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CEO Dialogue Series

Vestas CEO: “Failure is always an option”

14 November 2023 in CEO Dialogue SeriesPodcast availablePodcast available

Henrik Andersen discusses with IMD President Jean-François Manzoni the challenges of navigating supply chain disruptions and soaring raw material costs over the past three years, and why he changed the wind farm...

Henrik Andersen discusses with IMD President Jean-François Manzoni the challenges of navigating supply chain disruptions and soaring raw material costs over the past three years, and why he changed the wind farm developer’s culture to encourage openness and trust.

Three years ago, Henrik Andersen, CEO of Denmark’s Vestas, consigned one of the company’s key “corporate principles” to the scrap heap. What’s more, he did so in a rather unusual way.

Since 2005, the world’s number one developer of wind turbines had operated under the banner “Failure is not an option.” Yet in an industry with long lead times that is prone to volatility, Andersen decided this phrase was not only outdated, it also risked creating an environment where people were afraid to speak up when they saw things going wrong.

To emphasize how serious he was about changing the culture, Andersen staged a burial for this principle, going as far as playing funeral music and saying, “Rest in peace.” The “funeral” created enormous focus and fellowship for Andersen’s team, helping to cement trust and an acceptance that sometimes setbacks will happen.

“I think we both know that failure is always an option,” he told IMD President Jean-François Manzoni during a recent CEO Dialogue. “We would rather fail fast, and then learn from it, and move on than pretend failure was not happening, because sometimes it does.”

The shift also coincided with a challenging period for Vestas. When Andersen became CEO in August 2019, the company was sitting on its highest-ever order intake and finished the year with a backlog of €34bn ($36bn), an all-time high. Six months later, however, those enviably full order books turned into a major burden for the company’s bottom line as the pandemic shuttered factories, leading to a shortage of components.

“I always got used to the idea that having a big backlog is a fantastic positive, which it is for most companies,” Andersen said. Yet, for Vestas, contractually bound to fulfill orders, the supply chain disruptions drastically pushed up the cost of delivering the turbines with the price of a shipping container surging from around $4,000 to as much as $30,000, in some cases.

By 2022, reeling from soaring raw material prices and unable to pass on costs to customers who had placed their orders two or three years previously, Vestas lost more than €1.5bn ($1.6bn). With much of the backlog now behind it, and leveraging a more rigorous approach to pricing, the company aims to claw its way back into the black this year and is predicting a rebound to an operating profit margin of 10% by 2025.

‘It’s cheaper to save the planet than to destroy it’

Vestas traces its roots back to 1898 when Hans Soren Hansen bought a blacksmith’s workshop on the windswept west coast of Denmark. By the 1980s, the company had transformed into a global manufacturing business and started focusing solely on wind energy. Over the past four decades, it has installed around 160 GW in wind capacity, replacing the same amount of CO2 annually as generated by 130 million passenger cars.

With the cost of onshore wind power generation now significantly cheaper than fossil fuels in most parts of the world, Vestas hopes to profit from the growing demand for renewable power to combat climate change.

“We’re at a point now where it is significantly cheaper to save the planet than it is to destroy it,” said Andersen, citing engineer and investor John Doerr. “And that’s a fantastic catchline because in one sentence it bottles the optimism. It is actually cheaper to save it now, and we have time to save it now.”

I always got used to the idea that having a big backlog is a fantastic positive, which it is for most companies.
- Henrik Andersen

To try to gain a bigger slice of the revenue pie, Vestas, which develops onshore and offshore turbines as well as having a service maintenance business, has branched out into early development of wind energy projects. This involves sourcing new projects and gaining permits as part of a revenue-sharing model with customers.

A further headwind for Vestas, however, has been the slow permitting process in Europe, which is acting as a brake on Andersen’s and Vestas’ green energy transition ambitions. Despite the European Union needing to build an average of 30 GW of new wind energy capacity a year to meet its 2030 climate and energy goals, it only approved permits for 15 GW of capacity in 2022, despite having a permitting backlog of 80 GW.

Andersen favors a maximum time limit for local authorities to approve permits, which would also prevent the technology from getting outdated before it has even been approved. He sees consumer sentiment turning more positive towards wind turbines, as customers, scared by the energy price shock caused by the war in Ukraine, seem increasingly willing to back measures that could reduce their utility bills.

Another challenge is the relative immaturity of the offshore wind industry. Over the past two decades, manufacturers have been caught in an “arms race” to build ever bigger and more efficient offshore wind turbines, ultimately throwing “silly money” at the process, said Andersen. Instead, there needs to be a better balance between continued development and profitability for the industry to achieve industrial scale in a financially sustainable way.

With the current generation of offshore wind turbines now capable of providing electricity to 20,000 households, he expects that there will be a slowdown in the technological arms race over the next few years.

An orderly succession

Before taking over as CEO, Andersen sat on Vestas’ board for six years, something he considers an asset. When he started the job, he spent three months with his predecessor Anders Runevad, who is now chairman of the board. By traveling to meet various customers together, they cemented an excellent working relationship.

This is Andersen’s second gig as CEO, having previously run Hempel, a global supplier of coatings and paintings. He remains motivated by creating a shared identity and purpose across Vestas’ 29,000 employees operating across 86 countries.

Nevertheless, he acknowledges that being CEO of a large corporation today is a relentless, 24/7, 365-day job that involves managing multiple stakeholders and navigating political interests. His biggest challenge is trying to instill some predictability into a business that involves executing large-scale projects in more than 30 countries at any given time, and where shocks like the pandemic and the war in Ukraine magnify the industry’s sensitivity to the economic cycle.

So how does Andersen stop himself from getting worn down by the grind? He admits there is no work-life balance as a CEO but tries to integrate aspects of his personal life into his work by holding get-togethers with his team and their families several times a year. He also has a three-year corporate calendar and blocks out dates years in advance to enable him to optimize his travel schedule and book personal time.

Ultimately, Vestas’ purpose to contribute to a more sustainable future remains his biggest energizer.

“We’ve just seen a tenfold increase in our graduate applications in the last 24 months. And that’s a good sign that people are starting to follow their real purpose. So, for me, that gets me out of bed, and it gets me going in both a heartbeat and a passion for the business.”

Watch the full discussion to hear more from Henrik Andersen, including the importance of being physically present and authentic as a leader, the role of governments in driving regulation to accelerate the adoption of wind power, as well as where he sees the biggest growth opportunities.

Expert

Vestas CEO

Henrik Andersen

Group President and CEO, Vestas Wind Systems A/S

Henrik Andersen is the Group President and CEO of Vestas Wind Systems A/S, leading the charge in sustainable energy. He previously served as Group President and CEO at Hempel A/S and played pivotal roles during his 15-year tenure at ISS A/S. He holds a Graduate Diploma in International Business, Aarhus School of Business, Master of law from University of Aarhus and has completed studies at IMD.

Expert

Jean-François Manzoni

Jean-François Manzoni

President and Nestlé Chaired Professor of Leadership and Organizational Development, IMD

Jean-François Manzoni is the President of IMD, where he also serves as the Nestlé Professor. His research, teaching, and consulting activities are focused on leadership, the development of high-performance organizations and corporate governance.

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