FEATURE ARTICLE
Capitalizing on Emerging Technologies
A Path to Creating Opportunities in New Markets
A framework for identifying and developing technology-based business opportunities in new areas can help companies move
into new markets.
Irene Spitsberg, Michael J. Verti, Sudhir Brahmandam, and George W. Coulston
OVERVIEW: A critical innovation competency is the ability to recognize technologies that can best be exploited by a particular company and to drive investment in them. We have developed a framework for identifying and developing technologybased business opportunities in new areas for a company. The framework brings together many aspects of emerging business
opportunity identification and deployment, and is centered on defining a critical set of capabilities needed to address evolving market challenges. Our approach is implemented through a parallel understanding of market and technology trends
connected with the dynamics of the relevant value chains. A new external technology that has the potential to augment
internal capabilities can be an enabler in the opportunity creation formula.
KEYWORDS: Emerging technologies, Emerging business opportunities, Technology scouting
Nearly all companies face the challenge of looking beyond
their existing markets to capture growth opportunities in
new, rapidly evolving areas. Exploiting opportunities in entirely new spaces is critical to achieving and sustaining
growth. But identifying compelling business opportunities in
these spaces is difficult, and it can be challenging to convince
executives to make risky investments in high-uncertainty areas. As a result, delivering innovation in new-to-company
spaces is challenging, with failure rates reaching 75 to 95 percent (Day 2007). Combatting these challenges requires the
proper scaffolding to support breakthrough efforts; one way
to provide this structure is to create a dedicated team that is
Irene Spitsberg is founder and managing director at InnoVentures LLC,
a strategic innovation consulting company focused on building innovation capabilities and achieving early stage effectiveness. She spent nine
years with Kennametal, where she was responsible for global teams
working on the development and commercialization of new offerings in
adjacent and new spaces. She was the key strategist and driver in establishing its Innovation Ventures Group and designing its core processes.
Irene’s other roles include Director Global R&D Business with Cristal and
a number of technology leadership positions with GE Aviation. Her demonstrated successes have ranged from organization building, to technology development and commercialization, to structuring and managing
alliances to achieve strategic goals. Irene is the inventor or co-inventor
on over 80 US patents and a recipient of NASA’s Turn Goals to Reality
award. irene@strategicinnoventures.com
Sudhir Brahmandam is an engineering manager at Kennametal, Inc. He
was a key member of the Innovation Ventures Group for seven years, where
he played a key role in designing and implementing processes for Open
Innovation, and led global teams to identify emerging technologies and
commercialize offerings into new space. He is currently responsible for
defending and extending Kennametal’s specialty metals portfolio into core
and adjacent markets. He has more than 10 years of experience in technology, R&D, and new product commercialization. He has organized several
technical sessions and was an invited speaker at leading technology conferences. He holds a PhD in materials engineering from Indian Institute of
Science, Bangalore, India. sudhir.brahmandam@kennametal.com
Michael Verti is a manager in the Innovation Ventures Group at Kennametal, Inc. In this role, he is responsible for identifying and cultivating
adjacent and white-space opportunities at the front end of the innovation pipeline and has accountability for open innovation activities in
the technology organization. Michael has more than 10 years of new
product development experience and serves on the Board of Directors
for the Pittsburgh chapter of the Product Development and Management Association. He holds an MBA from the Pennsylvania State University and a BS in chemistry from the University of California, Berkeley.
michael.verti@kennametal.com
George W. Coulston is vice president and CTO of Vesuvius PLC. He was
Vice President of Innovation Ventures for Kennametal, Inc., where he was
responsible for the development and commercialization of innovative
new offerings for a diverse range of markets. Previously, he served at
Kennametal as the Vice President of Global Research, Development, and
Engineering for the Advanced Materials Solutions Group and the Director
of Breakthrough Technologies. Prior to joining Kennametal, he worked for
DuPont, where he led R&D, manufacturing, and market development teams
and organizations. He is an accomplished executive with demonstrated success creating and directing business, market, product, and technology development initiatives for organizations in the chemical, resin, fiber, metalworking,
and advanced materials industries. george.coulston@us.vesuvius.com
DOI: 10.5437/08956308X5804263
Research-Technology Management • July—August 2015
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Megatrends
Megatrends are forces that have the power to reshape society. They differ from normal trends in their durability, as
they withstand economic downturns and other cyclic forces
and build over 10 to 15 years, or longer. Megatrends frequently emerge from demographic changes, such as the
influence of the aging baby boom generation, or technological developments, such as the increasing ubiquity of
Internet connectivity.
Societal changes brought on by megatrends are often
a breeding ground for new innovation and disruption. For
this reason, IVG uses megatrends to guide discovery efforts, focusing on four key megatrends that inform strategy:
• Cleantech—Technologies and services that aim to protect or improve the environment by reducing waste and
emissions
• Emerging market growth—Solutions addressing the challenges of rapid urbanization in Asia and other regions,
along with products targeting the rising middle-class population in the BRIC and other growing economies
• Demographic change—Services and products to address twin demographic shifts: an aging population in
developed economies and the rising tide of millennials
entering the workforce
• Digitization—The confluence of inexpensive sensor
technology, low-cost data storage, and faster processor
speeds ushering in big data and the Internet of Things
Innovating outside the core involves much uncertainty. Focusing on defined megatrend areas offers a way to position
the company in markets likely to see growth. For instance,
the manufacturing industry in which Kennametal and its
customers operate is facing the loss of a large number of
experienced, knowledgeable workers. In response, we are
developing knowledge automation tools to facilitate knowledge transfer and help the new generation of production
employees do their jobs better. These digital tools, which
are integrated into Kennametal’s recently launched NOVO
suite of manufacturing solutions, target two of our megatrends: digitization and demographic change.
allocated protected resources and receives high-level guidance and support.
Kennametal took this path with the founding of its Innovation Ventures Group (IVG) in 2009 with the mission to
identify new areas of growth for the company. Positioned at
the intersection of technology and marketing, IVG focuses
on large platform opportunities (typically with revenue potential in the hundreds of millions of dollars) that are based
on new technology and new business models. The group,
which is made up of program leaders with business and
technology experience heading cross-functional project
teams, reports to a Governance Council that consists of top
company executives from all key functions. The council’s
role is to ensure the programs pursued by IVG align with
18 | Research-Technology Management
the business’s goals; it also approves major investments as
projects mature from the initial idea stage through development to new business creation.
Since its founding, IVG has shepherded a number of
large projects into the market. In doing so, the group has
developed a process for identifying attractive areas to pursue by identifying critical market challenges that can be addressed by exploiting key internal technology strengths in
combination with emerging technologies. The group has
also created a set of tools to address the other key challenge
of pursuing innovation outside the core—convincing senior
leaders and resource owners to make investments in higherrisk programs that often do not provide immediate bottomline benefits. This framework and toolkit can help innovation
teams seeking to move their organization toward new
opportunities.
The Challenges of Innovation Outside the Core
Driving innovation outside a company’s existing market is
both challenging and risky. It can be difficult to identify truly
compelling opportunities amid a large number of ideas, and
even when a promising opportunity is identified, executives
can be reluctant to authorize investment when uncertainties
and risks remain high. Simply collecting a large number of
ideas from various sources—even if they can be effectively
captured—is not sufficient to provide breakthrough innovation opportunities, since the majority of ideas are not radical
enough to lead the company into truly new markets. Those
that do focus on new and emerging technologies often lack
an essential market and business perspective, making them
difficult for the organization to act on.
When a new opportunity does emerge, it can be difficult
to drive investment decisions to support the development of
the space. As with most companies, Kennametal’s executives
must manage two types of investment: those to defend the
core and those in new opportunity growth. New opportunity growth usually entails greater levels of uncertainty,
creating reticence to invest. To combat this reluctance, it is
essential to define the new technology in the context of a
business opportunity and provide a framework for making
investment decisions that communicates both the upside
and the potential risks of the opportunity in a somewhat
quantitative way.
IVG has developed an alternative approach to new business and new technology development that addresses these
primary challenges by combining knowledge and insights
from various functions to essentially create a new business
opportunity.
IVG’s business creation framework focuses on megatrend
areas where a market disruption is occurring (see “Megatrends,” left) and on emerging technology trends, which
can provide information about potential technological disruptions that may lead to new business opportunities. The
approach is based on the view that Kennametal has essentially the same access to market and technology information
as the competition. The ability to successfully deploy a new
business thus depends on our ability to 1) generate insights
Capitalizing on Emerging Technologies
based on market and technology trends, 2) identify opportunities that align with the company’s organizational structure
and internal capabilities, and 3) deliver value within the context of the relevant value-chain dynamics.
The focus on megatrends lends itself to such techniques
as technology forecasting and scenario planning (see, for
example, Farrington, Henson, and Crews 2012 and Manyika
et al. 2013); however, these tools offer little guidance for
successfully adopting technologies that can serve as a foundation for new business outside the company’s core. Other
approaches that focus on analyzing the evolution of value
chains driven by megatrends—for instance, the Magellan
process (Mills and Siempelkamp 2012)—focus on internal
technology capabilities and do not address external technologies or their integration into the firm. Therefore, IVG has established its own formula for identifying and developing
opportunities in new spaces.
The process we have developed integrates various tools
(some developed by Kennametal and some identified from
the literature) into a coherent framework that we have
found to be effective in managing programs with high levels
of inherent uncertainty (Figure 1). The process comprises
three steps:
1. Define the opportunity space in the context of unsolved
challenges in relevant megatrend areas while identifying
emerging technologies that are complementary to existing internal capabilities.
2. Articulate the opportunity based on a systematic analysis of
Kennametal’s position in the evolving value chain, describing 1) who the customers are and what their needs
are, 2) how Kennametal will create value for customers
in the opportunity space, and 3) what the company
needs to do to deliver that value.
3. Manage uncertainty and drive investment via a spiral discovery process, using financial modeling tools to quantify
and communicate economic risk.
When setting out to create new opportunities outside the
core, the odds are not in your favor. However, we found that
using a systematic process with specific tools to navigate external market uncertainties and internal organizational obstacles helps improve the chances for success. It all begins
with deciding where to focus development activity.
Defining the Opportunity Space
To articulate a new business opportunity in the white space,
we have found it helpful to adopt a central principle of effective corporate strategy, which requires clear answers to
two questions: where to play and how to win. “Where to
play” is the target market segment or customer application,
and “how to win” is the set of capabilities that must be deployed to exploit the opportunity effectively (Lafley and
Martin 2013).
Marketplace disruptions, which often create business opportunities, happen at the intersection of market needs and
technology developments. For example, in the case of Apple’s
Capitalizing on Emerging Technologies
It is essential to define the new
technology in the context of a business
opportunity.
iPod, the need for portable, easily accessible music intersected
with the emergence of lower-cost digital storage technologies.
With this in mind, IVG has adopted a strategic approach for
identifying new opportunity spaces that places equal importance on understanding both market and technology areas
relevant to the company. We have found that building organization awareness in both areas makes cross-functional ideation of new growth opportunities more effective.
The process for identifying opportunities can be either
market back—beginning with the marketing group identifying
an emerging market need—or technology forward—building
from an awareness and deep understanding of both internal
and external emerging technologies. In both cases, we believe success depends on the ability to generate new value for
customers via specific capabilities rooted in core competencies that can be augmented with complementary external
technologies through open innovation. The best opportunities exist at the confluence of unmet customer needs and
technologies that leverage existing capabilities (Figure 2).
The Market-Back Approach
A market-back opportunity is one that emerges directly from
an end-user need. It begins with an examination of challenges
customers are facing that we learn about through direct
voice of the customer activity or through our participation
in industry-backed consortia or government-funded research.
Here, the focus on particular megatrends guides us to problems whose solutions provide better opportunities to penetrate the existing value chain, as megatrend developments
may lead to the creation of entirely new market segments.
One example of a market-back opportunity space rooted
in the cleantech area that Kennametal explored is electromobility, or the growth of electric and hybrid-electric vehicles resulting from rising energy costs and increasing fuel
efficiency standards. The key to defining our opportunity
space in this vast market was to focus on unsolved problems
that align well with Kennametal’s technology competencies.
Through secondary market research—for instance, published reports from management consulting firms, government agencies, industry and trade associations, and media
sources—and by analyzing specific performance objectives
for battery quality (such as energy density) provided by the
US Department of Energy (2014), the IVG identified critical
application challenges in the powder-metal–based electrodes used in energy storage devices. Kennametal has
strong internal competencies in the powder-metal area;
therefore, this need aligned well with the company’s internal capabilities.
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| 19
FIGURE 1. Kennametal’s process for identifying and developing new business opportunities
The IVG then sought to understand how the company’s
internal capabilities could be complemented with specific external technologies to produce a compelling offering. External technology identification and selection was carried out
through a systematic technology landscape mapping process
(Spitsberg et al. 2013), which identified a promising porous
material that offered a three-fold improvement in a critical performance dimension and that aligned well with Kennametal’s
internal technical competencies.
The Technology-Forward Approach
The electrode solution is one example of how an opportunity
can be defined by tracing back from a megatrend area.
Emerging technologies are a critical element in defining how
to win and how to position the company to access opportunities that might otherwise be out of reach. The opportunity
identification process can also begin with promising emerging technologies, moving from how to win to where to play.
This technology-forward approach, which focuses on the new
business potential of emerging technologies, can be as effective as the market-back process in identifying opportunities.
The key is identifying technologies that are relevant for
the company. While information about emerging technologies is relatively accessible—for example, see publications
and presentations such as Kumara (2014) and Shukla
(2014)—it can be difficult to decipher what a particular
technology may mean for the company. At Kennametal,
IVG developed a two-step approach to identify the few
critical technologies that could make a difference for the
business.
In the first step, the company’s technology space is defined in
a manner that creates a framework for relating seemingly
distant emerging technologies to core competencies. A company’s technology space comprises all the technologies it uses
to create products in a given domain and provide them to
customers. It can be defined in such a way that it captures
both current and developing technology capabilities. We use
a broad definition of the space that allows us to capture
FIGURE 2. Identifying opportunities at the confluence of customer needs and technology development
20 | Research-Technology Management
Capitalizing on Emerging Technologies
current capabilities within a domain along with external
technologies that are related to the core capabilities and that
can be exploited to enter new markets.
For instance, Kennametal’s material science–related technology space can be mapped across seven domains (Figure 3).
Within each domain, the inner ring includes core areas in
which the company has deep expertise, and the outer ring
includes technology areas that are outside the core but share
some key attributes with core competencies, such as commonality in manufacturing processes or technical expertise.
These commonalities would lead us to expect that the company could likely exploit those technology areas either
through an open innovation approach or through targeted
internal development. If the inner ring were the only technology areas being explored for new opportunities, options
would likely be limited. The expanded definition of the technology space makes identification of a promising opportunity
much more likely.
For example, consider Kennametal’s ceramics technology
domain. If only the core technologies are considered, the opportunity search would be focused solely on new opportunities in wear applications. However, the expanded domain
includes such technologies as porous or functional ceramics,
which are a good fit for many cleantech applications—a market with many potential opportunities. Thus, the definition
of the technology space is critical in identifying emerging
technologies with high potential for innovation.
Once the technology space is defined, the next step is
to identify emerging areas within each domain and select
promising technologies. We begin this process by engaging
a team of external and internal experts and asking them
to identify trending technology areas. (Note that a technology area may comprise several specific technologies.)
Once the technology space is defined,
the next step is to identify emerging
areas within each domain and select
promising technologies.
This process usually results in a substantial list of candidate
technology areas that may be relevant to the business. It
does not, however, provide enough detail to allow a final
selection.
The second step seeks to narrow the selection by mapping
candidate technologies to a strategic fit space. We begin this process by sorting the technologies on the list along two dimensions: alignment with the megatrends of interest and fit with
the company’s strategic mission and technology competencies.
Each technology is assessed in each dimension according to
several weighted factors, and the output is plotted onto a Strategic Fit Map (Figure 4). The Strategic Fit Map is divided into
three zones. The outer zone—the right side of the map—includes those technologies likely to be of highest importance to
the company. Technologies in the upper right corner fit best
with both megatrends and internal company capabilities and
therefore should be explored for potential business opportunities, and technologies in the bottom right corner may present
opportunities or disruption for the core business and thus may
be important to the business even though they do not fit particularly well with megatrends. Technologies falling into the
middle zone show only moderate fit with the trends and
FIGURE 3. The technology space for Kennametal’s materials science–related domains
Capitalizing on Emerging Technologies
July—August 2015
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FIGURE 4. Strategic Fit Map for four materials science domains
Kennametal’s competencies and goals; these may be addressed
at a lower priority. The inner zone of the map captures technology areas with low fit on both scales; these warrant monitoring for peripheral awareness, but probably should not be
developed. In this way, the Strategic Fit Map clearly visualizes
how the identified technologies fit along the two dimensions
of importance to the company and provide a rationale for selecting technology areas to pursue.
Once technology areas are prioritized, the next step is to
conduct an in-depth assessment of the most promising areas
to understand the explicit market needs they may address
and the specific technologies best suited to meet those needs.
This assessment is conducted using Technology Landscape
Mapping (Spitsberg et al. 2013). This process starts by identifying key technology developments in a given domain; those
developments are then systematically projected onto broad
market drivers that they can address. By identifying specific
technologies with potential to address particular (and often
newly identified) application segments, the team can connect technologies to markets and define tangible opportunities suited for the company. The outcome of this process is a
Technology Landscape Map that depicts key technology
drivers and the related application segments, with specific
technologies and their readiness level connecting the two
(Figure 5). The Technology Landscape Mapping process
therefore allows us to systematically identify and select specific technologies and application areas to pursue. Once these
are identified, the opportunity space starts to become clear.
Articulating the Business Opportunity
The next step involves bringing the various pieces of the
puzzle together to articulate the business opportunity.
While the growth opportunity is at this stage fairly well
defined, capturing both where to play (the specific user segment and application) and how to win (the set of capabilities needed to deliver value), it is critical to consider
22 | Research-Technology Management
whether there is a reasonable
chance of commercial success
associated with it. Indeed, at
Kennametal,
having
screened a large number of
new growth opportunities
that leverage the company’s
current competencies in advanced materials and processes, we have found that
the “how to win” element of
the strategy must include
not only technology-related
capabilities but also business-related competencies.
In fact, business competencies—including such elements as channel access,
brand
equity,
strategic
alignment, and business infrastructure—often contribute more to the future commercial success than
technology capabilities; thus, they should be carefully
considered early in the discovery process, and given every bit as much attention as the technical capabilities that
are typically the focus of front-end innovation efforts. In
this light, the winning formula for a new business opportunity can be presented as:
Technical Capabilities (TC) + Business Competencies (BC)
= New Business Opportunity
To provide the competitive differentiation needed to turn
a technology-based opportunity into a commercial success,
we have found there must be a critical mass of capabilities in each of the two categories. Typically, a differentiated technology capability arises from the combination of
two or more of critical elements, such as material, process,
and application knowledge. In the case of product development in the core, the company will mostly have a critical
mass of these capabilities internally. However, a company
entering a new space often does not have the needed technology competency factors; in this case, external technologies, accessed via licensing or acquisition, are needed
to augment core strengths and achieve a critical mass of
technology capability. With this in mind, the formula can
be modified to include the effects of external technology
leverage (ETL):
[Internal Technology Capabilities + ETL] + BC
= New Business Opportunity
This formula highlights the role of external technologies
as important enablers in the business opportunity formula.
However, any external technology must be considered in the
context of the other organizational competencies. If there is
not enough overall critical mass—a combination of internal
technical and business capabilities—the external technology
will not likely lead to commercial success.
Capitalizing on Emerging Technologies
FIGURE 5. The Technology Landscape Map
The final consideration when analyzing the business case
for a new opportunity is to understand the dynamics of the
value chain. Once a potential solution is identified, it’s important to see how it maps onto the existing or evolving
value chain. For instance, we have found that technology
components are often highly integrated at the system level,
leaving limited space for new entrants. Developing an understanding of these limitations early in the process saves valuable time and resources from going down a development
path or adopting a technology that cannot be turned into a
business opportunity because of limitations or incompatibility in the value chain. Alternatively, a detailed understanding
of value chain dynamics can help guide the development
program toward defining what partnerships are essential for
commercial success.
An illustration of this point may be found in the earlier
example of the energy storage opportunity for hybrid and
electric vehicles. We saw in this market space a well-defined
need to improve the energy density of batteries to improve
vehicle range. Analysis of the opportunity through the lens
of the new opportunity formula showed that the company
had enough technical and business pieces—existing powder metallurgy technical competency, brand equity as a
powder metal solution provider, and existing processing
infrastructure—to suggest the existence of a reasonable
new business opportunity. Through the technology mapping process, the team was able to identify a promising electrode material that addressed the energy density challenge
in a significant way, and that external material technology
matched with Kennametal’s internal processing capability,
resulting in a specific solution. However, when we examined the value chain for the energy storage device market,
Capitalizing on Emerging Technologies
we observed that production of the electrode subsystem
and the battery system were most often integrated into the
same process. It was unlikely that Kennametal could enter
the market with only a subsystem solution. Therefore, the
best commercialization path for the electrode material solution was to create a proprietary powder product that could
be supplied to system manufacturers.
One other important insight here is that the chance that
a technology-based business opportunity will succeed is
largely dependent on the maturity of the value chain. It is
useful to think of value-chain maturity in four phases, from
technology development through commercial scale-up, cost
reduction, and incremental improvement. We have found
that there is a greater likelihood of penetrating new market
segments with promising emerging technologies in value
chains that are transitioning from technology development
to commercial scale-up. Markets and opportunities beyond
the scale-up phase generally show high levels of component
and system integration and the supply chain networks are
typically well established. On the other hand, markets and
applications in the early stages of technology development
The final consideration when analyzing
the business case for a new opportunity
is to understand the dynamics of the
value chain.
July—August 2015
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FIGURE 6. Value chain maturity in the energy storage device market space
possess high levels of uncertainty, and selecting emerging
technologies involves significant risk. By contrast, in value
chains in the late part of the technology development phase,
the potential for creating value by integrating a few technology capabilities to enable commercial scale-up is high.
For instance, when we analyzed the energy storage device market to identify the best application and path to market for proprietary powder solution, we mapped various
energy storage technologies to their maturity in the value
chain (Figure 6). When considering opportunities in the energy storage market, our initial inclination was to go after
the lithium-ion battery market due to its size and potential
FIGURE 7. The spiral development process
24 | Research-Technology Management
for growth. However, lithium-ion batteries are a well-established technology with well-entrenched players, and the
opportunities for technologies in these maturity stages tend
to be for high-volume suppliers competing on cost. This
value-chain maturity analysis made it clear that our ability
to penetrate that market with new technology was limited.
Instead, we shifted our focus to ultracapacitors and fuel
cells. In some cases, even the ultracapacitor value chain was
becoming too established and device makers were prioritizing cost improvements over performance improvement,
making it difficult to commercialize performance-improving technologies.
Managing Uncertainty and
Driving Investment
One of the main challenges
in developing opportunities
in areas with high levels of
technology and business uncertainty is securing program
investment. It is critical to
provide a framework that allows key decision makers to
prioritize these investments
in context of the company’s
overall opportunity portfolio. In crafting such a framework, we again adopted a
main principle of corporate
strategy—not to eliminate
risk but to increase the odds
of success (Martin 2014).
To do that, our process 1)
focuses on understanding
sources of uncertainty and
relating the program’s progress to the reduction of key
risk drivers, 2) quantitatively
Capitalizing on Emerging Technologies
TABLE 1. Learning plans for Kennametal’s spiral development process
Dimension
Description
User/Market
Market Assessment
Market Size
Estimate the total size of the opportunity space.
Growth Rate
Estimate the rate of growth of the industry.
Industry Landscape
Identify customers, competitors, complementors, and other
players in the defined market space.
Segmentation
Divide the market into distinct groups defined by distinct needs
and target an addressable market space.
Strategic Fit
Define the degree to which the company’s resources and
capabilities match the opportunity and can be developed to
provide a competitive advantage.
Customer Needs
Develop understanding of the functional requirements to meet
customer needs.
Technology
Technology Mapping
Identify technology attributes that correlate with customer needs;
define technology solutions that can fulfill customer requirements.
Functional Evaluation
Conduct initial screening of potential technology solutions to
determine feasibility.
Model/Prototyping
Build prototype models and test in application environment or
simulated test set-up.
Partnering Strategy
Identify and engage with potential external partners, especially
owners of critical technology components that could be integrated
into the solution.
Commercialization/Go-To-Market Strategy
Value Proposition
Create statement expressing why a customer would want to
buy the product or service, including definition of the job to be
done.
Business Model
Define how company would make money, including example list
of potential customers and demonstration of how offering can be
priced to generate profitable return.
Supply Chain
Identify manufacturing and supply routes to produce proposed
solution.
Go-to-Market
Describe how company will bring the solution to the customer.
Organization
Receiving Business—Transition Plan
Plan for market development, manufacturing capability
demonstration, sales force training, and other infrastructure to
support new business.
IP Strategy
Consider intellectual property options and issues, including
patentability and trade secrets.
Resource Commitment
Describe resource requirements and assets that can be leveraged
across the organization to develop and commercialize the
proposed solution.
Internal/External Barriers
Identify internal and external commercialization risks.
describes the risk drivers and provides an analytical investment-decision framework, and 3) provides the ability to
stage the investment decision.
To focus attention on reducing sources of uncertainty,
we have adapted a spiral development model proposed by
Gallagher, George, and Kadakia (2006). The model illustrates a process for developing an innovation opportunity
that begins with a description of the compelling unmet
needs addressed by the opportunity and proceeds along a
spiraling, iterative path of interconnected, interdependent
technology and business development cycles. At each stage,
represented by one revolution along the spiral, learning
plans are formulated to address the largest uncertainties
in each of four main areas—organization, user/market,
commercialization/go-to-market strategy, and technology.
Capitalizing on Emerging Technologies
We refined the specific categories of uncertainties in each
of these areas, creating definitions we found useful for program planning and communication (Figure 7), and developed detailed learning plans in each area (Table 1). As
opposed to the linear Stage-Gate processes (Cooper 1990)
frequently used to manage core programs, the spiral approach
focuses on defining and addressing key uncertainties and
allows for course adjustments based on market feedback or
other factors identified in the learning plans.
To provide a quantitative view of program value before it
is possible to develop a solid business case, we have adopted
a future P&L modeling approach that quantifies the key risk
drivers and models total variability in the expected net present value (NPV) of the program at each stage using MonteCarlo simulations or similar methods. The key assumptions
July—August 2015
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FIGURE 8. Real options decision tree
in the model (such as market size, penetration rate, manufacturing cost, and sales price, as well as capital expenditure
and operational expenses) are directly tied to the uncertainties identified in the learning plans, and the output shows the
sensitivity of the NPV to the key variables.
In presenting these analyses, we make it clear that the
forecasts are based only on what we know at the time—and
valid only within the bounds of that knowledge—and that
they will be refined and adjusted as new information is gathered. This structure helps us communicate program risks in a
quantitative way and relates them meaningfully to the probability of commercial success. We have found that this approach drives focus on the relationship between program
activities and business case inputs.
The idea of asymmetric risk—where upside and downside
are far mismatched—is another useful concept in making
investment recommendations. Considered in parallel with
optionality, which provides the ability to stage investment
decisions, the idea of asymmetric risk can significantly reduce
organizational barriers to approving high-uncertainty investments. To integrate this concept into our financial models,
we have adopted a real options framework. Real options is a
financial term for alternatives or choices that become available with an investment opportunity based on business conditions that arise during life of the investment. This approach
is based on the idea that an investment in a new technology
or business opportunity is not a single-stage decision, but
rather a sequential investment in real options (Bowman and
Hurry 1993; Sanchez 1993; Dixit and Pindyck 1994; Mitchell
26 | Research-Technology Management
and Hamilton 2007; Mathews 2010; Mathews 2011). An initial investment is typically required to enable the opportunity
to be further explored, thus creating a real option.
As the development program unfolds, additional investments can be made in the original concept, or new knowledge may lead to alternative opportunities, or the program
can be stopped if it appears the opportunity will not yield
the desired returns. The choices at each decision point can
be presented as a two-dimensional, three-factor decision tree
that depicts the investment required for the next stage, the
potential the investment can lead to, and the loss that will
occur should the program stop after the next stage (Figure 8).
This approach provides structure in decision making and
helps frame the uncertainty and risk in a more constructive
way—as something to be exploited rather than avoided.
Conclusion
The IVG at Kennametal, although relatively young, has
successfully transitioned several programs from conceptualization to commercialization in areas as diverse as digital
intelligence, advanced materials, and emerging manufacturing technologies. Investment in these new initiatives has
increased substantially, with a few major platforms advancing
into the early commercial stage. These new-to-the-company
programs offer 20–100 times the revenue potential of typical new product development projects in the core. The total
value of IVG’s pipeline has been built over the last six years
to about one-third of the total R&D pipeline in the core.
One other significant outcome is the establishment of
Capitalizing on Emerging Technologies
Kennametal’s Innovation Lab, a 2,800-square-foot space
housing pilot-scale equipment to develop and mature strategic external technologies identified through IVG’s opportunity identification process.
The IVG approach to opportunity creation relies on the
integration of emerging technology with a company’s inherent capabilities. We believe this merging of emerging external technology and internal competencies to address
critical market needs produces differentiated offerings.
Whether the process of discovery begins with market needs
or technology, what’s important is to develop a systematic
and parallel understanding of market and technology trends
connected to an analysis of the value-chain dynamics to
pinpoint opportunity areas that can be addressed by the
company’s specific capabilities, augmented by strategic
technology partnerships.
Securing internal investment in promising technologies
requires that the technology be articulated as a business opportunity; a decision-making framework that shifts the focus
from risk to opportunity can help stakeholders see the value
of the opportunity. An oversight structure with senior leadership that provides expertise and decision-making authority
to support these high-uncertainty, longer-term investments
is also critical.
Innovating outside the core is a challenging proposition.
Established companies can take advantage of their knowledge depth and technology infrastructure to penetrate
evolving market areas and compete successfully against
more agile startup companies. We found that success requires a broad set of technology and business skills from
dedicated cross-functional teams employing the right set of
tools. We believe that the application of our approach will
help other innovation professionals improve their odds of
success outside the core by creating a structure for considering new- and adjacent-space initiatives.
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