Henrik O. Madsen, President and CEO at DNV GL, explains the recently merged class society’s strategy and looks at the future of shipping
Taken the 150 years of DNV GL history, what is the key to success?
Henrik O. Madsen: I[ds_preview] do not think you can succeed with a company like this if you do not have a very strong purpose and vision and values. For us the purpose has always been to safeguard life property and the environment. I think having management and staff that passionately works to action its purpose is one of the key success factors. This is why I began at legacy DNV.
Now, 32 years later, I am still here. I could never work for a company that worked to maximise shareholder value only. Also, safety is always at the forefront of our work, closely linked to sustainability as we see how strong our sustainability concept is driving our direction. In connection with our 150 th anniversary, we have started a major initiative to explore themes of strategic relevance to our vision. We will use the findings to engage our stakeholders in a debate about the transition to a safe and sustainable future while empowering our customers to become safer, smarter and greener.
Before we look at the future, we are curious about DNV GL’s recent history, the merger: Why did it take so long, given all the attempts to unite in the past?
Madsen: In 1867 there already was an approach to merge Det Norske Veritas (DNV) and Germanischer Lloyd (GL). From the Norwegian side there were national interests against an early merger. Today, however, we are international, Hamburg and Norway are so well connected in the maritime field. I think we can have an even stronger cluster with the merger than before. Business from Germany and Norway together is one third of our total business.
Are you satisfied with the results of the DNV GL merger?
Madsen: We had nine months to prepare from the signing in December 2012 until September 2013 and I think we used that time quite well. The organisation was defined very quickly, managers were briefed, and a strategy was communicated to all staff in November last year. In parallel, the organisation continued to focus on delivering high quality services to customers, and engagement and commitment remained high. People and offices are coming together very fast and throughout the merger period our motto was »try to keep it simple«. We have relied on our own people – no consultants – as this is crucial to success, because who could do better than our own employees? The post-merger integration is progressing as planned and the new company is performing well in its first year of operations.
How did the cartel authorities respond?
Madsen: The competition authorities in South Korea, China, the EU and the USA assessed the merger and all approved it. They did not demand to sell, change or stop anything. The Chinese authorities said they would take 60 days and that was what they did. Our Chinese competitor even remarked: »This is good for China.«
If you should describe the customers’ bonus evolving from the merger, what would that be?
Madsen: The expectations of our customers have gone up, so it is important to work on it. We are offering the businesses we serve much-needed benefits in terms of technical, risk management and knowledge transfer. With our combined capabilities, DNV GL is able to provide independent services along the whole shipping and energy value chain in more than 100 countries.
In the maritime segment alone we now have about 5,000 employees. We are able to take the broader view and work beyond borders, share our expertise and transfer best practices to our customers in various industries worldwide. Another benefit is that we will spend about 125 mill. € in R&D and innovation investments and capabilities that will benefit customers and other stakeholders. In addition, we have started on long lead projects such as the development of one common rule set for ships and aim to have a draft of new rules by the end of year. Best quality and best service is our aim.
What about cultural differences at work in Norway and Germany?
Madsen: It is fundamental to have respect for cultural differences. At DNV GL all teams are mixed and our aim is to have the same diversity in our management as among our employees. In all, more than 70% of our employees have a passport that is not German or Norwegian.
The merger did not come without losses, take former GL CEO Erik van der Noordaa. Is this a sign of controversy behind the scenes?
Madsen: Actually GL lost many more leading employees from the maritime side from 2009 to 2012 than during the merger itself. We would give a lot to have many of them back. As far as Erik van der Noordaa is concerned: I like him as a person and understand that it was difficult for him to lose his job as CEO. Nevertheless, he remained loyal to the last day.
We all know, business areas may change but personal values are here to stay, as are our brand values. We have told our employees that they will all have a job in the organisation, but they must be flexible and accept the tasks we ask them to take on.
What about DNV GL’s six themes for the future?
Madsen: We chose six topics as part of our efforts to take a broader view of the relationship between technology, business and society.
1. A safe and sustainable future: enabling the transition;
2. From technology to transformation;
3. The future of shipping;
4. Electrifying the future;
5. Arctic: the next risk frontier;
6. Adaptation to a changing climate.
The project »safe and sustainable future« was the first and we worked with many worldwide thought leaders and asked them how they define a safe and sustainable future. For this we had interviews and round tables to look at what are the barriers that prevent us getting there. We identified many, so we asked what we could do to overcome these barriers. The result, an umbrella report, was recently published.
The report on the future of shipping addresses our ambition for shipping in 2020 and 2050. Research shows that work on board a ship is ten times more dangerous than to work in an industrial plant on land in a developed country, something the shipping industry should not be satisfied with. This is why shipping has to go for safety. When it comes to greenhouse gases, local pollution of NOx and SOx should be solved by 2050 as the instruments are
there, but not so for climate change, so we really put some bold targets on shipping.
Our report on electrification focuses on the move away from petrol products for which we need more renewables, such as offshore wind, and there is a section on smart grids. This leads to another theme
which is adaptation to climate change. When the IPPC (Intergovernmental Panel on Climate Change) states that the climate is changing and 2,000 scientists agree on this, then I think we should act. I don’t know of another case where 2,000 scientists can agree on such a complicated matter.
Taken these multifaceted business areas, how do you keep in touch with technological advance?
Madsen: In general we do not look at specific new technologies as there are so many being developed, and most of them fail or do not get to the scale where they can make a difference. It is interesting to look back in time at technologies that have really helped to overcome barriers and become successful and scalable. To get back to our six themes: We also have a project on the Arctic. Here the idea was to make a risk map. The Arctic is not uniform – in the Barents Sea waves are not so high but you have long, cold and dark winters. Another aspect is that in the Arctic there are many minerals and there will be an interest in more mining so there will be more shipping and exploration to extract the resources. We need to develop search and rescue, emergency response and better technologies to prevent oil spills – even though I think the risk is bigger from a ship than from oil rig operations. We also think all ships trading in the Arctic should run on LNG.
DNV GL is expanding further. Which are the growth markets in the future?
Madsen: Our maritime and oil & gas business areas continue to deliver strong results and recently achieved 8% and 9% growth respectively, which is better than we thought. Our energy arm is also achieving healthy results and we’ll focus on investment in renewables. We want to build upon the knowledge and expertise throughout the group. Our goal is to make sure that we are always supporting innovative solutions that create value and growth for our customers.
Are acquisitions an integral part of growth? In March this year DNV GL bought a stake in StormGeo, a leading global provider of weather-based decision support services …
Madsen: Generally, our strategy is that we have enough on board now but there are still technologies which we believe will be useful in the future and where we need to develop competence. So we decided in favour of a 27% ownership in StormGeo, a global provider of weather and asset risk management for the offshore, shipping, renewable and aviation sectors. Instead of developing the necessary technology ourselves, we decided to take an ownership stake in StormGeo. On the renewable side StormGeo’s expertise is core to decision support. We also recently acquired Marine Cybernetics, which has unique technology and services for third-party testing of computer-based control systems. The company has developed unique software and testing technology. This is a game-changing platform to ensure safe, reliable and efficient operations in the offshore and maritime industries. In addition, we acquired a company which has developed a niche technology for accelerated testing of solar panels in California.
What do you think about the so-called »energy transition«?
Madsen: Unfortunately there’s some uncertainty, for example in the EU, due to unclear frame conditions. While we head for a 27% share of renewables for all EU by 2030, the question remains: »Who will be first?« Nevertheless we need the grids, even if nobody wants a big mast in the backyard, but laying power cables below ground produces five times higher costs.
As for offshore wind it is slow this year but this is only temporary. Make it a real industry, make it competitive and have some patience for three to five years, then with more political support we will see it happen. Tax payers, however, have to accept a little extra pain. Having worked in Japan, I am used to energy prices which are much higher there. The energy transition is actually a lot about export opportunities especially for the German industry. In offshore wind this becomes clear if you think about installation, all components, the steel structure and all the other things needed.
You already mentioned LNG. What will be its role in shipping?
Madsen: We are very committed to LNG but it is not the only alternative fuel. For instance Westfal Larsen Shipping and Stena Line both ordered or converted vessels to run on methanol, which means low flash point gases also have a chance in shipping.
In hybrid technologies we have been taken by surprise by battery development which is faster than we thought. In addition, DNV GL was the very first class society to develop new rules for ships with batteries on board. This is a good option for platform support vessels (PSVs). Here the advantage is in redundancy: If an engine fails, you have another option, which is good for safety. DNV GL has started a battery forum recently and now there are about 80 companies participating.
If we look at PSV »Viking Lady«, we see that the technology of choice may well be LNG and batteries. A recent project for a ferry designed for thirty minute trips uses batteries only, which are charged over night and then partially charged at each port stop. So, there will be a lot of battery ships in the future.
What would you say about the prospects of other alternative drive concepts?
Madsen: It will come down to prices when we talk about biofuel, but so far biofuel is better suited for cars. Ships, which are partially powered by kites, also depend on fuel prices as the sail technology is an extra.
Is classic optimisation still more promising than a truly alternative drive concept?
Madsen: Let me say I am happy that shipyards have adopted so much new technology. There may be something you can gain on existing ships. Coatings is such an area, as 70% of all resistance is from friction. We have to expect some radically new ideas to come around and we really want to support the saving of energy, so we definitely support batteries for example.
Which role does classic offshore oil and gas play in recent classification?
Madsen: Two years ago, offshore was providing the same investment as merchant shipping. Now oil companies are indicating that they will have to slow down as exploitation costs become too high at about 60–100$ per barrel. I see no drama in that but as for floating production I am curious why we do not see more projects. At the moment we have five or six of such projects at DNV GL each year worldwide and most are conversions. We believe that there is a queue of some 200 projects waiting to be developed with a FPSO and a number of floating LNG production units. If oil companies were willing to take more calculated risks, there would be more action.
Thank you very much for the interview.
Sverre Gutschmidt
