A Blog by Jonathan Low


Apr 23, 2018

Meeting the Challenge of Applying Technology To Expand Core Businesses

Investing in technolog(ies) to grow legacy businesses is how most organizations apply innovations today. This is logical because the odds of success are better, the speed of optimization faster and the return on investment higher.

But to expand beyond one's core business - as competitors in the global economy are almost certainly doing - means investing time and resources in new applications for new industries. JL

Erwin Danneels and Federico Frattini report in MIT Sloan Management Review:

Companies are often successful at applying technologies to new products for the customers they already serve. But they stumble when they try to leverage their technologies in new markets. People whose knowledge base differs can be more productive than contacts who have overlapping expertise. People in other industries sp(eak) different languages from the one they use. The goal should be to find new applications where your technology is superior. Unless managers take steps to figure out the additional applications, they risk leaving money on the table.
Your company may be sitting on a hidden treasure. The technologies underlying your core business could have lucrative applications beyond the ones that you provide to your current customers. However, if your company is like others we have studied, you aren’t pursuing those opportunities, or you’re doing it half-heartedly at best.
In recent years, we have researched or provided consulting to several dozen organizations in the United States and Europe. In doing so, we have frequently identified untapped opportunities where fungible technologies might deliver significant benefits to customers in diverse industries.
Companies are often successful at applying technologies to new products for the customers they already serve. But they frequently stumble when they try to leverage their technologies in new markets. Determining how to go about applying one’s technologies to different markets isn’t obvious. The goal of this article is to help managers find and address applications outside of the businesses for which a technology was originally developed. We call this process “technology leveraging” — applying technological competence to customers the company does not yet serve.1
Consider Kuka AG, a producer of industrial robots headquartered in Augsburg, Germany. At the end of the 1990s, the company began looking for opportunities to apply its robotics technologies outside of manufacturing. The search led to the establishment of a new division aimed at the entertainment and simulation sectors. In 2010, the company’s robots became the core element of Universal Studios Florida’s Harry Potter and the Forbidden Journey ride. During the ride, the robotic arms dive, turn, and pivot in synchrony with projected images, giving participants the illusion of extreme movement. The new business provided Kuka, recently purchased by Midea Group Co. Ltd. of Guangdong, China, with a new source of revenue and profits.2
In our experience, only a small number of companies make a deliberate effort to tap the potential for business outside their core markets. As a result, most companies miss out on potential profits and avenues for growth and renewal. Society also loses because it doesn’t get to reap the benefits of technological progress. Through our research and practical expertise, we have developed a process to help companies better leverage technology. It relies on four steps:
  1. Characterize the technology.
  2. Identify potential applications.
  3. Select from among the identified applications.
  4. Choose the best entry mode.
STEP 1: Characterize the technology. The first step in leveraging technology is to describe the underlying technological competence. The idea is to “de-link” the technology (for example, a robotic arm that can move in multiple directions) from the specific products in which it is currently used. To do this, companies need to identify the functions the technology can perform. The exercise gives managers a way to explore the technology’s fungibility and begin to imagine new applications. A good characterization can broaden the scope of the potential opportunities and get managers to focus clearly on the technology’s abilities and limits.
The process begins with understanding the “core functionality” of the technology the company hopes to leverage. Consider the case of Service Network Inc. (SNI), a machine tool manufacturer in Worcester, Massachusetts. SNI developed a new technology for positioning the heads of its computer numerical control grinding machines by using a set of stacked interlocking gears. In addition to placing the grinding wheel on a plane (along X and Y axes), it also allows for angular motion.
In its search for nonmachine tool applications, the company had to be clear about the technology’s core functionality. Management concluded that, at its core, the technology gave users the ability to position objects in space. Once this was established, SNI specified how the technology performed along multiple dimensions (such as force, precision, speed, range, and energy consumption). Based on the set of characteristics, it studied alternative technologies that provided similar functionality and developed a table that compared competing technologies and listed the advantages and disadvantages of each. This enabled managers to identify their competitive advantages and see which technologies they could compete with and which ones were superior.
In many settings, this step requires extensive testing and investment in research and development. Indeed, you can’t look for new applications until you know what your technology can do vis-à-vis what competing solutions do. For example, Saint-Gobain S.A., a French multinational corporation that produces a variety of construction materials along with advanced materials for use in semiconductor manufacturing, wanted to apply its ceramics technologies to new markets that were less cyclical. However, like SNI, it couldn’t start pursuing new markets until it knew what the technology was capable of (for example, the temperatures it could tolerate). Characterizing the technology has to be done before seeking input from the market.
STEP 2: Identify potential applications. Once companies have specified what the technology is, they can begin to explore new settings where it might be applied. Their market research should consider a broad scope of potential applications, but it should also hew closely to an understanding of the technology’s functionality, as described in Step 1. Searching for new applications requires a variety of techniques. Although we recommend you start with desk research, you’ll likely make the most progress by getting out of the office and interacting with people at conferences and trade shows.
Desk research involves searching databases for patents, trade literature, trade conference programs, and general web searches. In searching for new technology applications, it’s frequently helpful to study technologies that have the same core functionality and examine how they are being applied. These observations will help you identify technologies that yours might compete with or substitute for. SNI found, for example, that its positioning technology was unique because it allows objects to rotate.
One way to identify inventions similar to yours is a patent search. While researching patents, be sure to look for claims regarding functionality. Rather than using a single set of search terms, try a variety of words that point to similar functions. In different industries, different words may be used to convey the same functionality. Consider the experience of SAES Getters S.p.A., an industrial materials company based in Milan, Italy, whose products are used in various industrial and medical applications. In an effort to find new markets for its functional polymers, which absorb gases, managers conducted search queries for competitive technologies using an array of keywords (everything from absorber and absorbent to functional, getter, reactive, scavenger, and inhibitor). The company found that, besides its familiar direct competitors, there were other patent holders it didn’t know about operating in the chemical, packaging, and printing industries. Managers became aware that people in these other industries spoke different languages from the one they used. For example, instead of talking about getters (a material technology originally developed for the display market), they tended to use terms such as fillers, scavengers, and desiccants. This awareness prompted managers to refine the search for new applications, and later provided the company with input on words to use when communicating about the technology with potential customers.
To learn about possible areas of application, you may want to start with trade publications and broad industry studies. Which technologies are currently used to serve the functionalities you identified in Step 1? What are the pain points and stumbling blocks where current solutions fall short? Keep in mind such research is often just a warm-up for more active engagement. Trade shows provide an excellent way to see firsthand where the technology and its alternatives might be applied, and to hear about the pain points of the existing technologies. Indeed, after attending a broad trade show, companies can obtain valuable information by attending more focused, industry-specific trade shows to explore ideas in more detail.
One company we studied, Mario Cotta Zincometal Group S.p.A., also based in Milan, did just that. A leading manufacturer of pneumatic knife holders, circular knife blades, and slitting systems, Mario Cotta developed an innovative cutting machine for producing paper tissue. This machine bypasses some phases of the traditional production process, which allows the company to cut lead times and manufacturing costs. Company executives sensed that the technology had possible applications beyond tissues, although it didn’t know what the other applications might be. Eager to find new markets, they decided to attend Drupa, a large printing and cutting technology trade show held every four years in Düsseldorf, Germany. Employees from Mario Cotta participated in the 2012 show both actively (with a booth displaying the proprietary technology) and passively (with three people touring the show to scout out new opportunities). Thanks to this effort, the company identified a potential application involving industrial felts. To learn more about this prospect, managers attended a more specialized trade show called Converflex, where they established contacts with potential clients. While Drupa gave management an overview of how the company’s cutting machine might work outside its original sector, the specialized trade show provided a more specific set of options.In addition to trade shows, some companies have found it productive to reach out to experts both inside and outside the organization for ideas. For instance, in an effort to develop ideas on how to leverage its expertise in ceramics technology several years ago, Saint-Gobain convened a brainstorming meeting of some of its top scientists and engineers from various divisions and specialties. We have also seen companies tap university researchers and professors to good effect, as many academics don’t specialize in particular markets and often have a broad range of contacts.
When looking for new ideas, some companies have found that reaching out to people whose knowledge base differs from theirs can be more productive than working with contacts who have overlapping expertise. A German high-tech company that we worked with, for example, developed an innovative technology for generating electricity from superconductors. The technology was originally created for distributed residential energy generation systems, but the company envisioned that it might work in other settings. To find additional applications, the company invited several university professors and researchers who worked in the energy field to take part in informal meetings and focus groups to brainstorm on new ways to apply the technology. The meetings were moderated by professors from the Italian university where the focus groups were held, who challenged the participants to identify potential applications that made use of the technology’s core functions. In addition to suggesting new applications, some of the attendees shared contact information of people they knew working in related fields.
Yet another path forward is to engage with communities of problem-solvers who could offer suggestions for potential applications. Research has shown that many potential problem-solvers are motivated by contests such as those hosted on platforms operated by open innovation and crowdsourcing specialists like InnoCentive or IdeaConnection.3 Fiberstar Inc., for example, a privately held biotechnology company based in River Falls, Wisconsin, has found that contests can lead to new applications. Fiberstar’s most successful invention to date is a natural citrus fiber derived from citrus pulp, a byproduct of orange juice production. Most of the applications for citrus fiber have come from students who participated in the company’s global contests. One of them, developed by students from Oregon State University, has shown the feasibility of using citrus fiber to reduce the oil content in fried seafood and other fried food.
STEP 3: Select from among the identified applications. Once companies have de-linked their technologies from their original product applications, they can begin to “re-link” them to new markets. Thus, the next step is determining which potential applications to pursue. Although selecting opportunities with the most promise may appear to be straightforward, in practice it can be more involved. First, you need to assess the requirements of the new applications to make sure the technology is up to the task. In many cases, the technology needs to be adjusted, and that often takes both time and money.Based on our experience, simulation studies can be helpful, but they may not be enough. They often underestimate the problems that will arise when actually applying the technology. Early prototypes may be the only way to reveal such problems, and they’re more effective at making the value of the technology tangible to prospective customers.
Consider the case of a U.S. company that manufactures components for controlling sealing in automotive applications, such as engine valves. As the company searched for new applications for its technology, it conducted simulations in which the technology was used in medical settings. Two potentially promising medical applications were seals for blood bags and catheters. Unfortunately, the simulations didn’t pick up on a critical difference between what the sealant does in the automotive setting and how it needed to work in biomedical applications. In automotive applications, the sealant has to be rigid because the components it joins together don’t change during operation; in biomedical settings, it has to be elastic because the sealant must adapt to the changing shape of the components. This difference didn’t become obvious until the company began making prototypes.
When considering new applications for new markets, it’s critical for managers to study the technologies that are currently being used in the new markets and to fully understand their pros and cons. In what ways does your technology perform better than the current approach? How is it worse? Is it possible to develop a value proposition that makes the product using your technology superior, either in the value it provides or cost savings?
In bringing your technology to new markets, the goal should be to find new application areas where your technology is superior. To be sure, superiority can take several forms: achieving better performance on existing performance dimensions, introducing a new performance dimension, or delivering the desired outcome at a lower cost. Often, it’s a combination of factors. SNI, the machine tool company discussed earlier, found that its product could be built at a competitive cost, and based on its design, would be less expensive for users to operate it.
An Italian company we have worked with that specializes in protective packaging solutions for businesses and consumers uses three criteria to evaluate and prioritize new applications for its proprietary technology: (1) technical feasibility, the extent to which the technology can be adapted to the identified application; (2) market attractiveness, the potential economic value; and (3) innovativeness, the extent to which the technology is novel compared with the technologies currently used in the targeted sector. Management ranks potential applications along these criteria using a weighted scoring method.4
Sometimes the decision to pursue an alternative application is complicated by the certification and regulatory process that the focal technology has to go through. For example, a U.S. company we know explored the possibilities of using its advanced metal composites to produce cardiac pumps. However, it reconsidered after learning about the challenges of achieving certification and approval by medical authorities.
STEP 4: Choose the best entry mode. The fourth and final step in leveraging technology involves determining the best way to develop and commercialize the products that use it. In bringing a technology to market, companies need to decide whether to develop products themselves or work with a third party. This decision can have significant implications in terms of capital requirements, time to market, level of control, and required commitment.5 However, there are no universal guidelines that apply in every situation.
When assessing the relative benefits of one approach versus another, managers should begin with an understanding of their organization’s existing resources and capabilities. For example, does the company have the manufacturing facilities and know-how to make the product? If yes, it may make sense to commercialize the technology internally.6
To the extent that you will be attempting to enter a previously unserved market, you also need to know if the company has the necessary resources to serve the new market. If not, you need to either develop or access a new set of market-related resources, including a new distribution channel and a clear sense of how to meet customer needs.7 In our experience, developing new market-related resources (such as customer relationships for a new industry) can be difficult.
The fact is that many companies that are able to develop technologies don’t have the skills and resources to commercialize their creations to succeed in new markets. That’s why some companies need to find application development partners that have the necessary resources, be it manufacturing know-how, distribution capability, or brand equity. SAES Getters, for example, decided that the best way to apply its industrial materials technology to food packaging was to collaborate on research with a small Italian company named Metalvuoto S.p.A., which specialized in developing plastic films for preserving food. Eventually, it acquired the company.
Still another option is to license the core technology (as opposed to a fully developed application) to another organization. This involves commercializing the company’s technology through out-licensing agreements to other manufacturers, although it can also involve selling patents or spinning out the entire business unit that focuses on the new technology. Licensing offers an effective vehicle for converting proprietary technology into a more general technology platform.
In many cases, a big challenge is establishing the value of the technology — it’s easy to undervalue it and charge a royalty fee that does not adequately capture the value it provides to new users. We saw this happen with a leading manufacturer of anti-vibration systems for heavy trucks and industrial vehicles. The company licensed its technology for use on light trucks. However, management was not familiar with the new market and agreed to a royalty fee that was low relative to the value the technology created. Indeed, licensees tend to know more than licensors about the value a particular technology can bring to specific applications (which often puts licensors at a disadvantage).

On the Hunt for Opportunities

Although companies aren’t always aware of it, the technologies they use in their core businesses often have more than one application. Unless managers take steps to figure out the additional applications, they risk leaving money on the table. Yet tapping into new opportunities can be complicated. First, it requires companies to free themselves from the pull of their current customers and think more broadly.8 Seeking out new markets is a skill in and of itself — one quite different from serving current customers.
In many cases, it also requires a leap of faith. Because it is difficult to judge ex ante whether conducting a leveraging project will be worth it, many companies resist committing the resources to explore opportunities in a serious way. However, the reality is that projects aimed at leveraging technology will always have to compete with the company’s mainstream businesses for resources. In our experience, companies that achieve the most success in leveraging their technologies commit themselves to multiyear budgets for technology leverage and make it part of their strategy.
For many companies, the untapped potential of underutilized technologies can mean lost opportunities — missed growth and profits. For society in general, it can mean jobs that aren’t created and products that aren’t developed. These are treasures we think are worth hunting for.


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