relevance of technologies, the feasibility of technologies. And this is just as a consulting input for them which they can take or leave it. When we have portfolio companies in the fund then we try to find partners within the group. Because having a business partner who supports the startup to get a scale up project to connect startup with Volkswagen as a potential customer of this technology. This would be a strong growth support for them. And also in that way also would drive the multiple of the value. Hopefully this would be so far our recipe and topics and the scope content wise is better for our first fund limited to. To decarbonization technologies. Yes focus and do not to have a clear target area for that.

So the fund will be independent. That is a pretty common recent trend for many corporates to have a separate independent corporate venture capital fund again will be the only LP or there will.

Be also we are open also to other lts. So we will have a first closing and then a second closing. And so we have. We are quite confident that we can also enlarge the volume quite a lot by including additional LPs.

That is another strong differentiator because many corporates have a separate vehicle but at the end they remain into the.

Yeah, I think this is an important step because also brings a little bit more let's say fundamental into the whole story. Better degree of evaluation of the topics which we invest in there. So it's not only our opinion which counts there. We have also to stand up to maybe and also just in financial LP and provide him or make him satisfied. And this is also challenging us and I think increasing the chances or the opportunities which we have because of course we would not forget that we are newcomers in the that field and we are making baby steps in a way. So it would be too ambitious to think that we would be really successful from the very minute. So to have other lps within our group, if they are not too many, would of course help the whole story to be successful at the end of the day.

Yeah. There is actually a very hot topic in the open innovation debates again which is the right model for corporate venture capital. The most emerging trend is to have in this vehicle separates because they want to be independent. Obviously is a separate vehicle is supposed to have their own goals. Typically are more financial rather than strategic. And that's at the end pose the question is if I'm a big company and I have an investment harm, it should be strategic or financial. Because at the end, whatever is the size of the fund, the financial results are particular and let's say are not material for the P and L of the company, whatever they are. So if you are performing greatly so the real value is the strategic one.

I think the reason that it is or the if it is strategic, it will be also successful from a financial point of view because if it fits to our strategy then we are in a position to support them. And then we could be potential customers of this technology. And of course then it will be also successful from a financial point of view. So the one is the pre decision or the prerequisite for the other. From our point of view strategy is.

Never a good reason to make poor financial decision. This is typically is a good way of saying typically in the center. But again this is the big debate and it's difficult to align exactly to understand which is the perfect model. But again we've seen that many, many corporates are trying to keep the CBC a bit more far than most of the traditional cooperative has kept. And by the way, it's pretty bizarre that most of the leading company that have done such a choice of German companies. Think about Siemens with next 47, about SAP with Sapphire, now also Volkswagen. So that means that substantially is quite a track record German company. And try to keep the CR a bit more fire from the corporate epicenter than most of the other corporates are doing. But I believe that is quite interesting.

It's the only way to keep it agile and quick in their decisions. Otherwise you would have to to consolidate each investment decision in the supervisory board. And this would slow down everything dramatically. So this has to be non controlled of course. And the biggest hurdle for those CBCs from my point of view and what the feedback we got is to onboard those companies into our corporate so to launch the business with those companies and but in any case, if one is successful to onboard the company in the corporate the value and from this point of view there would be an intrinsic motivation of the fund itself to find those companies where the chances or the opportunities would be best to be successful. In that regard.

Yeah, at the end everything that matters in integration, integrated innovation is the organization and integrate innovation from outside inside the organization. Typically there are a lot of let's say barriers, resistance not invented your syndrome. And that's again it is the part that makes your work so hard and so fascinating because again trying to going through these barriers that are cemented in culture is so difficult. So what have been the most difficult challenge that you have faced, how you try to get around them? What are your recipes here in general.

In terms of innovation? Well, that's. It's hard to say though because it is always a challenge to land innovations with the right maturity and to transfer them into the pre development and serious departments. So it is especially due to this non invented syndrome. It is common, let's say a common phenomenon that those departments who should overtake innovations from, for instance from my department ask many, many questions. Is this already checked? Is this checked? Is that checked? And it is a hard challenge for the pre development departments gain the right maturity within the short phase of their part of the process. It's in many cases it's just one year and within one year they have find the right supplier, they have to have a final spec for the whole thing and they have to find a target commitment for a serious development project. This means that an innovation unit like ours has has to learn to provide more maturity to transfer it to those pre development departments to make it more easy for them to overtake it. I think this is something which we learned during the last years. And as speed is everything in the context of innovation and time to market and we are exposed to a severe competition especially in China at the moment. So we have to speed up and that means that we have to shorten a little bit our focus not looking too far, which is convenient for innovators to look towards 2050, which is very convenient because you don't have to prove everything rather than to focus on the next few years, let's say the phase of 2027 towards 2030. So this is the phase where we have our labors in, in our hands and what we are or should be measured or tracked about is which part of the innovations which we will see from on 2027 onwards will be there because our innovation unit put their contribution to it. So this is what we have to do to speed up now. And this means to gain more maturity. And on the other hand, of course we should not miss all these breakthrough innovations which is the other end of the story. So we have to keep a certain degree of freedom which we there should be about 25% of our budget, but we should not ask the brands or customers what we should do with the money. So this is to our own competency to say, okay, there's quantum computing for instance, which is the next fractal thing or fusion energy or whatever, which will be the next big step. And this is of course something which we have also to have the free resources and to keep the free resources for that. And this is also appreciated by our.

Yeah, I think you, you touched two very relevant points in what you just said. First of all, that one of the big barriers in integrated innovation from outside is the level of maturity and, and based on our experiences specifically for solution that are supposed to solve needs coming from the business line, the business unit in the next few years they have to be mature solution that are deployment grade. And so they're talking about mostly scale ups rather than startups, mature companies and that make the integration effort not easy, but definitely more manageable. Because one of the things that most of your colleagues tell me is yes, sometimes startups tend to oversell too much. And when I put the startups in front of my engineers, they perceive immediately the BS word a mile of distance.

That does not work.

So you need to give them something that is deployment ready and solid. And this is one side of the business. On the other hand, obviously you need to just to think about Volkswagen 2027, what was wagon also 24, 2040, 2035, 2050. And that requires also some ability to be forward looking to test innovation and probably requires different tools. For the first one, the venture client is the ideal tool because it's able to deliver through POCs, test innovation and then deploy mostly scales, mostly mature solution. While other tools like venture builder, corporate venture capital, we just mentioned the presence in the outpost and stability to all the different trends are the. The ingredients that help you to educate your long term side and from you helping your top management to educate the children about the future strategies. So this is the right balance that need to be kept? Absolutely. And that is. That is the fun and the hardest of the job that you're doing.

Absolutely. So it's big fun to have this width of activities and to have this short term topics and to generate really product impact. On the other hand, to have all these strategic outlooks and future research and trend research topics and to bring all these things together. This is really, really exciting.

Exciting and interesting. Just to close with a positive note, I order to the GRA wines that you are a great singer.

Great. I wouldn't.

What about this passion?

Yeah, this thing is really my passion. So I got quite an education in vocal arts and I'm acting as a soloist on stage on opera and opera festivals and also in oratoria concerts in the church and on. So this is my passion during my free time. Yes.

So congratulations by the way. I'm running a specific series of interview interviewing people doing the role of open innovation. The that is a new work kind of work. So it's not a specific preparation. And one of the outcomes of these interviews is that most of these people are coming from all the possible different backgrounds, including humanistic background, including art background and so on. Now I have also a singer with definitely a musician background to add to my collection of that means that probably is an emerging profession that requires a lot of different skills that need to be patched together in order to find solutions. By the way, it's pretty close to the work that you've been doing every day just to to balance different needs, different skills. You need to understand technology, you need to understand business, you need to understand strategy, you need to understand politics. Mix them together.

Yeah, you need to to stay curious about everything and you should not be a specialist very, very deeply in a certain subject because then you lose your curiosity to the new subject.

That's perfect. So Nikolai, thank you so much for your time. All the best for your new endeavors and for your continue your thinking passion and thank you for this conversation. We definitely stay in touch for for getting updates about you guys. Thank you.

Thank you so much Alberto. It was really a pleasure talking to you.

Thank everybody for listening. In the next episode of the Open Innovation Talks, Mind the Bridge CEO Marco Magnucci will talk with Francesco Starace. Francesco has been the CEO of Ener Group for nine years. So I think it will be an amazing opportunity to deep dive the experience of OCO driving innovation in a large energy company for a large period of time. If you like this podcast, please go to mind the bridge LinkedIn page and tell us what you make of it. Love to hear from you. See you next week.

Thank you for being with us today and see you in the next episode of open innovation talks, mind the bridge, chat with industry leaders.