Case C Delaval

KTH – INDUSTRIAL MANAGEMENT
DeLaval – Sustainable Innovation
ME2501, PIM – Group 6

Denise Thunström, Mattias Magnusson, Axel Hermansson, Jacob Andrén

Summary/abstract
The purpose with this intellectio has been to analysis DeLaval’s current situation in market. From this analysis an innovation suggestion has been provided. The innovation will enable further improving in DeLaval’s work towards a sustainable future and as well as meeting the forecasted growing demand.
DeLaval is a leading provider of technology solutions that improve the performance of farms with professional food producers. Their greatest breakthrough is the VMS (Voluntary Milking System), which is an automatic-milking-system based on that the cow chooses when to be milked.
The thesis of this intellectio is summarized:
“By offering a new financial option for farmers to invest in a VMS, DL can reach more customers and therefore help creating a more sustainable dairy market.”
The proposed innovation for DeLaval is to introduce a financial programme. The innovation, DeLaval Finance (DLF), enables DL to offer farmers not only a product solution but also a financial suggestion. gngskgnskgdgdngknkgsvklöngsd Concurs with DL’s sustainability perspectives
Is a modular innovation
Relatively low risk with potential to be moved to a spinout organization
Possible to realize in three years

Table of Contents
Introduction 4
The Proposed innovation for DL 4
Theory 4
Argumentation 5
The new financing innovation complies with DL´s vision for sustainability 5
Benefits from understanding the innovation 6
Subsidiaries 6
Implementation 6
Conclusion 6
Bibliography 7

Introduction
This is an intellectio produced by the Consulting Group AB for the Board of DeLaval. The purpose of the paper is to present an innovation, that focuses on further improving DeLaval’s work for a sustainable future and the growing demand for dairy products.
DeLaval (DL) is a leading provider of technology solutions that improve the performance of farms with professional food producers. DL supports their client to reduce their environmental impact while improving food production, profitability and welfare of people and animals. DL offers products, systems and services for all stages of milk production. Their solutions are used by millions of dairy farmers around the world every day (DeLaval, 2011). DL has developed the VMS (Voluntary Milking System); it is an automatic milking system based on that cows choose when to be milked. The VMS enables dairy producers to avoid stringent daily milking schedule. Instead they will have the freedom to choose how to manage their own time (DeLaval2, 2011). It also allows farmers to work in a more productive way and enables an increase of the total amount of milk production per cow. The problem that this intellectio is covering can be summarized as below:
DeLaval’s problem formulation How can DL continue to innovate their products and processes in a sustainable way?
Consulting Group AB’s problem formulation
How can DL help the dairy industry to meet the growing demand of milk in the world in a sustainable way?
How can DL reach more customers?

And can be summarized under the thesis: By offering a new financial option for farmers to invest in a VMS, DL can reach more customers and therefore help creating a more sustainable dairy market.
The Proposed innovation for DL
Financial programs already exist in similar markets e.g. car industry. This innovation, DeLaval Finance (DLF), enables DL to offer farmers not only a product solution but also a financial suggestion. Furthermore, DL will be able to give more farmers the possibility to make their farms more productive and profitable since more farmers will be able to invest in a VMS. This is because DL can offer a more advantageous financial option, to a lower cost, compared to if the farmer goes to the bank alone and less intermediaries will be involved. For DL, more VMS on the market will lead to increased revenue from the aftermarket and at the same time together with the farmers work for a more sustainable dairy market.
Theory
In this intellectio different frameworks will be used for understanding the consequences of a new innovation and the effect on the company. These frameworks will be described briefly below:
Henderson - Clark Model of Innovation, is a model (see Figure 1) that helps classifying the innovation. The classifying is essential in order to understand the effects the innovation will have on the company and how to handle it (Ström, 2009).
The Risk Matrix (see Figure 2) is used to assess the risk of a project effectively before the project is launched. The matrix is divided into two axis, x-axis and y-axis. The x-axis considers how familiar the company is with the new market of the innovation and the y-axis how familiar the company is with the innovation itself (Ström, 2009).
Subsidiary is a company completely or partly owned (more than 50% of the shares) by another corporation, a parent company. Subsidiaries are common in the business life and used by many multinational corporations where they create a national and functional subsidiary often with multiple level of subsidiaries (källa också investopedia och Wikipedia, ska leta böcker nästa vecka).

Argumentation
The new financing innovation complies with DL´s vision for sustainability
The DLF programme will generate an increasing market for the VMS, allowing more companies to invest in the VMS. The DLF programme will therefor broaden the existing benefits that the VMS already contains (DeLaval2, 2011). The DLF programme will continue to work with the four perspectives of the DL sustainability perspectives (Källa). The VMS sold by the DLF programme will influence the four sustainability factors in the following way.
Animal welfare: The DL VMS programme gathers important statistics about every single cow. Software provides the farmers with health analysis and possible health defect indications to ensure the best possible healthcare for each animal. (Markusson, 2014)
Environment: The DL VMS is well developed and produced robot, with many features that reduces the impact on the environment for every farmer. E.g thru a slime water hose system that uses less water that manual hosing (DeLaval, 2011). Studies of using the a VMS farm system shows an minimum 3% milk increase compared to production with manual fitting of vacuum hoses. (Markus Kraft VMS DeLaval Östergård, 2009). This means more milk without extra recourses.
Farm profitability: The VMS increases the efficiency of milk production at the farm, which means that the farm will be able to produce more milk with the same amount of cows. This will lead to increased farm profitability.
Social responsibility: The DLF innovation provides a greater chance for the dairy industry to approach the future demand of dairy products. The world consumption of dairy products are predicted to double by year 2030. VMS robots are able to increase the average milk times from 2 to 2.5 times per day, and still reduced the hard labor needed by each farmers (DeLaval, 2011).
Benefits from understanding the innovation
The DLF innovation is a process innovation rather than a product innovation. The DLF innovation can be seen as adding new activities (component) to the sales department (product) at DL. From this assumption the finance innovation can be translated in to a Modular innovation in the Henderson - Clark Model of Innovation, see Figure 1.
Modular innovations are often relatively easy to explain and have potential to be accepted by the board and to be developed (Ström, 2009). The DLF innovation will be a new service for DL but it’s a well-known service in similar business, e.g car manufacturers like Volkswagen and the heavy machinery business like Nordic Finance. DL will most certainly find much of the competence needed for this innovation inside the company, especially in business development and sales department.
Subsidiaries
The DLF innovation is new for DL but exists in markets such as the car industry. In order to get a understanding of how to introduce this innovation in DL business, Volkswagen Finance Sweden AB (VFS AB) is a good example to look at. VFS AB is a subsidiary Volkswagen Financial Services AG that in turn is a subsidiary to Volkswagen AG. The parent company carries the financials of the subsidiaries on its books. However, the advantages of a subsidiary are that they are distinct legal entities when it comes to taxation, liability and regulation (källa investopedia…. Får kolla i biblan nästa vecka om man kan hitta någon bra bok). By creating a subsidiary for DLF some of the risk can be moved from DL decreasing the overall risk in the risk matrix (see Figure 2) for this innovation.
Implementation
The DLF programme can be realized through a 3-year business creation project. Much information and knowledge can be found in existing markets, therefor a three-year project is a realistic time period for a starting up a affiliated company. DL should gather a dedicated project team and if necessary; involve professional consultants.
Conclusion
The Consultant Group AB suggest that DL should innovate in a finance programme which can enable a greater number of farmers to invest in a VMS. The DLF concurs with DL’s sustainability perspectives that they work after. The DLF innovation will be new to Dl but this kind of innovation can be founding other industries, which means the innovation is possible to implement and there is knowledge and people that know how to implement. The DLF will also be suitable for becoming an affiliated company, which means that any plausible risk off failure is moved to the affiliated company. The project to carry out this innovation can be done in 3-years.

Bibliography
DeLaval, 2011. DeLaval - The company. [Online]
Available at: http://delaval.se/Om-DeLaval/The-Company/
[Accessed 13 10 2014].
DeLaval2, 2011. DeLaval - Automatic Milin VMS. [Online]
Available at: http://www.delaval.se/-/Produkt-Information/Mjolkning/Systems/Automatic/
[Accessed 13 10 2014].
Markus Kraft VMS DeLaval Östergård. 2009. [Film] Sverige: DeLaval films.
Markusson, O., 2014. The story of developing VMS. Stockholm, DeLaval.
Markusson, O., 2014. Welcome to DeLaval. Botkyrka, DeLaval.
Ström, H., 2009. Managing Technology Conversion: How to tame the uncertainties, Stockholm: KTH.

Bibliography: DeLaval, 2011. DeLaval - The company. [Online] Available at: http://delaval.se/Om-DeLaval/The-Company/ [Accessed 13 10 2014]. DeLaval2, 2011. DeLaval - Automatic Milin VMS. [Online] Available at: http://www.delaval.se/-/Produkt-Information/Mjolkning/Systems/Automatic/ [Accessed 13 10 2014]. Markus Kraft VMS DeLaval Östergård. 2009. [Film] Sverige: DeLaval films. Markusson, O., 2014. The story of developing VMS. Stockholm, DeLaval. Markusson, O., 2014. Welcome to DeLaval. Botkyrka, DeLaval. Ström, H., 2009. Managing Technology Conversion: How to tame the uncertainties, Stockholm: KTH.