We are living at a time with unprecedented technological change. For many companies, especially established ones, technological change presents a threat –although it brings major opportunities to create value as well.
Yet, why do established firms struggle with identifying and executing new opportunities for value creation? One primary reason is that established organisations are usually good at execution, but they are rarely designed to engage in the art of entrepreneurship. In fact, as the firm becomes larger and more complex over time, growth is often stifled by the very same forces that help its established lines of business run smoothly. Finding the right growth opportunity and successfully capturing it requires a different mind-set for most managers and employees.
Successful growth endeavours depend, first and foremost, on the firm’s ability to discover new profitable market opportunities, that will leverage the existing core abilities of the firm. But more than that, success relies greatly on applying methods to make the right decisions, and to control the cost of failure if and when it occurs.
Here are few tips that would help managers of established firms in confronting this challenge:
1. Generate a varied set of market opportunities
Before you focus on a specific growth opportunity, you must make sure to develop a broad range of business concepts to choose from. Outstanding opportunities are rare, and your chances of unearthing one such idea are directly proportionate to the number of business opportunities that your company can identify.
Yet, it’s not just the number of discovered opportunities, but the variance among them that counts. In fact, the on-going desire to better serve your current customers (often coined the ‘tyranny of the served market’) pushes firms to identify growth opportunities that are tightly related to their existing lines of businesses. But distant search – in other industries and domains – can open up completely new windows of opportunities. Think about Apple stepping into the music players industry back in 2001 as a classic example.
A study that was published in the journal Organization Science actually showed that the extent and nature of the firm’s market opportunity set has a significant effect on its future diversification moves.
2. Apply systematic methods to boost your discovery
To generate a set of new business options, you need to develop the capability to uncover truly fresh opportunities, through an explicit process. For example, a study on technological competence leveraging suggests a process of de-linking (ie. recognising technological competences in their own right) and re-linking (ie. re-combining technological competences to serve new customers).
One tool that can help you to apply this systematic process is the Market Opportunity Navigator (see video below). It guides you in characterising your core abilities – detached from any specific product that you are currently producing or any specific customer that you are currently addressing – so you can search more easily for new applications stemming from these abilities, and for new customers who may need them.
Importantly, this process will not only support you in discovering adjacent market opportunities, but will also facilitate your distant search for new opportunities. As an example, consider the Japanese company Fujifilm. Originally, Fujifilm brought photographic film production to Japan and grew based on this business. By researching and developing for many decades everything related to photographic film, from raw materials to processes to systems, Fujifilm became an expert in many different advanced materials technologies, including coatings, membranes and organic compounds. When the photographic film market started to decline, Fujifilm was able to leverage these core technologies to create different products in multiple domains. In fact, by re-combining these abilities, the company today creates unique materials that can be used in an extremely wide variety of applications, including desalination, gas membranes and astropore filters – far beyond its original market.
3. Rely on a strong core
Chris Zook (author of ‘Profit from the Core’) suggests that relatedness to a strong core is the most powerful engine for value creation, and shows that many of the most successful growth companies were able to maintain strong reinforcement between the current business and the new adjacencies. A study done in 3M, to better understand their own successes and failures, supports this claim: they actually discovered that new businesses based on long-standing 3M competencies were dramatically more likely to succeed than those that didn’t leverage core skills.
When screening possible growth opportunities, don’t forget to assess relatedness, so that you can use existing customer relationships, technologies or core business skills to build your competitive advantage in a new area. Remember to examine the shared resources and capabilities in developing the product, as well as in delivering it to the market.
Assessing the relative distance of potential growth opportunities to your current business is useful when comparing possible investments relative to each other, as well as in evaluating them on an absolute basis.
4. Set priorities through clear criteria
Business expansions are journeys into the unknown. Screening and evaluating the attractiveness of your opportunities are therefore both extremely challenging and extremely crucial tasks. In fact, successful companies invest a great deal in developing criteria and processes for making the best growth decisions. For example, one of the innovation centres at Microsoft developed a structured, multi-stage process that includes four gateways to manage their innovation funnel and move from initial examination of many opportunities, to developing strategy and tactics for only few options.
Dr Sharon Tal and Prof Marc Gruber are co-authors of ‘Where to Play, 3 steps for discovering your most valuable market opportunities’ (FT Publishing), out now on Amazon, priced £16.99. For details, visit: www.wheretoplay.co
You can develop your own set of criteria, or use existing checklists to manage this funnel and set your growth priorities. We recommend that you carefully evaluate two important dimensions for each option you consider:
In any case, a systematic measure will enable you to actually compare your options and reveal your most valuable growth opportunity.
Overall, to spot promising market opportunities, you first need to diverge, by generating a wide set of opportunities, and then to converge, by carefully examining the attractiveness of these options and their relatedness to your existing cores. That way your firm proactively embraces the new possibilities that are opened up by technological change.
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Read also:
Future-proof your business: the strategic role of data in marketing
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The authors, Prof Dr Marc Gruber and Dr Sharon Tal, are world-leading authorities on innovation, entrepreneurship and technology and are both highly experienced and engaging speakers. Prof Dr Gruber is vice-president for innovation at the Swiss Federal Institute of Technology (EPFL) in Lausanne, Switzerland, and chairman of entrepreneurship & technology commercialisation there. He is deputy editor for the empirical research journal in management, the Academy of Management Journal. Actively engaged in teaching, consulting and executive training programs in Europe, the US and Asia, he regularly acts as a jury member in start-up and corporate entrepreneurship competitions across Europe. He was ranked the No.1 researcher in entrepreneurship for 2005-2015. Dr Sharon Tal is a co-founder and former executive director of the Entrepreneurship Centre at the Technion, Israel Institute of Technology, and is a well-recognised lecturer on marketing for high-tech start-ups. She gives regular lectures and workshops and serves as a mentor in many organisations aiming to help budding entrepreneurs. She also has vast experience in marketing and strategic consulting. Her PhD research analysed the market entry decisions of hundreds of start-ups and their consequences on firm performance and flexibility. The book, Where to Play, by Prof Dr Gruber and Dr Tal was published by FT Publishing in September 2017, priced £16.99. For more information, visit: www.wheretoplay.co
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