Since its founding in 1969, Brazilian aerospace company Embraer has become one of the world’s biggest producers of commercial aircraft. In 2017, it created Embraer-X, a corporate innovation arm chartered to explore the future of aviation.
We spoke to Daniel Moczydlower, the president and CEO of Embraer-X and Embraer’s head of global innovation ecosystems, about Embraer-X’s innovation practices; its relationship with the parent organization; and successes like the spinoff and successful IPO of Eve Air Mobility, focused on electric-powered vertical take-off and landing aircraft. This interview was part our latest research initiative, The Future of the Innovation Team.
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How does Embraer-X, and the projects it takes on, relate to the larger Embraer organization?
Embraer-X was started about six years ago, in 2017. The realization we had that led to the strategic decision to launch this new business incubator and accelerator had to do with our understanding of the different innovation horizons.
Horizon 1, which is all about continuous improvement and incremental innovation, was something that Embraer really excels at. We’ve been competing globally in the aviation market, which is probably one of the toughest and hardest, and because we’re not the largest player in terms of scale and ability to invest, it all comes to this culture of continuously challenging ourselves, challenging the status quo, and finding new ways to improve and be more efficient in what we do.
Horizon 2 is something that we have ventured into — thinking about 10 or 12 years from now to explore the adjacencies of our core market. A great example of that is when we decided to enter the executive jet market. We were already a pretty well-established commercial aviation player serving many airlines around the world, but we identified this opportunity to offer smaller jets to a very different type of customer, which represented business risk to us. There was a lot of uncertainty, but we had a good starting point, which was our ability to design, certify, and manufacture aircraft. And 10 years later, we have a very strong business unit today in executive jets.
Some great scholars, like Professor Clayton Christensen, have seen that when the rules of the game are redefined in any given industry, it’s typically not the incumbent companies who lead the charge.
And Horizon 3 is the combination of all risks you can imagine: a new technology or product to serve a new market or customer you’re not familiar with, or in some cases doesn’t even yet exist. People may call this the very definition of craziness. Some great scholars, like Professor Clayton Christensen, have seen that when the rules of the game are redefined in any given industry, it’s typically not the incumbent companies who lead the charge.
In 2016 and 2017, we came to Silicon Valley for several meetings and immersions, including with Professor Christensen himself… We saw some intriguing examples of companies like Tesla coming out of nowhere and totally challenging the very well-established automotive industry, or SpaceX challenging existing business models and technologies in space. So even industries where we all used to think barriers for entry would be very high, we were still seeing disruption happening. And we came back to our headquarters asking ourselves a very uncomfortable question: what is preventing us or our industry from facing the next disruption?
We came to the conclusion that we needed to do at least some exploration in Horizon 3. Our strategy was to create this separate company with a protected budget — not a very high budget, so even if everything goes wrong and all our bets and experiments end up failing, we’re not presenting a threat to the sustainability of the core business.
And one of the first initiatives we undertook was urban air mobility, imagining a future where anyone who can pay for a premium taxi service can afford a ride on an air taxi with the huge advantage of flying over traffic. That would be a big disruptor, something totally different from helicopters today — an electric vehicle, no carbon emissions, very low noise, much higher safety. It was of those crazy Horizon 3 ideas. We were talking about a combination of technologies we never tried before, to create something where not even the rules to certify that product were available, and to serve a market or customer we were yet to discover.
It would never fit the scope of the existing core business units but we now had the framework, structure, and team to explore it. And a few years later, that market ended up maturing faster than we ever assumed. Other companies came to the game and regulators became really committed to advancing that technology. Investors were excited as well. So this allowed us to make it into a company we spun off in 2020 and, in two more years, we took that company to an IPO on the New York Stock Exchange.
How do you evaluate those kind of Horizon 3 ideas and decide which are worth pursuing?
One of the big challenges is how to compare different opportunities. We’ve been experimenting with some metrics. One is to estimate a potential serviceable, addressable market. There are many hypotheses we need to assume, but it’s a good exercise to think, if everything goes right, what’s the best case scenario, and will it be meaningful for a company like ours?
The second question is the right to play or right to win. Maybe it’s a great opportunity, but it may require competencies or market access or culture that may simply not fit your company. It’s important to take those more bold innovation initiatives a little bit away from the core, but the lesson we learned is not to take it too far, not to be totally disconnected.
We try to work always with a funnel mindset, so in the early stage of exploration, we try not to say no prematurely.
And we try to work always with a funnel mindset, so in the early stage of exploration, we try not to say no prematurely. We try to learn at least to a first level of depth, before we come to a gate and say, “Among these 10 different things we’re doing, we’re only able to dedicate more resources to one or two.” And then we have a big debate based on those sorts of metrics.
It’s expected that not everything we’re looking at will eventually become a new business, but we try to keep feeding the funnel, so we increase the chances that at least a couple may graduate.
And what does your relationship with the Embraer parent company look like as you work on these projects?
It’s a really close relationship. We believe we can improve our chances of success if we can leverage all the know-how and legacy of the mother company. I know this is tricky, because if you stay too close, you may defeat the purpose, and you may end up being pressured, because all the core business units are much larger, much stronger, and much more powerful.
I’m always trying to find the healthy distance. If I stretch the line too far, it will be pretty much like starting from scratch, like any other startup. There’s a very important role to be played by startups, but in the case of an incubator or accelerator like Embraer-X, the real value is to be the bridge between both worlds and leverage everything the company can contribute.
It’s important that we understand the company’s strategy. We need to ask ourselves the definition of success, and it can’t just be about financial returns. I see that as a requirement, not an objective in itself. Our best definition is if we break into a market, or launch a company, we’re bringing additional value to the company strategy.
With Eve Air Mobility, I am 100 percent certain we will be big enablers to the core business of Embraer in the near future — maybe not today. As we look into the journey of the entire industry to decarbonize, we’re pretty sure the lessons we’re learning will be very key to the long-term success of Embraer. But the only reason I can be so convinced of that is because I’m close enough to the Embraer core strategy discussion and long-term vision. By keeping that alignment, I think we dramatically improve our chances of success.
