Innovating the innovation process: Raízen incubates third party innovation
Raízen is the technology-driven and sustainable Brazilian star child of Royal Dutch Shell and Cosan, a well-established producer of bioethanol and sugar based in São Paulo. Acting as a fully integrated agro-energetic company, Raízen operates in every single stage of the supply chain: sugarcane cultivation, sugar and ethanol production, internal and export logistics, distribution and sales. Despite setting itself apart in the national territory by leaning heavily on R&D, Raízen had to face the complexity of producing commoditized products: squeezed margins, high price-sensitivity from the customer as well as the cyclical. It also became clear to them that the agriculture part of its value chain presented the most optimization opportunities through innovation.
In 2017, to address these challenges and complement its strategy to remain as key innovative player, Raízen took its first and bold steps towards open innovation – expanding their avenues to capture cutting-edge process innovation in agricultural technology (agtech) and contributing to what is now called the Brazilian AgTech Valley.
Innovation at their core
Since its birth, in 2011, Raízen was committed to keeping innovation at the very core of its business. One of the most compelling evidence of such commitment was the selection of their headquarters’ location: the small town of Piracicaba, in the countryside of São Paulo state. Home to ESALQ (the Luiz de Queiroz College of Agriculture, part of the University of São Paulo), the most renowned agronomy university and research center in the Brazil.
Despite the successful track record of in-house innovation as well as traditional research partnerships, Raízen still faced increased pressure improve the efficiency of their agricultural processes in a race to cut down costs and return to profitability. This served as a catalyzer for the mindset change regarding innovation in the short and medium-term. Raízen, thus, became more opened to less traditional business partners that could unlock value in their production chain or improve their current operations.
Innovating the process of innovation
By 2017, when they were approached by Geo Energética, a smaller and start-up-like Brazilian company which developed an unique and innovative biotechnological process for biogas production from reusing agro-industry waste and had already achieved a minimum viable product (MVP) in the country, Raízen was ready to enter such a partnership. The joint-venture created enthusiasm not only in the market but also convinced Raízen senior management that the most innovative responses are likely to come from outside the traditional sources previously used.
In same period, Raízen’s own employees started developing and pitching ideas to lever the company’s market relevance to promote widespread agtech innovation in the country. In an agile move, Raízen swiftly created Raízen Ventures, a new innovation-focus area with a dual mandate: (i) address current and future demand for innovation as well as (ii) develop and promote the culture of innovation throughout the entire company.
One of their first initiatives was Pulse Hub, created with the help of prominent Brazilian and Latin American venture capital firms. Launched in August 3rd, 2018, Pulse was an incubator and innovation hub and to combine the creativity of agtech entrepreneurs and the well-established business and financial experience of Raízen and SP Ventures. Through competitive pitching, they selected the five start-up companies that would be hosted, accelerated and funded by Pulse, they would also access a network of link-minded entrepreneurs and industry leaders.
Bianca Nassif, a Centre for Shared Services analyst, shared the belief that the initiative had a perfect win-win profile.
“Whilst we are eager to find the innovative solutions for our business that start-ups can bring, accessing the industry experts and key opinion leaders that work at Raízen was unvaluable to the them. A single feedback from our company could spare them money and testing time, in addition, they can lever Raízen fields and resources to test their ‘work-in-progress’ technology.”
Fabio Mota, vice-president of the Centre for Shared Services and leader of Pulse also reflected on the visible preliminary results.
“They [Brazilian entrepreneurs] did not care about sugar cane, only about grains. Now we have lines of start-ups seeking opportunities in our sector”
The uncertain, but promising, way forward
As the Pulse Hub program evolves, I believe the company’s senior management should continue to push its double mandate forward, as instilling a culture of innovation and openness to change is absolutely critical to enable full capture of the incubated start-ups’ potential. Creating incentives for the company’s middle management and experts to organically interact with the start-ups will also be key to realize the win-win promise of the program.
However, how scalable and financially viable the solutions created at Pulse are remain an open question and one that Raízen should consider carefully when selecting and mentoring the start-ups.
 “Raízen energia had losses of R$107.2 millions in the last quarter”, Valor Econômico, November 2018 available athttps://www.valor.com.br/agro/5973467/raizen-energia-teve-prejuizo-de-r-1072-milhoes-no-ultimo-trimestre
Raízen’s annual report 2017-2018, available athttps://www.raizen.com.br/relatorioanual/pt/inovacao.html
 Interview with Bianca Nassif, conducted on November 9, 2018
 “In Piracicaba, the innovation hub is unstoppable”, Valor Economico, May 2018, available at Valor Econômico, https://www.valor.com.br/agro/5555949/em-polo-de-piracicaba-inovacao-nao-para
Student comments on Innovating the innovation process: Raízen incubates third party innovation
Raízen Ventures appears to be a very impactful, thoughtful program. The double mission of building the Pulse Hub intuitively makes sense. To successfully execute the program, it seems like developing a clear set of KPIs is critical. Given the challenges of scale and profitability, creating benchmarks will help to ensure all stakeholders are aligned on the goals and timeline for growth and financial viability.
Absolutely agreed! During my interview with Bianca Nassif, she mentioned that the company was very much focused on taking the project out of the realm of ideas and kicking it off as soon as possible. As such, they are going through a learn-by-doing process in which they are, together with the initial start-ups, continuously improving this innovation hub and its offerings.
Thank you for this interesting submission on Raízen. As i reflect on the submission, one key question I have is how the company manages the potential conflict of incubating a startup which has products that are disruptive to Raízen’s existing product set? I wonder how Raízen could address this and if this potential conflict would lead promising start ups to not enter the Pulse Hub program?
According to interviews with employees, and given the early stages of the program, the threat of conflict between the start-ups and the company is currently quite small. This is due to the selection criteria used to elect the ideas/companies to be incubated: they should try and tackle a particular issue related to agriculture technology (even though the “function” with which they associate can vary, eg. ops, finance, supply chain, etc.). As such, the expected solutions emerging from the incubated companies should influence Raízen’s (and/or its competitors’) processes rather than compete with Raízen’s final products/services.
Thank you for this interesting article on Raizen, Annie Hall! It’s very cool to hear how a very traditional industry is able to leverage the burgeoning startup scene in Brazil to innovate. I agree with your concern that there needs to be a structure in place for the organization’s management to interact with the startups in its portfolio to generate value. I’ve seen companies which have acquired very promising ventures, but failed to derive any value from them due to an implicit barrier between the startup and the behemoth that acquired it. In fact, I think the organization needs to be highly strategic about how it’s leveraging this innovation: setting mandates, metrics, and targets for how it will generate synergies from the innovation these companies bring and what its threshold is for creating value and scale from their innovations.
I enjoyed learning about how a company in Brazil uniquely approached innovation through joint ventures, partnerships, employee-led idea generation and through venture-capital. The author describes how innovation was partly acquired through AGV with a start up, enabling the company to tap into the knowledge of innovative biotech.
However, the most powerful takeaway for me was how idea generation and innovation can be bottom him up as a post to top down. Bottom up idea generation not only tops into the full talent pool of a company to generate innovation, but also energizes and encourages employees to be innovative in their thinking. This key insight is critical for myself as I shape my own leadership style and the Razien model can serve as a role model for similarly large organizations that seek to innovate.
This was an interesting read. I think the innovation is at the core of this program, also this program has capability of deriving many positive social values. However, I can also foresee some implementation difficulties in addition to what has been mentioned in the article. One example could be finding the right benchmarks to design future goals and aspirations. This program is unique and hence some out-of-box thinking would be required to push it in the right direction.
Innovation is at the heart of this. I believe that strict KPIs must be established for scale to be met. Great Read!