Opportunity Recognition: 15 Approaches for More Business Growth 3658398108, 9783658398101

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Andreas Engelen Clara von Gagern Monika Engelen

Opportunity Recognition 15 Approaches for More Business Growth

Opportunity Recognition

Andreas Engelen • Clara von Gagern Monika Engelen

Opportunity Recognition 15 Approaches for More Business Growth

Andreas Engelen Lehrstuhl für BWL, insb. Management Heinrich-Heine-Universität Düsseldorf Düsseldorf, Germany

Clara von Gagern Neuss, Germany

Monika Engelen TH Köln Köln, Germany

ISBN 978-3-658-39810-1    ISBN 978-3-658-39811-8 (eBook) https://doi.org/10.1007/978-3-658-39811-8 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 This book is a translation of th.e original German edition „Opportunity Recognition“ by Engelen, Andreas, published by Springer Fachmedien Wiesbaden GmbH in 2021. The translation was done with the help of artificial intelligence (machine translation by the service DeepL.com). A subsequent human revision was done primarily in terms of content, so that the book will read stylistically differently from a conventional translation. Springer Nature works continuously to further the development of tools for the production of books and on the related technologies to support the authors. This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer Gabler imprint is published by the registered company Springer Fachmedien Wiesbaden GmbH, part of Springer Nature. The registered company address is: Abraham-Lincoln-Str. 46, 65189 Wiesbaden, Germany

Preface to the Second Edition

Since the first edition of this book was published in 2016, the operating environment for many companies in a wide range of industries has changed significantly. Not only due to the Covid crisis, but also, independently, due to digital business models. For example, platform business models have become more important, and digitalization has advanced. Therefore, the topic “Opportunity Recognition”  – recognizing new opportunities for a future business – is more relevant than ever. We are therefore pleased to present the second edition of our book on this topic. Since the first edition of this book, we have tested and refined the 15 tools presented with companies. We have taught the content in our courses at both master’s level and executive education level and discussed it with students. The insights gained from these interactions have been incorporated into the second edition, which has a greater focus on the textbook nature. The basic structure, especially the division into 15 tools, has proven itself. We have refined and updated the texts on individual tools and in some cases added new figures and examples. We have also added new didactic elements, such as introductory questions and summaries at the end of chapters. An additional chapter with application tasks should help to try out and use the tools in teaching and practice. We have expanded the team of authors to include Prof. Dr. Monika Engelen. An essential supplement are short videos created by us, which we present on our YouTube channel1 of the Chair of Business Administration, in particular Management of the Heinrich Heine University. In these short videos, we present most of the 15 tools in detail. Feel free to follow us there.

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 https://youtube.com/playlist?list=PLnzkiy3AY-EFwueBM_eJ5355k_Gv3x_T5. v

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Preface to the Second Edition

We would like to thank all the supporters who made this second edition possible: the company representatives and students for their valuable input and our editor Gundula Herget for the final polishing of our texts. Düsseldorf, Germany Neuss, Germany Köln, Germany In summer 2021

Andreas Engelen Clara von Gagern Monika Engelen

Preface to the First Edition

Without an opportunity, there is no entrepreneurship. (Short et al. 2009, p. 40)

Recent studies conclude that a person with an average lifespan outlives most companies. Of companies founded 40 years ago, only 0.1% still exist. This shrinkage cannot only be attributed to small and young companies that quickly disappear from the market. About one-third of the Forbes 500 largest companies no longer exist after 10 years. Of the 1000 largest companies that were active in 1962, only less than 16% still exist today. Why are established companies with all their experience and resources not more successful and sustainable in the long run? They become complacent over the years of success and usually less flexible. They lose the entrepreneurial dynamism to recognize new opportunities and take advantage of them. Start-ups, on the other hand, often realize the business ideas that established companies don’t recognize or dare to tackle. Some start-ups, with innovative ideas and products, have managed to create entirely new markets and grow into global players within a few years. Established companies can and must learn from these start-ups. In a volatile business world with ever-shorter product life cycles and innovation cycles, it is also essential for established companies to be on the lookout for new opportunities and to tap into them. Only companies that continuously question their fields of activity and expand them entrepreneurially will still be successful in the market in decades to come. The central lever for the long-term existence of a company is growth. Even very successful, strongly growing companies are subject to the risk of experiencing abrupt turning points (“stall points”) in their growth and disappearing from the market or becoming marginalized. In one study, 87% of all companies examined had quite precisely datable inflection points in their growth from which they recovered with little or great difficulty. On average, these companies have lost 74% of their market capitalization. There are external factors for this, such as new competition or economic downturns, but most failures are home-grown. A key reason is the inability of companies to identify and commercialise new, forward-looking opportunities. In this book, we have set ourselves the task of describing 15 innovative tools and approaches that companies can use to actively search for new opportunities in a structured

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Preface to the First Edition

manner. In doing so, we distinguish between company-related, market-related and environment-­related approaches and provide assistance for the subsequent assessment of developed opportunities. We would like to thank the supporters who made this book possible in its present form. These are, in alphabetical order: Jana Drechsler, our editor Gundula Herget and Barbara Kirchhoff. Düsseldorf, Germany Neuss, Germany In autumn 2016

Andreas Engelen Clara von Gagern

Contents

1 Introduction����������������������������������������������������������������������������������������������������������   1 1.1 Can Companies Grow and Exist in the Long Term?������������������������������������   1 1.2 New Ideas for Growth Generation: Where and When?��������������������������������  11 1.3 Opportunity Recognition as an Approach to Generating New Growth Ideas������������������������������������������������������������������������������������������������������������ 15 References��������������������������������������������������������������������������������������������������������������  19 2 Company-related Opportunity Recognition Tools��������������������������������������������  21 2.1 Technology Application Matrix��������������������������������������������������������������������  21 2.1.1 The Concept of the Technology Application Matrix������������������������  22 2.1.2 Opportunity Recognition with the Technology Application Matrix�����  25 2.1.3 Application of the Technology Application Matrix��������������������������  28 2.2 Business Model Innovation Approach����������������������������������������������������������  31 2.2.1 The Concept of Business Model Innovation������������������������������������  31 2.2.2 Opportunity Recognition with Business Model Innovations������������  34 2.2.3 Application of Business Model Innovations������������������������������������  40 2.3 Core Business Approach ������������������������������������������������������������������������������  45 2.3.1 The Concept of Core Business����������������������������������������������������������  45 2.3.2 Opportunity Recognition with the Core Business Approach������������  49 2.3.3 Application of the Core Business Approach������������������������������������  56 2.4 Analytics Approach��������������������������������������������������������������������������������������  61 2.4.1 The Concept of Analytics�����������������������������������������������������������������  61 2.4.2 Opportunity Recognition with Analytics������������������������������������������  63 2.4.3 Application of the Analytics Approach��������������������������������������������  67 2.5 Product Trend Approach ������������������������������������������������������������������������������  70 2.5.1 The Concept of the Product��������������������������������������������������������������  71 2.5.2 Opportunity Recognition with the Product Trend Approach������������  71 2.5.3 Application of the Product Trend Approach ������������������������������������  76 References��������������������������������������������������������������������������������������������������������������  81

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Contents

3 Market-Related  Tools of Opportunity Recognition������������������������������������������  85 3.1 Consumption Chain��������������������������������������������������������������������������������������  85 3.1.1 The Concept of the Consumption Chain������������������������������������������  86 3.1.2 Opportunity Recognition with the Consumption Chain ������������������  89 3.1.3 Application of the Consumption Chain Approach����������������������������  96 3.2 Empathic Design������������������������������������������������������������������������������������������  99 3.2.1 The Concept of Latent Needs ����������������������������������������������������������  99 3.2.2 Opportunity Recognition with Empathic Design������������������������������ 100 3.2.3 Application of Empathic Design������������������������������������������������������ 104 3.3 Granularity Approach������������������������������������������������������������������������������������ 106 3.3.1 Fundamentals of the Granularity Approach�������������������������������������� 107 3.3.2 Opportunity Recognition with the Granularity Approach���������������� 110 3.3.3 Application of the Granularity Approach ���������������������������������������� 116 3.4 Innovation Mapping�������������������������������������������������������������������������������������� 122 3.4.1 The Concept of Disruptive Innovation���������������������������������������������� 122 3.4.2 Opportunity Recognition with Innovation Mapping������������������������ 128 3.4.3 Application of Innovation Mapping�������������������������������������������������� 133 3.5 Market Imperfections������������������������������������������������������������������������������������ 138 3.5.1 The Concept of Market Imperfections���������������������������������������������� 139 3.5.2 Opportunity Recognition with the Market Imperfections Approach��������������������������������������������������������������������������������������� 140 3.5.3 Application of the Market Imperfections Approach ������������������������ 144 References�������������������������������������������������������������������������������������������������������������� 148 4 Environmental Opportunity Recognition Tools������������������������������������������������ 153 4.1 Reverse Innovation Approach ���������������������������������������������������������������������� 153 4.1.1 The Concept of Reverse Innovation�������������������������������������������������� 154 4.1.2 Opportunity Recognition with Reverse Innovation�������������������������� 159 4.1.3 Application of the Reverse Innovation Approach ���������������������������� 165 4.2 Interpreter Approach ������������������������������������������������������������������������������������ 168 4.2.1 The Concept of Incremental and Radical Innovation ���������������������� 169 4.2.2 Opportunity Recognition with the Interpreter Approach������������������ 172 4.2.3 Application of the Interpreter Approach ������������������������������������������ 176 4.3 Innovation Crowdsourcing���������������������������������������������������������������������������� 180 4.3.1 The Concept of Innovation Crowdsourcing�������������������������������������� 180 4.3.2 Opportunity Recognition with Innovation Crowdsourcing�������������� 182 4.3.3 Application of Innovation Crowdsourcing���������������������������������������� 187 4.4 Lead User Approach ������������������������������������������������������������������������������������ 191 4.4.1 The Concept of Different Customer Groups in Innovation Diffusion ������������������������������������������������������������������������������������������ 192 4.4.2 Opportunity Recognition with Lead Users �������������������������������������� 193 4.4.3 Application of the Lead User Approach ������������������������������������������ 197

Contents

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4.5 Market Space Approach�������������������������������������������������������������������������������� 205 4.5.1 Basic Principles of the Market Space Approach������������������������������ 205 4.5.2 Opportunity Recognition with the Market Space Approach������������ 210 4.5.3 Application of the Market Space Approach�������������������������������������� 215 References�������������������������������������������������������������������������������������������������������������� 219 5 Systematization  of the Tools for Opportunity Recognition������������������������������ 223 5.1 Systematization By Format�������������������������������������������������������������������������� 224 5.2 Systematisation According to New Products and New Markets������������������ 227 5.3 Systematisation According to the Necessary Use of Resources ������������������ 230 References�������������������������������������������������������������������������������������������������������������� 234 6 Evaluation  and Selection of Opportunities�������������������������������������������������������� 237 6.1 Criteria Catalogues���������������������������������������������������������������������������������������� 238 6.2 Portfolio Approaches������������������������������������������������������������������������������������ 249 References�������������������������������������������������������������������������������������������������������������� 255 7 Application  Tasks for Teaching and Workshops����������������������������������������������� 257 7.1 Application Tasks on Company-Related Tools �������������������������������������������� 257 7.1.1 Technology Application Matrix for the Hövding Company ������������ 258 7.1.2 Analysis of Business Model Innovation ������������������������������������������ 258 7.1.3 Collection of Ideas for Analytics Application Fields at IKEA �������� 259 7.1.4 Analysis of the Impact of Megatrends on IKEA According to the Product Trend Approach ������������������������������������������������������������������ 260 7.2 Application Tasks for Market-Related Tools������������������������������������������������ 260 7.2.1 Analysis of Changes in the Consumption Chain������������������������������ 261 7.2.2 Empathic Design to Improve Online Teaching or Campus Infrastructure������������������������������������������������������������������������������������ 262 7.2.3 Analysis of Innovations: Disruptive or Incremental? ���������������������� 262 7.3 Application Tasks on Environment-Related Tools���������������������������������������� 263 7.3.1 Interpreter Approach for the Game Pokémon Go ���������������������������� 263 7.3.2 Lead User Search������������������������������������������������������������������������������ 264 7.3.3 Value Curve for the Women’s Gym Chains Curves and Mrs Sporty ������������������������������������������������������������������������������������������� 264 7.3.4 Value Curve for the Ergobag Primary School Backpack������������������ 265 7.3.5 Value Curve for Low-Cost Airlines�������������������������������������������������� 265 References�������������������������������������������������������������������������������������������������������������� 266

About the Authors

Andreas Engelen  holds the Chair of Business Administration, in particular Management, at Heinrich Heine University in Düsseldorf. He has published several studies on entrepreneurial/innovation-oriented management in international journals.  Monika Engelen  is Professor of Business Administration, especially Marketing, at the TH Köln. She worked for several years as a management consultant at McKinsey & Co. and currently supervises start-up projects from idea generation to realization as the entrepreneurship representative of her faculty.  Clara  von Gagern  did her doctorate as a research assistant at the Chair of Corporate Management on the topic of opportunity recognition. She is head of strategic claims management of the German business unit of a leading international insurance company.

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Introduction

The subject of this book is opportunities to generate substantial business growth and the tools to identify these opportunities. Chapter 1 lays some foundations for this, especially with regard to the question of whether companies can grow and exist permanently at all and what role new opportunities play for growth. This question is addressed in Sect. 1.1. Section 1.2 shows, on the basis of the findings from Sect. 1.1, why companies must regularly identify new opportunities in order to ensure growth and existence. Section 1.3 defines the concept of opportunity recognition on this basis and provides an initial overview of concrete tools that are presented in detail and systematically in the following chapters. Learning Objectives

• • • • •

Explain whether and how companies can grow in the long term. Identify and justify success factors for continuous and high business growth or its failure. Describe the framework and basics of Opportunity Recognition in companies. Justify the need for Opportunity Recognition in companies. Classify and name approaches for structured opportunity recognition in companies.

1.1 Can Companies Grow and Exist in the Long Term? Can companies grow forever? Or more fundamentally: Can companies exist forever? In their start-up activities, company founders will certainly initially have the first few months, at most years, in mind within the framework of a business plan, but fundamentally – possibly in order to bequeath the company to children – they will strive for the company to grow and at least exist for a very long time (Bhide 1994). At the latest with the entry of © The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 A. Engelen et al., Opportunity Recognition, https://doi.org/10.1007/978-3-658-39811-8_1

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1 Introduction

external equity investors, there is some pressure for growth. Years without growth are considered bad years. And if a company does not reach a significant size in a period of 5–10 years, an equity investor will call the investment a mistake. But equity investors in already established, usually larger companies also want growth, in the short term and the long term. Ultimately, growth is a key driver of shareholder value and any management must be measured accordingly. In particular, long-term growth – or quite fundamentally the long-term existence of the company – plays a substantial role in calculations of the company value in residual values (for example, in the context of the discounted cash flow method) in purely mathematical terms (Pearce and Robinson 2010). Who will play the dominant role in an industry in 5 or 10 years’ time is difficult to say, even for observers of that industry. Companies that dominated the photo camera market some 20 years ago in some cases no longer exist (such as Kodak Eastman) or have shrunk significantly in size. In the first generation of mobile phones, companies such as Motorola, Ericsson and Nokia dominated at the turn of the 2000s and achieved exorbitant growth rates in just a few years (OʼReilly et al. 2009). If one deals with the purchase of a smartphone today, the successor product to the first mobile phones, these companies play no role at all or at most a subordinate role. Apple and Samsung dominate the market. These examples already indicate that the mere long-term existence of companies is by no means a matter of course, and permanent growth and leading positions in the market certainly not (Hanks et al. 1993). Olson et al. (2008) have scientifically addressed the question of whether companies can grow permanently and examined 500 large, mostly US American companies in their development over the last half century with regard to their sales growth. The result is in line with the observations just described for the photography and mobile phone markets: 87% of all the companies studied have experienced quite precisely datable stall points in their growth, i.e. a point in time at which growth dropped off abruptly and then barely recovered or recovered only with great difficulty. Companies lost an average of 74% of their market capitalisation during this period. Even companies such as 3M or Procter & Gamble, which are considered great by the public, could not escape such a development in their long corporate history. As an example of this phenomenon, Olson et al. (2008) cite Levi Strauss & Company, which achieved the strongest growth in the company’s history in 1995, bringing in a record 7 billion US dollars in sales. However, the year 1996 marked the abrupt beginning of the downward slide, which ended with $4.6 billion in sales in 2000, reducing the company’s market share in the U.S. market from 31% to 14%. This was the “stall point” of the preliminary growth story in 1995. As Fig. 1.1 shows, 87% of the companies surveyed have experienced such a turning point; only 13% have so far been spared. Of the 87%, 46% returned to high or at least moderate growth within 10  years, 54% to weak growth (annual growth rates roughly equivalent to gross domestic product). What is interesting – and certainly frightening – is that of these 54%, only 7% achieved high or moderate growth again at all, i.e. largely recovered from the first “stall point”. Twenty-six percent of the companies in this category

1.1  Can Companies Grow and Exist in the Long Term?

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Fig. 1.1  What happens to companies after the turning point? (Adapted from Olson et al. 2008)

survived, after all, while 67% disappeared from the market. This means that almost all companies go through these inflection points, but more than half of them do not recover quickly. However, a quick recovery is the only way to survive in the long run, but a recovery after a prolonged dry spell of slow or negative growth is the great exception. With each year that the lean period lasts, the probability of a full recovery decreases. Olson et al. (2008) also find that companies that are currently in a state of continuous high growth are by no means safe. Turning points usually came very abruptly for the companies studied, as shown in the example of Levi Strauss. There is thus usually no soft landing, but rather a sudden awakening in a difficult situation. Figure 1.2 shows the average course of the growth rates of the companies studied. Often the year before the turning point is even very strong in terms of growth. From this high level, the growth rate then drops abruptly from 1 year to the next (on average from just under 14% to −0.5%) and then recovers only very slowly. This addresses the initial question of whether companies can grow in the long term: Some companies do indeed manage to do so, but the vast majority of 87% – at least looking back over the last 50 years – experience a point in time when growth drops significantly and then recovers with great difficulty. But what about the mere existence of businesses? The figures of Olson et al. (2008) already show that of those companies that do not recover quickly from the abrupt drop in growth rates, a large proportion disappear from the market and thus cease to exist. Stubbart and Knight (2006) analyze the survival rates of companies. Of 6 million US companies studied, only about 1% existed longer than 40 years. Of the companies founded in 1976, only 10% survived longer than 10  years. These figures lead the authors to

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1 Introduction

Fig. 1.2  Sales growth of firms in the years before and after the turning point. (Adapted from Olson et al. 2008)

conclude that, on average, a U.S. business does not even live as long as a U.S. citizen. Further studies calculating the average survival time of companies conclude that a randomly selected company has an average “remaining life” of 6–15  years at the time of calculation (OʼReilly et al. 2009). It can also be assumed that the pressure on companies has increased in recent years, making survival and growth much more difficult to achieve. Huyett and Viguerie (2005) summarize this phenomenon under the term of an emerging “hypercompetition”. They look at the probability that a firm that is in the top 20% of the industry in terms of sales at one point in time will no longer be part of that group in 5 years. In the 1970s, that probability was about 8%. But by the early 2000s, it had risen to 30%. This means that about 30% of the companies that are among the largest in their industry today will lose their position in the next 5 years. Such developments become very clear when looking at the PC market in the 1990s and today, as Example 1.1 shows. Example 1.1: The PC Market in the 1990s, 2000s and Today: What Has Become of the Dominant Companies?

In the 1990s, the three major players in the personal computer (PC) market were IBM, Compaq and Apple. They dominated this market and divided it among themselves. During the 1990s, however, its environment changed: Demand became more global, new products such as MP3 players or compact, portable computers (some of them

1.1  Can Companies Grow and Exist in the Long Term?

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pocket-sized) were developed, components of PCs became cheaper and cheaper, and the way PCs worked became more transparent to competitors. The PC business was becoming a very competitive environment. What happened to the big three players? Apple was nearly bankrupt by the late 1990s and was only saved by Steve Jobsʼ strategic decision to enter the music market with the iPod. Compaq was swallowed up by Hewlett-Packard, and IBM has since divested its PC business. Thus, none of the three big names of the 1990s had a substantial presence in the PC business in the 2000s (Zahn et al. 2013). Two of the companies have nevertheless developed very successfully. IBM has successfully developed new business areas through its “Emerging Business Organization (EBO)” initiative (see Example 1.3). Apple, after a near-bankruptcy in the late 1990s, has now even re-emerged as a dominant player not only in the PC market but also in the mobile phone market and the entertainment industry. Apple managed to successfully transfer its core competence of developing aesthetically pleasing and easy-to-use products to other products. The iPod as an MP3 player, the iPad as one of the first tablets, the iPhone as the first smartphone from a PC manufacturer all contributed to Apple’s success in the 2010s. The Mac as a more traditional PC made $6.9 in revenue in 2000, accounting for 86% of Apple’s revenue. By 2020, Apple was generating over $250 billion in revenue, but only about 10% of that was from the Mac. The majority of the revenue was generated by new businesses, most notably the iPhone (Apple 2020). Apple has found and successfully implemented new opportunities for business growth from its core business. ◄ This means that companies not only do not grow in the long term, but also run a substantial risk of disappearing from the market altogether. What is the reason for this? The business management literature contains an incalculable number of studies uncovering (mis)success factors (Kuratko et al. 2011; Song et al. 2008). Purely external reasons such as new competition from opening former planned economies or economic downturns certainly play a role. However, the majority of studies conclude that most failures are home-­ made. Competitive failures, the inability to retain key employees, or even failed acquisitions are some of the reasons why companies fail and explain the figures presented. However, a major reason for the “stall points” described by Olson et al. (2008) and the high corporate mortality rates revealed is the lack of ability of companies to identify and commercialize new innovative opportunities. Companies hang on to their existing products, processes or business models for too long and fail to reinvent themselves in time. Despite the figures described, there are quite a number of companies that have been around for a very long time. These are precisely the companies that have typically reinvented themselves several times over the course of time by seizing new opportunities, such as those offered by technologies, and thus supplementing or even replacing the previous core business (OʼReilly et al. 2009). Apple is a prominent example: the company made the transition from the PC as its core business to building the “i product family” and thus escaped imminent bankruptcy in the late 1990s. Goodrich Corporate, founded in the USA

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in 1870 as a manufacturer of fire hoses, is now active in mechanical engineering and aerospace technology. Britain’s GKN, founded more than 250 years ago as a mining company, is now a 5-billion-dollar aerospace and automotive company. Johnson & Johnson began in 1886 as a manufacturer of sterile dressing materials. Today, it generates sales from pharmaceutical products, medical devices, and a wide range of consumer products. Example 1.2 outlines the evolution of Milliken and Company, which has transformed from a traditional textile company into a high-tech enterprise. Example 1.2: Milliken and Company: From Textile to High-Tech Company

Milliken and Company is a US company that has undergone a transformation from a textile company to a high-tech company, as described by McGrath (2012). Milliken started in 1865 as a producer of wool and was a traditional textile company producing fabrics until the 1960s. While its main US competitors gradually went bankrupt from the 1970s onwards, Roger Milliken deliberately closed one textile production after another. For he had new plans: he had recognized early on that he would no longer have a chance in the textile business due to the emerging global competition. By 1991, for example, 58% of all fabrics and clothing sold in US retail stores had already been imported. Roger Milliken saw this development coming and invested in his own research laboratory as early as 1958 and in many new technologies and markets in the years that followed. Today, Milliken is a high-tech company that produces specialty materials that make mattresses fireproof, wind turbines lighter, and refrigerator containers clearer. In the process, Milliken has often carried over employees from earlier waves of innovation, consistently trained them internally, and prepared them for future challenges. ◄ Companies that have been around for a very long time and also achieve sustained growth, i.e. avoid “stall points” or recover from them in good time, thus succeed in regularly perceiving new opportunities in the company or the environment and exploiting them accordingly. Opportunities are information or innovative combinations of information that can be the starting point for developing a new business with significant growth potential (Hills et al. 1997; Eckhardt and Shane 2003). For these companies, there is clarity that current products, processes, or business models cannot contribute to the continuation and growth of the company forever. Companies that recognize this sometimes set up dedicated processes for identifying and exploiting new opportunities, as described for IBM in Example 1.3. Example 1.3: Opportunity Recognition Through the EBO Model at IBM

In 1999, Lou Gerstner, then IBM’s CEO, learned that financial pressures in one division had caused work on a promising idea for a new product technology to be abandoned. He wondered, “Why are we basically missing emerging new opportunities?” IBM also failed to commercialize many of its identified opportunities during this period. For example, IBM was the knowledge leader when it came to technologies that could accelerate data transmission on the Web, yet Akamai, as a second mover, recognized this

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opportunity and captured the market. IBM also developed the first commercial router, but Cisco still dominates the market today. The discussion initiated by Gerstner eventually led to the founding of the “Emerging Business Organization (EBO)” initiative. In this EBO, new opportunities were to be identified and developed to market maturity. The EBO was separated from the core business and was to discover opportunities that met the following criteria (OʼReilly et al. 2009): • • • • •

They can be reconciled with IBM’s business strategy. You can build on IBM resources and experience. They create a new source of customer value. They have the potential to become a $1 billion-plus business. They can lead to a leadership position for IBM in the relevant market.

IBM conducts a formal process twice a year to generate possible ideas that could subsequently be developed in an EEO.  For this purpose, people within IBM (such as employees from marketing, R&D, sales) are invited to submit ideas. People from outside (such as customers or venture capitalists) may also do so. Typically, more than 150 ideas are generated and analyzed in a round. For about 20 of these ideas, small teams are formed to flesh them out and conduct market research. Based on these analyses, the teams seek the support of top management. IBM is not only concerned with uncovering new technologies, but also new business. That means all ideas must be consistent with a clear customer benefit and business model. Of the more than 150 ideas each year, only a handful are actually implemented. Figure 1.3 shows the revenue share of EBOs in IBM’s total revenue. Between 2000 and 2005, these EBOs generated 19% of IBM’s revenue. And their success continued: in 2011, IBM generated US$19 billion (20% of total revenue) from business units that started as EBOs (Applegate et al. 2008; Applegate and Kerr 2015). ◄

Fig. 1.3  EBO sales as a percentage of IBM’s total sales. (Adapted from OʼReilly et  al. 2009; Applegate and Kerr 2015)

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1 Introduction

This creates an interesting situation: one reason for the exit of companies and the emergence of stall points is the change in the environment, for example in terms of technologies. New technologies enable other companies, for example start-ups, to displace existing players in the market with alternative approaches and thus contribute to the high mortality rates or “stall points”. At the same time, however, new conditions are not only a threat, but also an opportunity to identify new opportunities and to exploit them for oneself as an existing company in order to survive and grow in the long term. This means that established and start-up companies are competing to be the first to identify opportunities and occupy growth areas (Anthony 2012). In the last decade, digitization has been a key driver of change and the development of new products, processes and business models. Formerly analogue products, processes or business models found digital counterparts that brought change to entire industries. For example, Zalando and About You are now the largest German fashion retailers and have forced many retailers, but also fashion chains with brick-and-mortar stores, to abandon or revise their own business model. These changes due to digitalization, in addition to the danger that the own business becomes redundant, also holds many opportunities for the development of new business areas. In particular, these new business areas can be uncovered through new applications for technologies (Sect. 2.1), through data analytics due to higher data availability (see Sect. 2.4), through changes in consumption chains (Sect. 3.1) and through new market spaces (Sect. 4.5). The general conditions will continue to change in the coming years. Figure 1.4 shows the development of worldwide patent applications, which have more than doubled in less

Fig. 1.4  Development of worldwide patent applications from 1995 to 2019. (Own representation according to WIPO statistics database 2020)

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than 25 years from about 1 million applications per year to over 3 million applications per year. Each new patent represents a potential new technology that can improve or perhaps even replace existing products, processes or business models of companies. At the same time, it has been observed that not only the technological possibilities for developing new products, processes and business models are increasing, but also that consumers, especially in developed countries but increasingly also in developing countries, are taking up products with new technologies much faster than a few years ago (Rust et al. 2010). Consumers or even companies are increasingly able to find out about new products via the Internet or other media and exchange information with other users. McGrath (2012) reports that it took several decades after the invention of the landline telephone in the US for 50% of households to be equipped with a telephone. Starting in the late 1990s, mobile telephony took less than 5 years to reach 50% coverage. After the invention of electricity, it had taken 30 years for 10% of households in the United States to adopt this innovation. Tablets have taken less than 5 years to reach that 10% mark. This allows us to summarize our initial question by saying that not all companies will exist forever and that a substantial portion of all companies will experience a point in time with a turning point in growth. One major way to counteract this development, which threatens practically every company, is to continuously search for new opportunities for innovative products, processes or business models. Current products, processes and business models will sooner or later become irrelevant. If a company misses out on new opportunities, this enables start-ups or established players in the market to take sales away from the company in question. New opportunities are created by the rapid development of technologies and the growing willingness of consumers and companies to adopt them quickly and to an increasing extent (Shane and Venkataraman 2000). German SMEs in particular are said to have a high capacity for innovation – and thus also the ability to seize new opportunities. But where are the current companies that succeed in identifying and commercializing such new opportunities? In the twentieth century, the US was the global driver of innovation, with a number of US companies shaping the aerospace, electronics and computer industries (Tellis et al. 2009). Today, the U.S. continues to lead the way in terms of innovative companies. Cornell University, INSEAD, and WIPO (2020) have classified nations according to the innovative capacity of their firms in Fig. 1.5. The researchers derived a ranking from research and development spending, scientific degrees and patents filed, led by Switzerland, followed by Sweden and the US. Four Scandinavian nations are among the top 25, with Germany in ninth place (Global Innovation Index, according to Cornell University, INSEAD, and WIPO 2020). The BRIC nations in particular have an interesting approach: they are pursuing a large number of new opportunities for innovation, hoping for the law of large numbers that this large number will include at least a small number of high-quality, promising opportunities (Hill 2010). For example, between 2002 and 2005, the Chinese government increased the

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1 Introduction

Fig. 1.5  Nations according to their innovation capacity. (Global Innovation Index, according to Cornell University, INSEAD and WIPO 2020)

number of institutions of higher learning from 2000 to 4000. By 2020, ten leading universities will receive extensive resources to achieve world-class status. Kao (2009) refers to this approach to opportunity recognition as the “brute force approach”. Behind this is the Chinese government’s goal of turning the “low-cost production center” into an innovation-­ driven economy by 2020. As an indication that China is well on its way here, WAren Buffet invested US$230 million in BYD Company, a Chinese manufacturer of batteries for electric cars, giving some credence to the potential of China’s research and development output. In 2010, BYD was named the world’s top-performing technology company by Bloomberg Businessweek. A similar picture emerges from the analysis by BCG (2020), which compiled a list of the most innovative companies based on a survey of 2500 top managers worldwide (Fig. 1.6). With Apple, Alphabet/Google, Amazon and Microsoft, four US companies are among the top 5. While some Asian companies also occupy top positions (such as Samsung, Huawei and Alibaba), Siemens only comes in 21st place as the most innovative German company. What these innovative companies have in common is that they have achieved growth and high innovation by identifying and exploiting single or multiple opportunities. Apple combined the changing music market in the late 1990s with its own ability to design well-­ navigable electronic devices, identified this as an opportunity, and thereby entered a growth path. Alphabet/Google has leveraged the emergence of the Internet with the problem of unmanageable data as an opportunity for itself. Facebook has recognized the growing need

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Fig. 1.6  The 50 most innovative companies in 2020. (According to BCG 2020)

of individuals to connect and continuously share globally and developed it as a business on the internet. As another example, Dell took advantage of the direct sales opportunities opened up by the emerging online channel two decades ago and built a business with remarkable growth rates. Tesla, too, took advantage of the traditional car manufacturers’ unwillingness to innovate to put itself in a leading position in the field of electric mobility.

1.2 New Ideas for Growth Generation: Where and When? The situation described above thus gives rise to the need to identify new opportunities (opportunity recognition) and to develop them for oneself in order to be able to survive in the medium and long term. But what can such opportunities refer to? Certainly, the first obvious thing to do is to develop new products or services based on newly discovered information and build them up as a new business (Kuratko et al. 2011; Timmons 1999). The development of mobile networks in the 1980s and 1990s opened up the opportunity

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1 Introduction

for companies such as Nokia to build mobile telephony and develop it into a business. Google developed the search engine product based on the emerging possibilities of data transmission and the growing amount of information. Certainly motivated by discussions about environmentally friendly energy use, Tesla launched the first cars with pure battery drive. These are examples of products that we associate with innovation and that certainly account for a large proportion of all innovations or opportunities that result in innovation (Rigby et al. 2009). In addition, processes within the company or processes between companies can also offer opportunities. Dell, for example, has completely revolutionized the process of logistics, production and distribution of laptops and built a very profitable business. These are processes that are not necessarily visible in the final end product, but play a big role in the way the service is produced. Finally, innovations and underlying opportunities can relate to the entire business model (Magretta 2002). A company’s business model describes what specific benefits are to be delivered to the customer, what the company’s revenue model is, and how the company’s value chain is organized. As an example of a business model innovation serves the approach of General Electric Medical, which is described in Example 1.4. Example 1.4: Business Model Innovation at General Electric Medical: Billing Per Unit Used

In addition to purchasing medical equipment on a fixed purchase price basis, GE Medical customers can also rent this equipment, paying a set price for a unit used (for example, per hour or per exam) (Johnson et al. 2008). Here, the product remains fundamentally the same, but the customer receives the benefit of not being forced to buy the product and add it to their balance sheet, and only paying as much as they use it. For GE Medical, the revenue formula changes as GE Medical remains the owner and is no longer compensated per device but for the then new unit (such as per hour used or per exam). As experience shows, customers in some industries are willing to pay for this additional benefit, so such business models have proven to be very profitable. In terms of GE’s value chain, there is also the need for GE to build contract management capabilities for this specific type of transaction. ◄ This means that the sources of new opportunities for generating growth are more broadly diversified than a pure focus on the product would imply. In addition, there is the question of where opportunities can be found. To structure this, the matrix shown in Fig.  1.7 can be used, which distinguishes between the market novelty and the product novelty of the emerging opportunity (Kuratko et  al. 2011). Opportunities may arise in markets already served with products already offered, possibly through the use of a new business model, as described for GE Medical in Example 1.4. In this case, the company remains fairly close to its core business. However, particularly if the core business offers limited growth potential, valuable opportunities may lie in the boxes to the upper right. If one moves to the right on the horizontal axis, then one initially stays in the known market, but adapts the product or introduces a completely new product that the market did not

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Fig. 1.7  Market and product focus of entrepreneurial initiatives. (According to Kuratko et al. 2011)

know until then. In extreme cases, a firm can create new industries by means of product innovation (Kumar et  al. 2000). On the vertical axis, the company under consideration moves away from the previously served market, expands it or, also in extreme cases, creates a completely new market, for example a customer segment that did not exist before. For example, the introduction of the first mobile phones was an opportunity for the relevant companies, which can be placed quite far to the right. A new industry was created for demanders on the market side who could hardly assess the potential value proposition of these devices at launch. New opportunities for a company can therefore arise close to the existing core business, but can also be located in markets that have not yet been addressed at all – or even in markets and product categories that do not yet exist. The opportunities in the various fields differ in their risk potential. If an existing business is being worked on with a new business model, there is certainly a certain risk as to whether the market will accept this business model at all or whether there is a risk of cannibalization with the existing business. However, the risk of failure to implement an identified opportunity increases the further one moves up the matrix to the right, as also illustrated in Fig. 1.7 (Nagji and Tuff 2012). Innovations based on previous offerings and in the previous market have failure rates of 25–40%. When implementing opportunities in markets that are new to the company and may not even exist yet, failure rates of up to 95% are not uncommon. At the same time, however, it is also true that the successful opportunities with new offers in new, just emerging markets usually bring the greatest business success.

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Fig. 1.8  The innovation paradox. (According to Anthony 2010)

As described in the introductory Sect. 1.1, in most industries it is necessary to regularly identify new opportunities and thus establish innovative products, processes or business models. But when exactly should companies deal with the identification of business models? Are there decided points in time when new opportunities should be identified and developed? The observation by Olson et al. (2008) that “stall points” usually occur suddenly and without warning already gives reason to suspect that companies should not wait until the critical moment has arrived. This insight supports Anthony’s (2010) innovation paradox shown in Fig.  1.8. Anthony (2010) distinguishes between three stages of firm development. First, a firm goes through a start-up phase of initial growth after its inception. The need for additional growth based on new opportunities is low, as are the resources to stimulate new growth and identify new opportunities. After this start-up phase, a growth phase with high growth rates begins. The need for additional growth at this stage is very low, however, there would be sufficient resources to identify new opportunities. Top management itself usually does not see the need for additional new opportunities to generate growth. Eventually, as uncovered empirically by Olson et al. (2008), growth ebbs. Now the need for new growth opportunities is suddenly great, however, the lack of growth often means that there are few resources available to identify new opportunities. Top management recognizes that opportunities should have been identified and addressed several years ago, especially since identifying and especially developing new opportunities (for example, in the form of costly technical product developments) takes time.

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It follows that companies must address new opportunities for generating further, future growth at the latest in the maturity phase, but ideally already in the growth phase. Only then is it possible to counteract the flattening overall growth of the company – as in the maturity phase in Anthony’s (2010) model – and to continue to grow as a company overall.

1.3 Opportunity Recognition as an Approach to Generating New Growth Ideas From the presentations in the previous two sections, it is clear that companies need to be continuously engaged in uncovering new opportunities in order to secure their long-term existence and achieve growth. But how can companies uncover new opportunities to generate growth? Although opportunities can also arise purely by chance for companies, however, both reality and empirical scientific research show that companies can control and influence processes for generating ideas for new opportunities to a certain extent (Bhagavatula et  al. 2010; Eckhardt and Shane 2003; Baron and Ensley 2006). In this way, the firm takes an active role rather than relying on the incalculable flash of inspiration. To this end, tools have been developed in science and practice, which are presented in a structured way in the following chapters. These tools are used to control creative processes and to combine facts (such as the capabilities of a company and new revolutionary innovations in the market) and in this way generate new ideas for opportunities. Furthermore, these tools steer the creative processes by presenting different combination possibilities that a company would not have considered without such an impulse. In essence, there are two different approaches to promoting the identification of opportunities through these tools. On the one hand, the basic logic of continuously looking for new opportunities can be anchored in the corporate culture (as described in Table 1.1). This can be achieved, for example, by communicating a vision, exemplary behaviour on the part of top management, or regular training sessions on the subject of opportunity recognition, such as those regularly organised by Procter & Gamble (Example 1.5). On the other hand, and also complementary, workshops can be held in which employees from different areas of the company or from outside the company deliberately come together and use various tools to generate ideas in an exchange. Example 1.5: Procter & Gamble’s Innovation College as an Expression of Continuous Opportunity Recognition

Employees are the sources of entrepreneurial and innovative activities  – accordingly, they must be prepared for them. Procter & Gamble has established a “Disruptive Innovation College” for this purpose (Brown and Anthony 2011). Employees, especially those working in areas with entrepreneurial potential, are trained here to act

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Table 1.1  Advantages and disadvantages of continuous opportunity recognition and opportunity recognition in workshop format Approach Continuous opportunity recognition

Description Anchoring opportunity recognition in the corporate culture

Advantages Continuous search for new opportunities Opportunities as a value positively assigned Opportunity Organisation of workshops in Complete focus on recognition in teams with a limited number opportunity workshop format of participants across different recognition tools hierarchical levels and during workshops functions “Planned” exchange possible across hierarchical levels and functions

Disadvantages Opportunity recognition rarely the sole focus of activities Time-limited framework If necessary, “forced” creativity

Source: Own representation

entrepreneurially and to drive such initiatives forward. More than a dozen courses are regularly offered for this purpose. Topics include the basic vocabulary of innovation projects, creating business cases, staffing teams to implement entrepreneurial projects, and identifying trends and new opportunities in the company and its environment. ◄ Both continuous and workshop-format opportunity recognition can thus largely control the generation of opportunities. Both approaches aim to generate ideas for new opportunities, which are then examined for their feasibility and potential. Literature and practice offer a whole range of tools for structuring ideas, which differ in their points of contact. These tools can be anchored in the corporate culture through further training, but they can also usually be run through in workshop formats. These tools are the focus of the following explanations. We distinguish between three basic connecting points in opportunity recognition, which are summarized in Fig. 1.9. In the following three chapters, we consider company-related (Chap. 2), market-related (Chap. 3) and environment-­ related tools (Chap. 4). Chapter 2 looks at company-related tools. These tools have company-related approaches to generating ideas for opportunities: The technology application matrix (Sect. 2.1) examines whether existing generic technologies can be used in further product applications. The business model innovation tool examines whether the company can change its revenue model and value creation and offer an improved value proposition to customers or previously unaddressed customers (Sect. 2.2). The core business approach examines the extent to which new growth can be created from existing but hidden resources and capabilities around the current core business (Sect. 2.3). In the Big Data approach to opportunity generation, opportunities are believed to exist in existing data within the company that can be analysed and exploited using the latest information processing technologies (Sect. 2.4). The

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Fig. 1.9  Overview of tools for identifying opportunities. (Own representation)

fifth company-related tool presented is the product trend approach, which assumes opportunities in the combination of existing products and current trends (Sect. 2.5). Secondly, we consider tools that take a market view (Chap. 3). This means that opportunities are assumed to exist in the current market or among customers. In the consumption chain, the customer’s behaviour in satisfying a need (e.g. buying a music product) is seen as the starting point for new opportunities (Sect. 3.1). The empathic design approach uses observations of customer behaviour to discover latent customer needs (Sect. 3.2). The granularity approach splits existing markets and looks for new growth opportunities at a granular level (Sect. 3.3). The innovation mapping approach treats what at first glance appear to be unattractive market segments as sources of opportunities (Sect. 3.4). Finally, market imperfections are presented and discussed as a source of opportunities (Sect. 3.5). Third, environmental tools can provide new ideas for opportunities (Chap. 4). Environmental tools look at sources that are further away from the company than its own customers and markets. In the reverse innovation approach, developments in less developed nations are observed and conclusions drawn about interesting products for the home market from these environments (Sect. 4.1). The interpreter approach, which is described in Sect. 4.2, involves integrating perspectives from other disciplines into the development of new products. The innovation crowdsourcing tool describes ways of involving external parties in innovation projects (Sect. 4.3). The lead user approach considers certain users, whose imagination is clearly ahead of other market participants, as sources of opportunities (Sect. 4.4). Finally, the market space approach is presented, which does not assume opportunities in existing markets, but rather at interfaces between markets and in newly defined markets (Sect. 4.5).

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Key Messages

• Most companies do not have permanently high growth rates, but only grow strongly up to a specific turning point, after which they grow moderately or not at all, or disappear from the market. • Even companies that currently show continuous and high growth are by no means safe; the specific turning point often comes suddenly and unexpectedly. • Many scientific studies conclude that failures are mostly home-made; reasons are, for example, mistakes in competition, the lack of ability to retain key employees, but also failed acquisitions, with one main reason being the lack of ability of companies to identify and commercialize new and innovative opportunities. Companies hang on to their existing products, processes or business models for too long and fail to reinvent themselves in time. • Companies that experience sustained corporate growth and have been around for a very long time have typically reinvented themselves several times over the course of time; they regularly succeed in seizing new opportunities in the company or the environment and supplementing or even replacing the previous core business accordingly. • Opportunities are information or innovative combinations of information that can be the starting point for developing a new business with significant growth potential. The starting point for this is often changes in the company’s environment, for example new technical possibilities for developing new products, processes or business models. • Continuously on the lookout for new opportunities is an effective approach to avoid the risk of being left without new opportunities when growth slows down and periods of high growth (and sufficient resources) are left unexploited. • Companies can control and influence processes for generating ideas for new opportunities to a certain extent. In science and practice, tools with two basic approaches have been developed for this purpose: continuous anchoring of opportunity recognition in the corporate culture and, in addition, regular workshop formats in which employees from different areas or even external parties come together to generate new ideas in a targeted manner through exchange. • Tools for opportunity recognition can be divided into three themes: ­company-related, market-related and environment-related tools.

References

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Tasks for Repetition

1. Explain the need for business growth. 2. Explain the concept of “stall points” and explain the typical characteristics of the different phases before and after the turning point. 3. What are the (mis)success factors for the long-term existence of a company on the market or its disappearance from the market? 4. What are the three typical things a company can adapt or change to seek new opportunities? 5. What are opportunities? 6. Explain the market focus/product focus matrix according to Kuratko et al. (2011) using the examples “Importance of the iPad for Apple” and “Expansion Tesla from the American market into the European market”. Briefly describe the different risk potentials. 7. Outline the three phases of the innovation paradox according to Anthony (2010) and briefly describe each phase in terms of the need for new/additional growth, resources available to stimulate new growth, top management attitudes towards new opportunities and innovation efforts. Explain at which stage a company should ideally engage with new opportunities and why. 8. List two approaches to identifying opportunities using tools, briefly describe each, and list advantages and disadvantages of each.

References Anthony SD (2010) Microsoft and the innovator’s paradox. https://hbr.org/2010/06/microsoft-­and-­ the-­innovators-­p. Accessed 22 Sept 2016 Anthony SD (2012) The new corporate garage. Harv Bus Rev 90(9):44–53 Apple (2020) Jahresbericht, Umsatzzahlen nach Waren je (Fiskal)Jahr. https://www.macprime. ch/a/wissen/apple-­geschaeftszahlen-­analysen-­grafiken-­umsatz-­gewinn-­verkaufszahlen#apples-­ umsatz-­nach-­art Applegate L, Kerr W (2015) Launching new ventures in established organizations. Working paper Applegate L, Austin R, Collins E (2008) IBM’s decade of transformation: turnaround to growth. Harvard Business School Case No. 9-805-130. Harvard Business School Publishing, Boston Baron RA, Ensley MD (2006) Opportunity recognition as the detection of meaningful patterns: evidence from comparisons of novice and experienced entrepreneurs. Manag Sci 52(9):1331–1344 Bhagavatula S, Elfring T, van Tilburg A, van de Bunt GG (2010) How social and human capital influence opportunity recognition and resource mobilization in Indiaʼs handloom industry. J Bus Ventur 25(3):245–260. https://doi.org/10.1016/j.jbusvent.2008.10.006 Bhide A (1994) How entrepreneurs craft. Harv Bus Rev 72(2):150–161 Boston Consulting Group (BCG) (2020) The most innovative companies: an interactive guide. https://www.bcg.com/de-­de/publications/2020/most-­innovative-­companies/data-­overview Brown B, Anthony S (2011) How P&G tripled its innovation success rate. Harv Bus Rev 89(6):64–72

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Cornell University, INSEAD and WIPO (2020) The global innovation index 2020: who will finance innovation? Cornell University, Geneva Eckhardt JT, Shane SA (2003) Opportunities and entrepreneurship. J Manag 29(3):333–349 Hanks S, Watson C, Jansen E, Chandler G (1993) Tightening the life-cycle construct: a taxonomic study of growth stage configurations in high-technology organizations. Entrepreneursh Theory Pract 18(2):5–29 Hill C (2010) International business: competing in the global marketplace, 8. Aufl. McGraw-Hill, New York Hills G, Lumpkin G, Singh RP (1997) Opportunity recognition: perceptions and behaviors of entrepreneurs. Front Entrepreneursh Res 17:203–218 Huyett WI, Viguerie SP (2005) Extreme competition. McKinsey Q 2005(1):46–57 Johnson MW, Christensen CM, Kagermann H (2008) Reinventing your business model (cover story). Harv Bus Rev 86(12):50–59 Kao J (2009) Tapping the world’s innovation hot spots. Harv Bus Rev 87(3):109–114 Kumar N, Scheer L, Kotler P (2000) From market driven to market driving. Eur Manag J 18(2):129–141 Kuratko D, Morris MH, Covin J (2011) Corporate entrepreneurship & innovation, 3. Aufl. Cengage Learning Emea, Boston Magretta J (2002) Why business models matter. Harv Bus Rev 80(5):86–92 McGrath R (2012) The end of competitive advantage: how to keep your strategy moving as fast as your business. Harvard Business Press, Boston Nagji B, Tuff G (2012) Managing your innovation portfolio. Harv Bus Rev 90(5):66–74 Olson MS, van Bever D, Verry S (2008) When growth stalls. Harv Bus Rev 86(3):50–61 OʼReilly CA, Harreld JB, Tushman ML (2009) Organizational ambidexterity: IBM and emerging business opportunities. Calif Manag Rev 51(4):75–99 Pearce J, Robinson R (2010) Strategic management: formulation, implementation, and control. McGraw-Hill, New York Rigby DK, Gruver K, Allen J (2009) Innovation in turbulent times. Harv Bus Rev 87(6):79–86 Rust R, Moorman C, Bhalla G (2010) Spotlight on reinvention – rethinking marketing. Harv Bus Rev 1–2:2–8 Shane S, Venkataraman S (2000) The promise of entrepreneurship as a field of research. Acad Manag Rev 25(1):217–226 Song M, Podoynitsyna K, van der Bij H, Halman JIM (2008) Success factors in new ventures: a meta-analysis. J Prod Innov Manag 25(1):7–27 Stubbart CI, Knight MB (2006) The case of the disappearing firms: empirical evidence and implications. J Organ Behav 27(1):79–100 Tellis GJ, Prabhu JC, Chandy RK (2009) Radical innovation across nations: the preeminence of corporate culture. J Mark 73(1):3–23 Timmons J (1999) New venture creation: entrepreneurship for the 21st century, 5. Aufl. McGraw-­ Hill, Boston WIPO statistics database (2020) Total patent applications (direct and PCT national phase entries). http://ipstats.wipo.int/ipstatv2/index.htm. Accessed 18 Dez 2020 Zahn C, Kretzinger B, Coners E (2013) Die Commodore-Story, 3. Aufl. CSW-Verlag, Winnenden

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Company-related Opportunity Recognition Tools

The subject of this chapter are company-related tools of opportunity recognition, which are shown in Fig. 2.1. These tools take company resources and capabilities as a starting point to identify opportunities. Section 2.1 introduces the technology application matrix, which examines existing generic technologies of the company under consideration for new application opportunities. Section 2.2 examines the company’s business model and considers different variations as sources of opportunities. Section 2.3 reviews the current core business and related existing resources as possible sources of opportunities. Opportunity recognition based on big data (analytics approach) is the topic of Sect. 2.4, before finally Sect. 2.5 presents the product trend approach, which combines a company’s existing products with major global trends.

2.1 Technology Application Matrix Section 2.1 presents the technology application matrix. First, this tool is fundamentally introduced (Sect. 2.1.1). Section 2.1.2 shows how this tool can be used to identify new product applications on the basis of existing generic technologies in the company. Section 2.1.3 explains the five concrete steps for using the technology application matrix.

© The Author(s), under exclusive license to Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2023 A. Engelen et al., Opportunity Recognition, https://doi.org/10.1007/978-3-658-39811-8_2

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Learning Objectives

• Understand and be able to use the concept of the technology application matrix. • For this purpose it is necessary to –– identify which companies ideally use the Technology Application Matrix for Opportunity Recognition, –– identify (generic) technologies in companies, –– project (generic) technologies to other applications, processes or markets using the Technology Application Matrix, –– evaluate likelihood of success of potential opportunities based on application of the technology application matrix, • To identify, based on existing technologies and competencies, new opportunities for new applications, processes or markets in a company.

Fig. 2.1  Overview of company-related opportunity recognition tools. (Own representation)

2.1.1 The Concept of the Technology Application Matrix The technology application matrix is based on the simple observation that many great corporate success stories have been significantly enabled by a single or a set of related technologies. 3M, Intel, or W.  L. Gore are prominent examples (Burgelman 1984). However, Fusfeld (1978) observes that for many top managers the technology issue is a black box and accordingly receives limited attention at the top management level. Traditional management theory often neglects technologies for various reasons (Kuratko et al. 2011):

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• Most top managers have a business education and therefore have limited knowledge in the area of technology development and use. The same applies to market researchers, who mostly have a marketing background. • Technological change processes are often difficult to grasp in generalizable patterns. • Planning cycles in companies and cycles of further development of technologies rarely coincide. Far-reaching technological changes often cover a time horizon of a decade or more. Typical planning cycles in companies rarely cover more than 3–4 years, so that these plans often only include the status quo of the current technology with minimal further developments. But if technologies have played an essential role in success stories of individual companies and have changed entire industries, how should these technologies be anchored in the planning of companies? Fusfeld (1978) points out that clarity must first be established as to what a technology is in the first place. This should look at basic, generic technologies that the company uses and could potentially be used in other products or companies, possibly even other industries. Looking at generic technologies provides a broad view of potential applications for those technologies. The example of Dyson’s motor technology in Example 2.1 illustrates this. Example 2.1: Motors as a Basic Competence at Dyson

In the 1980s, James Dyson was annoyed about the performance of his vacuum cleaner and developed the bagless vacuum cleaner with revolutionary cyclone technology and thus constant suction power in many years of work. The core competence of this development is the special motor and the ability to improve existing things. Dyson has since developed and successfully placed various products on the market that initially had nothing to do with the original vacuum cleaner product, but with the described competencies to conquer new markets. Examples include hand dryers, hair dryers, air purifiers and fans (Dyson GmbH 2020). ◄ Now, the basic idea of the technology application matrix is that uncovering new opportunities starts with the generic technologies that the company has mastered. Three complementary approaches can be used to identify these generic technologies: • Starting from end products that have already been produced, it is possible to investigate which specific technologies have been used in the creation of these products. • The entire process of product creation can be considered. The product or its components are considered from creation to delivery and use by the customer, and each individual step is examined for the use of generic technologies. Specifically, the primary activities of the value chain can be considered by Porter (2000), who distinguishes between inbound logistics, production, outbound logistics, distribution and customer service.

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• The company’s patents can be examined for possible generic technologies. It should be noted here that not all generic technologies (such as a specific software) are actually patentable, so that a patent analysis may only reveal a portion of the available generic technologies. Individual generic technologies can be detected simultaneously by all three approaches. However, there may also be individual technologies that can only be uncovered by one approach. If a generic technology is recorded in a patent of the company but has not been used so far, it will only be uncovered by the patent search. Generic technologies of inbound logistics are to be uncovered in the process view, as they are no longer recognizable on the basis of the pure end product. Moreover, since they are not patented or not patentable, the process view is the only way to uncover this generic technology. Once the relevant generic technologies have been uncovered, they are entered in the rows of a matrix to derive the technology application matrix (Kuratko et al. 2011). These generic technologies are thus the starting point for a strategic technology planning process or a process for identifying new opportunities. In a second step, the product applications that the company already offers at the present time are then listed in the columns. These product applications can be grouped into market segments for illustrative purposes. These segments should be homogeneous in themselves, but show differences in demand behavior. Once the product applications already served have been entered, the fields in the matrix can be used to mark which existing generic technologies are used in which product applications already served. An overview of the current technology strategy of the company is now obtained, which has come about either by chance or purposefully. Figure 2.2 presents an example of such a technology application matrix.

Fig. 2.2  Example of a technology application matrix. (According to Kuratko et al. 2011)

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2.1.2 Opportunity Recognition with the Technology Application Matrix To derive opportunities, it is now crucial to expand the applications, i.e. the columns of the matrix, for each identified technology. After all, the goal is to identify new application opportunities for existing generic technologies. In the context of this matrix, this is only possible by adding interesting product applications that have not been served so far. There are various possibilities for extending the columns (Fusfeld 1978): • It can be investigated to what extent there are further product applications based on generic technologies in already served market segments that the company could address. The advantage here is that the company – albeit through a different generic technology and product application – already knows the market segment. • Other market segments can be added that have a certain similarity to segments already addressed. For example, if a technology already serves the automotive industry, it could possibly be relevant for the aircraft industry, and a technology in food retailing could possibly be relevant for DIY stores. • Market segments can be added that are just emerging and therefore may be open to the use of existing generic technologies. • Growth segments can be added. Growing market segments mean potential customers from the point of view of the planning company with generic technologies, and purely from this market point of view, growing segments are more interesting and often less competitive than shrinking segments. After this step, we now have a matrix as shown in Fig. 2.3, which represents the existing generic technologies in the rows and both already served and potentially addressable market segments from different industries in the columns. Cells depicting generic technologies with already served market segments are marked to depict the current status of the technology strategy. On this basis, ideas can now be derived for expanding the technology portfolio and thus generating opportunities. How can interesting starting points be derived? Firstly, it is possible to check whether there are market segments that are already being addressed with a generic technology, but for which other generic technologies of the company under consideration could also be relevant. In this case, one would apply already known generic technologies to market segments already dealt with, as Uvex has done (Example 2.2). Example 2.2: How Uvex Applies Technologies from Occupational Safety to Skiing

In 1926, the optician Philipp Winter founded the company Uvex in the Franconian town of Fürth to equip the German ski team with eyewear. Today, with a turnover of around EUR 300 million and more than 2000 employees worldwide, Uvex regularly ranks among the top 100 most innovative companies in the German SME sector (Schier and Hennes 2009). Uvex has remained true to its core business of winter sports. Today,

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Fig. 2.3  Extended technology application matrix. (Own representation)

most of the ski jumpers at the traditional Four Hills Tournament use Uvex eyewear. However, Uvex is not only active in winter sports, but is also a leading supplier of products for occupational safety, for example in the automotive and chemical industries. The company motto “Protecting People” applies to both occupational safety and winter sports. One success factor for Uvex is that developed technologies are regularly exchanged between the two areas and thus benefit from each other. If a new technology is developed for winter sports, it is checked whether it can be used in products for occupational safety and vice versa. Recently, Uvex introduced the world’s lightest safety goggles. The head of product development in sports explains the synergies (Schier and Hennes 2009): “The ski goggles, which are injection-moulded from polycarbonate, which is what all work safety glasses are made of, meet the much higher demands of work safety, which are many times higher than those of sports. Then we benefit from the coating technology. We have excellent scratch resistant coating. We have excellent antifog. That’s the anti-fog when the glasses get wet.” ◄ The second option discusses whether the existing generic technologies can be applied in product applications and market segments that have not even been worked on yet, but are listed in the columns of the matrix. This is the core of the technology application matrix: The aim is to find out whether generic technologies of the company under consideration – regardless of whether they have now already been incorporated into products to date or were integrated into processes in the company – can be transferred into interesting

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product applications in these market segments, as W. L. Gore has done successfully step by step over many years with the PTFE material (Example 2.3). Another example is Amazon, which markets its technologies that are the basis for its own IT system (Example 2.4). Example 2.3: What you Can Create from One Material: The Development of W. L. Gore’s Product Portfolio

Bill Gore, founder of Gore, discovered – while still working at DuPont – that by rapidly stretching the plastic PTFE, a very strong, microporous material can be created, so-called expanded PTFE (Bergmann 2009). Today, Gore is the world leader in know-­ how and processing of expanded PTFE and has integrated this technology into a very large number of products, such as … • • • • •

breathable jackets and various yarns in the textile industry Implants in medicine Sealing products in various industries Membrane, especially in the chemical industry non-conductive materials in electronics

Thus, Gore is an example of a company that has gradually carried a technology into different industries, thus continuously generating a new business (Bergmann 2009). ◄ Example 2.4: How Amazon Develops a Business from Its Own Technologies

Amazon is one of the largest internet companies in the world today. Founder Jeff Bezos is considered one of the central internet pioneers. The product portfolio is familiar to many end customers. Starting with books, Amazon has expanded its portfolio into all possible product categories (Brandt 2012). Amazon’s success is largely attributed to “operational excellence” in all IT processes. As early as 2002, Amazon began making this infrastructure available to other companies, even those that did not sell products through amazon.com. Amazon’s web services today include storage, Simple Queue Services (SQS), cloud computing, and electronic data systems. Even though Amazon generated just 5% of its total revenue from these products in 2012, Jeff Bezos made it a point to grow this business. The decision paid off. In 2019, AWS generated US$35 billion, 12.5% of Amazon’s revenue (Amazon 2020). Another example is Fulfillment by Amazon (FBA), a service sellers can use to outsource the warehousing and logistics of products they sell through Amazon Marketplace. Amazon’s decision to make these processes (“technologies”), which were needed and optimized for the actual core business itself, available to other companies can be explained with the technology application matrix: Own (generic) technologies were further developed in such a way that product applications were created that could be offered in a wide variety of market segments. Since Amazon itself is considered an

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innovation leader in these processes, this image gives the newly offered products a corresponding credibility. In the meantime, Amazon generates almost 43% of its revenue with the services it offers and not with its own product sales (Amazon 2020). ◄

2.1.3 Application of the Technology Application Matrix Finally, we will evaluate under which circumstances the technology application matrix is a valuable tool for generating opportunities and which steps have to be gone through in order to benefit from this tool. The technology application matrix can always be helpful if the company under consideration actually possesses generic technologies, ideally those that have at least a small technical advantage over competitors in its own, but also in newly targeted markets (Fusfeld 1978). Especially in the case of companies that have become innovation leaders through technologies, it is promising to go through such an analysis. But also companies that are pure commodity suppliers with their products without a technological unique selling proposition can have internal process technologies that are the starting point for setting up a technology application matrix. What steps should a company go through to identify opportunities using the technology application matrix? An ideal process is shown in Fig.  2.4. In a first step, the company should identify generic technologies that already exist in the company and note them down. Generic technologies should be technologies that can potentially be used in more than one product application.

Fig. 2.4  Concrete steps for identifying opportunities using the technology application matrix. (Own representation)

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In the second step, the company’s current product applications are identified and entered in columns of a matrix whose rows form the generic technologies. In this matrix, crosses are then used to mark which generic technologies are used in which product applications. The product applications should be grouped into market segments and marked accordingly. The result of this step is a technology application matrix that records the status quo of the technologies used with their product applications. In the decisive third step, the columns of the matrix are now expanded. First, possible further product applications in market segments already served should be discussed. There may be generic technologies that have not yet been used in product applications for this market segment, but which could also be of interest to customers. The advantage of such an extension is that a new product application can be marketed to known customers. In addition, the columns of the matrix can be expanded by adding new market segments that have not been served at all. For these market segments that are new to the company, it is then necessary to identify product applications that can be developed using the existing generic technologies. Pixar is a good example of this (Example 2.5). Example 2.5: Technology and Movies: Pixar’s Revenue Streams

In the 1980s, Pixar’s core business was creating short films for promotional purposes. Under the leadership of Steve Jobs, Pixar developed a whole range of technologies from the late 1980s onwards, in particular basic graphics creation software systems such as Marionette, RingMaster and RenderMan. From these technologies, Pixar developed a whole range of diverse product applications (Afuah 2014). Some software programs such as Marionette and RingMaster remained proprietary knowledge of Pixar, and Pixar applied these programs in its commercials. Logos for some prominent companies such as IBM were also created or revised. Pixar sold other software products, notably RenderMan, as its own. RenderMan was long considered the industry standard in 3-D computer graphics. By 2001, Pixar had sold over 100,000 licenses, generating about 10% of its revenue. In the mid-1990s, Pixar used its software technologies to enter the animated feature film market (Afuah 2014). With the 1995 release of Toy Story, Pixar and Disney co-produced a huge success with revenues of over $360 million worldwide. The success could be continued with many more films (e.g. “Cars”, “Finding Nemo”). Pixar is thus an example of a company that has created a wide variety of product applications (advertising film, logos, software licenses and cinema films) from a range of (software) technologies. ◄ In a fourth step, the derived options are evaluated. Fusfeld (1978) recommends seven criteria for this purpose, which determine the probability with which the market will adopt a technology: • Performance as the general task that the technology is intended to perform (such as the cooling capacity of a refrigerator or air conditioner). • Acquisition costs • Ease of use • Running costs

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• Reliability • Possible service level • Compatibility with existing larger systems With regard to these seven criteria, the requirements for a technology can differ from market segment to market segment. If the technology is used in a medical product that is demanded by both hospitals and physicians in private practice, the acquisition costs will certainly be of different importance for these two target groups. Then the technology must either be used differently in two different products so that both segments can be served, or the technology can only be considered at all for either one or the other market. The fifth step is to select an opportunity to pursue. Key Messages

• Existing (generic) technologies in the company can be the starting point for discovering new growth opportunities. • Opportunities are created by applying existing technologies to markets that are new to the company and creating new products or solutions there, or by transferring existing technologies to markets already served by the company. • The central tool for identifying opportunities is the creation of the technology application matrix. • The technology application matrix is particularly useful if the company is a technological pioneer in its current market.

Tasks for Repetition

1. Explain the basic concept of the technology application matrix in two sentences. 2. For which companies is the technology application matrix typically an appropriate tool for opportunity recognition? 3. Why do management theory and top management often neglect technologies? Name three reasons. 4. Name and briefly describe the three complementary approaches to identifying generic technologies. Describe why the approaches are complementary. 5. Create an example technology application matrix with existing generic technologies and product applications and describe the possible four enhancements to add previously unserved technology applications. 6. List and briefly describe the five steps for identifying opportunities using the Technology Application Matrix. 7. List the seven criteria that determine the likelihood that a market will adopt a technology.

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2.2 Business Model Innovation Approach Section 2.2 deals with business model innovations: How can new opportunities be created by changing business models? In most cases, the product or service already offered by a company is the basis of the business model innovation. While the product or service undergoes only limited change, the big change is in how that product or service is marketed to the customer. Section 2.2.1 introduces the business model innovation approach. Section 2.2.2 shows specific levers for adapting business models and generating opportunities through this adaptation. Section 2.2.3 presents a process of concrete application. Learning Objectives

• Understand and be able to use the concept of the business model innovation approach. • For this purpose it is necessary to –– identify what a business model is, typically with three elements: the value proposition to the customer, the underlying revenue model, and internal value creation, –– determine how these three elements influence each other, –– identify the situations in which business model innovation is particularly appropriate, –– develop an understanding of how a business model is differentiated from corporate strategy, –– understand what opportunities there are to change the unit of service delivery, • To achieve improvements in the value proposition to customers, the revenue model or internal value creation, based on a company’s current business model.

2.2.1 The Concept of Business Model Innovation The concept of business model first emerged around the turn of the 2000s in the context of the Internet boom (Johnson et al. 2008). Dot-com companies were evaluated at the time in terms of their business model, with some authors now noting that the concept of business model was, in retrospect, more of a catch-all term for all Internet start-up ideas that were nowhere near fully formed (Magretta 2002). Nevertheless, this concept has made it into strategy books and practice in recent years as it is a useful complement to the established corporate strategy concept (Zott et al. 2011; Amit and Zott 2001; Osterwalder and Pigneur 2010). But what is a business model now? A business model describes how the company generates value for itself and its customers (Fig. 2.5). To this end, three elements of a business model are typically considered: First, the value proposition to the customer: What benefit does the customer experience by obtaining our product or service? What fundamental problem of the customer does our

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Fig. 2.5  Overview of elements and central issues of a business model. (Own representation according to Johnson et al. 2008)

business model address? Second, the underlying revenue model for the company under consideration: How does the business model under consideration generate its margin? What is its cost structure? How does it generate revenue? What is it charging the customer? Thirdly and finally, internal value creation: What does the company do itself and what does it buy from others? How are the individual value creation steps coordinated with each other? These three elements are of course interrelated: A certain revenue model (for example, billing per hour used) can mean a certain benefit for the customer from the company’s point of view. Similarly, the organisation of value creation can influence the cost structure and thus the revenue situation. Example 2.6 describes a Xerox business model by way of illustration. Example 2.6: How Does Xerox Make Money on Copiers?

In the 1980s, Xerox was the dominant company in the copier market. Xerox’s revenue model was as follows: Copiers and printers were profitable in their own right, but Xerox really made money on high-margin consumables, particularly toners and paper (Chesbrough 2010). This meant that the higher the print volume of each machine sold, the more Xerox made. To solidify this business model, Xerox sought technologies that allowed it to copy or print more and more, faster and faster. From the customer’s point of view, this gave them the opportunity to buy copiers at an affordable price, thus gaining a benefit from the constant availability of the machines. In addition, this put customers themselves in a situation where affordable purchase costs and higher copying costs per sheet of paper meant that copying was mainly associated with variable costs, which led to a benefit from the customer’s point of view. ◄

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Advocates of the business model approach argue that a technology or product itself does not already have value for either the company or the customer, but rather that the nature of the exchange and service provision must also be considered holistically (Afuah 2014). Apple’s music products in the form of iPod and iTunes can be used as an example. Apple was by no means the first company to produce portable, easy-to-navigate, high-end audio devices (Johnson et al. 2008). A company called Diamond Multimedia launched the Rio in 1998, and Best Data launched the Cabo 64 in 2000, and both devices were similarly “stylish” to the iPod. However, only Apple managed to package its product and technology into an intelligent business model. In fact, the real innovation was in combining the iPod with iTunes, and the resulting ability for customers to download digital music legally, easily, and at a reasonable price. This allowed Apple to offer superior value to customers and generate revenue through iPod and downloads, with the iPod being much higher margin than the music tracks. To understand the business model approach, it is important to distinguish it from corporate strategy (Magretta 2002). A corporate strategy deals with the question in which industries a company fundamentally wants to be active and, in particular, how it positions itself vis-à-vis the competition in these industries. The business model then describes, within this framework defined by the strategy, what specific customer benefits are delivered, how the company earns money and how its value creation is organised. Example 2.7 illustrates the difference between strategy and business model using the computer manufacturer Dell. Example 2.7: Corporate Strategy and Business Model at Dell

Dell has long been one of the most successful players in the PC market. Dell’s strategy is to offer its customers – initially only business customers, later also private customers – PCs that are cheaper than those of the competition. So much for the strategy. But what is the business model? Dell offers its customers a value proposition of getting individually configurable PCs with state-of-the-art components at low prices. In its value chain, Dell does away with retailers. Products are only sold directly by phone or via the Internet. This approach results in two key levers for reducing costs and thus shaping the revenue model: first, the value chain eliminates the margin for the retailer. Second, Dell has highly up-to-date information on current demand because customers are in direct contact with Dell. This information allows Dell to accurately plan inventory levels and not unnecessarily stock obsolete products or components (Dell and Fredman 2010). ◄ Business models therefore describe how a single product can be processed in different ways. Consequently, there are usually several different business models for a technology or a product. Compared to pure product or process innovations, innovations in business models have the significant advantage that the business model is not as immediately visible as a new product (Magretta 2002). If it is mainly the value creation as the third element of a business model that is affected, changes may not be visible at all. Furthermore,

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business models are not as easy to copy from competitors as products. Business models are often quite complex configurations along the three elements value proposition, revenue model and value creation. These elements may not be visible individually, and even if they are visible, it is often not easy to see from the outside how the elements are aligned. However, it is precisely this alignment that often provides a competitive advantage, as Example 2.8 describes for the fashion company Zara. Example 2.8: How Zara Maintains Its Uniqueness in the Fashion Industry

Zara is considered an example of a company that has achieved long-term success in a highly competitive market even without regular technological upheavals through business model innovations and is difficult to copy. Zara’s business model is to react quickly to new fashion trends and not to be constrained in product design to the corset of a few collections per year (Girotra and Netessine 2012). This gives the customer the value proposition that Zara stores are always stocked with the latest trends. Zara has developed a value chain that outsources individual activities to local tailors so that logistics costs and time are minimized. The earnings model is also affected by the fact that by offering current trends at short notice, inventories of fashion pieces that are “out” are very low. The business model has worked sustainably for three decades and competitors have still not managed to match Zara. ◄

2.2.2 Opportunity Recognition with Business Model Innovations The realization that business models are complex entities consisting of three elements already indicates that multiple options for action exist through the design of these three elements and their configuration (Chesbrough and Appleyard 2007). In addition, decision makers in companies often equate innovations with pure product innovations and thus hardly consider the possibility of changing and innovating the business model. For example, a survey of global companies by the American Management Association shows that