Andrey Laptev is Director of Business Development and Corporate Venture Projects at Severstal, a vertically integrated steel and mining business in Russia with annual turnover of around $10 billion. The company is investing heavily in innovation and digital, diversifying into alternative materials and embracing new technologies. Prior to joining Severstal in 2004 Laptev worked as a business angel, investing in eight start-ups in the industrial, aerospace and energy sectors. Laptev, who is the Chairman of the Product Sustainability Committee of the World Steel Association, holds a sBSc in Economic Geography from Moscow State University, a degree in Economics from University of Cambridge, a MSc in Management from London School of Economics and Political Science and a PhD in Business Administration from Cranfield University. He recently spoke to The Innovator about Severstal’s digital transformation.
Q: What has Severstal done so far to digitalize and diversify its business?
AL: We launched SteelTech Accelerator, Russia’s first full-scale industrial accelerator for startups in the metallurgical industry. The focus is on finding innovative solutions in the industrial sector including product innovation, process innovation and new business models which can be successfully integrated into Severstal’s production cycle and help increase the company’s competitive advantage.
We have also launched a venture fund, Severstal Ventures, the Russian steel industry’s first corporate venture fund. To date, the fund has invested in North America’s Pangea Ventures Fund, a leading advanced materials venture capital fund, and Canada-based Chrysaliz RBV, which specializes in investing in intelligent systems and automation platforms, including artificial intelligence, robotics, machine learning, Internet of things, as well as developing new materials and technologies that will enable the digital transformation of large industrial companies. In 2019 alone we invested $25 million in venture funds and projects and $16 million in prototyping new projects. We are also the first Russian steel company to introduce an online sales platform. We are starting to sell a significant portion of our steel on this platform. We not only sell our own products but are opening our platform to other producers and suppliers to sell steel and other products such as logistical services and delivery services.
We have also just announced that we have invested in Dutch company Airborne, a global leader in developing digital automation platforms for the production of composite parts and products with integrated composites. This is a non-steel related business. Airborne have developed a solution based on machine vision and robotics that helps to lower costs and improve speed and efficiency in the production of components. It is a good example of how digital technology is impacting the physical world. It is a platform concept, customers can send an order to the platform that is executed by an automated factory located closest to the customer. This is the type of breakthrough product — regardless of what material it uses — that we see ourselves investing in and offering. In the future we won’t just offer one material but a range of materials, including steel, composites and steel-based components and entirely new materials. For example, we are testing a new type of rooftop solar panel developed by a Swiss company, that uses a special cotton to reduce electricity. We will adapt their technology. We are doing this now in Russia with Russian R & D teams.
Q: What prompted this change in strategy?
AL: We are the most profitable steel company in the world based on EBITA margins but the big problem is that it is difficult to grow because we are vulnerable to the whims of the steel market. All strategic forecasts say the steel market will grow but not more than one percent in the next twenty to thirty years. We discussed this internally and asked ourselves ‘What do we want to do?’ We decided we want to grow our margins by trying to meet the enormous demand, from our customers both at home and abroad, for new solutions and new materials that are more efficient and more sustainable. We have established cross functional teams to work on technical innovation and we have created the corporate venture fund. The fund’s purpose is to protect us from disruption coming from new materials and new production technologies. Its focus is on finding products and instruments to develop new materials and grades of steel. As an additional protection from disruption we have invested in two other venture funds dedicated to materials. There are also a lot of interesting projects where we don’t need to invest, we can work with startups in other ways. In our Steeltech Accelerator startups can learn about us and our requirements and also teach our people how to work with entrepreneurs. Last year we saw around 5000 companies. We invested in three, established cooperation with around 40 and currently have a number of pilots going on. It takes more time to establish these kinds of relationships in production environments than it does in digital businesses.
Q: Can you give us some specific examples of how you are working with startups?
AL: We are currently piloting five startups in our fast track program: Gelsight, a quality control technology that can visualize defects in steel and measure them in real time. Tests have been carried out on various samples of our products and we obtained positive results. We are now preparing a three-month pilot project; Minesense which has developed hardware and software for evaluating and sorting iron ore. Samples of ore from Kostomuksha have been sent to Canada for laboratory tests; SAS Nanotechnologies,which has developed smart coatings with microcapsules that are sensitive to a wide range of stimuli, such as physical and chemical damage. These coatings can be used to create dynamic anti-corrosion coatings and for a self-repair effect; Hexigone Inhibitors, a corrosion inhibitor with single-step coating technology. Samples of our products are being applied with their coating; InterWrap-Packaging, which have developed packaging rolls based on recycled polypropylene with inhibitors against mechanical, chemical and temperature influences. The material is fully recyclable. Tests were carried out with positive results and we are now preparing 60 test rolls for clients.
Q: What’s next on your agenda?
AL: The big focus in 2020 will be on production technology to help us to reduce environmental emissions. We are investing in technologies around CO2. We are looking at ways that C02 can generate electricity and produce hydrogen but we are also looking at other uses for C02 capture and C02 conversion. These are very exciting fields . C02 is not just a big headache. It can be used to build things that are valuable and useful.
Q: What has been the most difficult challenge in your digital transformation?
The most difficult challenge has been selling projects with uncertain returns to internal stakeholders. Sometimes it was and is on the verge of ‘mission impossible.’
Q: What have you learned along the way that you wish you knew when you started?
It’s not good to ‘overpromise’ on innovation in a slow-moving industry. It takes time and patience to get to tangible results that can be reflected in the bottom line.
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