Home Computer Science Technological Entrepreneurship: Technology-Driven vs Market-Driven Innovation
Case Aims: To illustrate how a firm incorporates emergent technology search into their innovation activities
Kennametal Inc. is a diversified producer of materials and components which has achieved business growth through innovation and acquisition. In 2009 the company created an Innovation Ventures Group (IVG) whose mission was to identify new areas of growth. The IVG focuses on large-platform opportunities with revenue potential in the millions of dollars based upon new technology and business models which may exist outside the company's core markets (Spitzberg et al. 2015).
Driving innovation outside a company's existing market is both challenging and risky. It can be difficult to identify compelling opportunities across a large number of ideas, and even when a promising opportunity is identified, executives can be reluctant to authorise investment when uncertainties and risks remain high. Simply collecting a large number of ideas is not deemed sufficient to provide breakthrough innovation opportunities, since the majority of ideas are not radical enough to lead the company into truly new markets.
New opportunity growth usually entails greater levels of uncertainty and may create reticence to invest. To combat this reluctance, the IVG
recognised the need to define any new technology in terms of a business opportunity and to provide a framework for investment decisions that communicates both the upside and the potential risks of the opportunity. The primary challenge is to combine knowledge and insights from various functions to essentially create a new business opportunity.
IVG's business-creation framework focuses on mega-trend areas where a market disruption is occurring and on emerging technology trends which can provide information about potential technological disruptions that may lead to new business opportunities. The company defines mega-trends as areas likely to have a major future societal impact. The four key megatrends that are monitored to inform strategy are:
A market-back opportunity is one that emerges directly from an end-user need. It begins with an examination of challenges customers are facing in relation to particular mega-trends. One example of a market-back opportunity in the clean-tech area that Kennametal explored was electro-mobility and the growth of electric and hybrid-electric vehicles. The key to defining an opportunity space in this vast market was to focus on unsolved problems that align well with Kennametal's technology competencies. The IVG identified critical challenges in the powder-metal-based electrodes used in energy storage devices. Kennametal has strong internal competencies in the powder-metal area, so the need aligned well with the company's internal capabilities.
The company's technology-forward approach focuses on identifying emerging technologies that open the door to entirely new opportunities. A company's technology space comprises all the technologies used to create products in a given domain. Defining the space permits both current and developing technology capabilities to be captured, including access to external new technologies that can be exploited to enter new markets.
In the case of Kennametal's ceramics technology domain, if internal core technologies had been the only ones to be considered, the opportunity search would be focused solely on new opportunities in ceramics applications. However, expanding the domain to include technologies such as porous or functional ceramics offers a number of totally new clean-tech applications.
The company process usually results in a substantial list of candidate technology areas that may be relevant to the business. This does not provide enough detail to allow a final selection. The next step is to narrow down the selection by mapping candidate technologies to strategic fit. This involves technology sorting along two dimensions—alignment with the mega-trends of interest and fit with the company's technology competen- cies—to create a Strategic Fit Map (Schilling and Hill 1998). The Strategic Fit Map is divided into three zones. The outer zone includes those technologies likely to be of highest importance to the company. Technologies which fit best with both mega-trends and internal company capabilities are carefully assessed. This is because they offer a high level of new opportunities. Once technology areas have been prioritised, an in-depth assessment of the most promising areas is undertaken to determine explicit market needs and the specific technologies best suited to meet those needs.
From experience, Kennametal has determined that whether a technology- based business opportunity will succeed is largely dependent on the maturity of the value chain over the four phases of technology development, commercial scale-up, cost reduction and incremental improvement. Their conclusion is that there is a greater likelihood of penetrating new market segments with promising emerging technologies in value chains transitioning from technology development to commercial scale-up.
The firm focuses on understanding sources of uncertainty and relating a programme's progress to the reduction of key risks. It has developed quantitative indicators to measure key risk drivers. The process model for developing an innovation opportunity begins with a description of the compelling unmet needs addressed by the opportunity and proceeds along a spiralling, 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: organisation, user/market opportunities, commercialisation/go-to-market strategy and technology. The approach is deemed superior to the more conventional linear Stage-Gate model because the spiral focuses on defining and addressing key uncertainties and allows for course adjustments based on market feedback or other factors identified in the learning plans.
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