The race for the next game changers: Serendipity Opportunities & Strategic Focus Fields
Updated: Mar 31, 2021
In a recent keynote, a large German corporation was emphasizing the relation between new business innovation and capital allocation. See video at 38:38min:
Looking at the last decade, the Chief of Strategy and Innovation insists that most of capital (70%) is dedicated for M&A to integrate proven new businesses and another significant part of capital (29%) supports existing business growth and extension mainly through internal R&D. When it comes to the fuzzy front end we are allocating less that 1% of available capital. Here we bet early on deeptech that would enable and drive future industries. Those activities require to have strong process to manage risk and uncertainties, often a via corporate venture capital fund as well as an foresight focused innovation lab. Both would be able to invest in fast growing areas while killing early those leading to dead-ends.
When looking for new business, large corporations have no choice but to innovate. There are therefore two options that can be approached together or separately:
Foresight Exploration of Strategic Focus Fields - those are focus areas aligned with the existing business units but looking at a longer and more risky horizon - think about Amazon CEO investing in Space exploration with Blue Origin
Capturing Serendipity Opportunities - here we consider internal assets that could be repurposed into a new business in an entrepreneurial manner - think about Amazon commoditizing their IT infrastructure to other companies
Managing high uncertainty in the field of deeptech requires really experienced professionals. Game changing technologies can reshape value chains, and are often source of amazing value creation. Take the example of Amazon Web Services, launched a decade ago and which generates in 2020 almost $40Bn in sales. That said, in the race for game changers, only a few companies succeed and this can bias the investor’s expectations while some other can escalate into business tragedy.
Illustration: Theranos deeptech hubris and billions dollars vanished
Foresight Exploration of Strategic Focus Fields
This is more long term and risky, it can lead to the future control of key technologies and potential IP granted technology monopolies. I call it here a "field pull" strategy where you have identified the few future topics highly aligned with your organization. Usually you define a strategic focus field at the interface of your company core expertise, in the context on key enabling technologies (see my recent article) and under the context of global megatrends. For that you start collecting scientific information, market data and map the technologies landscape. Then, such strategic focus fields are endorsed by top management with resource allocated for few years to ground , grow and scale future businesses.
"As a side note, I often see Strategic Focus Fields named after technologies, I think this is a mistake and would recommend naming them from application and market perspective while making obvious what are the underlying technologies. An example is to talk about smart city mobility instead of self driving vehicles."
To my knowledge, one of the best way to manage an Strategic Focus Field is to ground a maximum of projects to start exploring concrete and tangible business. You can easily spread your effort between internal projects while having a few partnered start-ups as a live beacons, giving constant pulse of the field. Multiplying projects and allowing them to fail is fine if you have a learning mechanism that can feed the other projects to derisk them. For me, the best approach is detailed by Philippe Meda that he called "reversing your pipeline": https://www.icopilots.com/mindset/15561-15561
In term of activities, you would initiate projects at early stage of maturity, here you compensate project risk with the accumulated field knowledge you have built upfront. Often, you can not find all technologies and expertise within your own business units technology or customer insights. One good way to accelerate maturity is to build strategic partnerships, either licensing of an academia technology or working with start-ups advanced products, even, sometime you find industry players from another field interested in cooperation... of course this comes at a certain cost and constrains.
Managing new business within a Strategic Focus Field is therefore a long endeavor that would only pays off in a 8-10 years horizon. Your company needs to be ready for such strategy, as well as reflected in your KPIs. Here most of your expertise is to accelerate projects maturity while killing fast those leading to dead-ends.
Capturing Serendipity Opportunities
Now, the first league, there is no proper way to manage serendipity opportunities, which makes it difficult to achieve within an innovation unit. It is also the fastest rewarding one. In other words, being successful at managing serendipity opportunities will buy you credibility to secure resources to invest later in Strategic Focus Fields.
Managing serendipity opportunities has one main focus, identify proprietary and already matured assets from within the company that could be turned into new business. So don't mislead people with moonshots stories and famous entrepreneurs examples. Here your main job is to turn a stone into a shining gem, in other words, you will have to repurpose an internal asset and maximize its profitability by designing the most valuable business model for it. You are in an "asset push" strategy where risk is reduced by all the internal knowledge and expertise linked to the asset and where your uncertainty rely on your customer and capture of revenue. Here your job is not about sourcing assets, nor technologies from external partners... Instead, you need some scout profiles to follow the trends, benchmark and differentiating value from competition.
Serendipity is often associated with intrapreneurship, knowing that behind each internal asset there are often many company employees. There are therefore two ways to source those assets:
Passive sourcing - This is often the main approach for companies who are running global call for ideas and intrapreneurs to join some concepts build-up programs
Active sourcing - This requires pluridisciplinary specialists, strong at opportunity seizing and well connected and informed of each every business units activities
Looking at the innovation iceberg, Passive Sourcing is often the visible part of it where you see large communication campaigns, nice web platform collecting hundreds of ideas leading to few serendipity opportunities. Here the shortlisted intrapreneurs are attending bootcamps with cool coachs from external agencies or seasoned professor from top business schools. Those programs have shown do be very successful. With those program visibility and trainings, intrapreneurs have an incentive to work hard and push an exciting technology into valuable business. The incentive is high enough to compensate for the chance of project to fail or not being further funded. In intrapreneur programs, you see a lot of young professionals with high tolerance to failure and looking to step along their current role to accelerate their career. In both cases, if project is successful they could take new responsibilities and if project is stopped, they go back in their business units with extended skillset and experience to accelerate their career progression. Here, the only limit is to refill the pool of candidates and novel serendipity opportunities hidden within a large corporation. Refilling this pool obliges to run such intrapreneur program every second or third year.
A less known approach for capturing serendipity opportunities is about Active Sourcing. Venture Capital analyst will tell you that among thousands of business plan they received only a small part enter the deal flow. For them passive sourcing has proven to be inefficient, while the best projects have already been secured by competing investors. This implies that VCs do active sourcing, visit tech. transfer offices, incubators, identify high potential early stage concepts, build relation with entrepreneurs, provide them with advises. In large corporations, innovators in residence have developed an expertise at detecting opportunities, as opposed to intrapreneurs who have a slow learning curve in connecting a technology, a market and a revenue model. Often innovators in residence have been long enough in the organization to know well the business units history, activities and have numerous contacts network to reach out. Their job is to map all internal capabilities and identify mature assets that could potentially develop into new business. After detecteing opportunities, most of the work here is to maximize the value of the assets and trajectories to first revenues. Here the failure rate is extremely high and you need a very large number of ideas to feed in the system. Also to say that you cumulate very little content based learning. Only your experience in seizing opprotunities progress.
I have summarized in a two by two matrix the approach for Foresight Exploration of Strategic Focus Fields and for Capturing Serendipity Opportunities. This framework explores further the excellent Strategyzer portfolio map concept: https://www.strategyzer.com/blog/business-model-evolution-using-the-portfolio-map
Within your innovation lab, the Strategic Focus Field colleagues are subject mater experts, strong in collecting and analyzing data, capable to manage open-innovation and to build partnership with external entities. Their main activity is to seed and grow project by conducting derisking experiments to learn, pivot and when necessary kill while transferring knowledge to other projects of the field allowing a low attrition rate.
At the same time, within your innovation lab, the Serendipity Opportunities colleagues have pluridisciplinary background. Their experience gives them a strong intuition for seizing opportunities. They are well connected with the company experts and have an excellent overview of different departments. Their main activity is to source mature assets and repurpose them to maximise their value by applying busines model design and testing customer adoption. Here its a number game with 90% of projects that will no survive the first few months.
Those two dimensions for innovation require therefore very diverse profiles of people and mindset but they still have similar characteristic such as being visionary, being capable to learn fast, being flexible in taking learning to adjust their concept.