Outcome-Driven Innovation Scouting

We need less speculative “open innovation” exercises, and more deliberate processes that unlock technology’s value.

Almost 3,500 new patents are granted worldwide… every single day. Half a trillion dollars a year are spent in R&D in the US alone. Pitchbook, a leading venture capital intelligence database, tracks more than 800,000 startups globally.

The amount of innovation that is being created around the world is staggering. New technologies and solutions stream out of corporate research centers, universities, government labs and startups at firehose speed. And a lot of this innovation is out there for the taking. Various mechanisms, such as technology transfer, IP commercialization, spinoffs and good old entrepreneurship, make much of this innovation available to global markets.

It is no surprise, then, that corporations all over the world, have enthusiastically embraced open innovation and technology scouting initiatives, in an effort to tap into this wealth of new technology.

A Brief History

The discipline of technology scouting as we know it emerged with the advent of the modern computing revolution. The seeds of today’s open innovation craze were sown in the late 80s and early 90s, when researchers like Bradford Ashton, Merrill Brenner, Deb Chatterji and Michael Wolff started formulating structured methodologies that companies and organizations could adopt to leverage external sources of technological innovation.

In the information technology industry, corporations like Cisco were early adopter of process-oriented technology and innovation scouting, primarily to inform their aggressive acquisition strategies, to fend off competitors and to preempt potentially disruptive entrants.

Cisco Tech Radar (from Slideshare)

Fast forward to today, and artifacts like technology radars, hype curves and their many derivatives have become commonplace. And, of course, by popularizing the term Open Innovation with his 2003 book “Open Innovation: The New Imperative for Creating and Profiting from Technology”, Haas Business School Professor Henry Chesbrough effectively kickstarted an industry of hundreds if not thousands of “OI” brokers, software companies, crowdsourcing platforms and consultancies.

What is innovation scouting for?

In our work at FireMatter, we routinely work with companies that are either trying to bring new technology to market or to use technology to create competitive advantages.

Over the past 5 years we have investigated almost 1,000 startups on behalf of our industrial corporate clients. Some of the companies we scouted in their infancy have later been acquired by Google, Telefonica, Intel, Valeo, Microsoft and Accenture, among others.

Regardless of the industry they operate in and the level of sophistication in their corporate DNA, companies that explore the innovation landscape do so with the aim to achieve a very concrete, pragmatic business outcome. That outcome can be more or less articulated, but it is always critical. We think it is also our job to help our clients formulate it explicitly.

“You look for ideas and technologies that fit with your business model.“ — Henry Chesbrough

Therefore, when these companies ask us to help them investigate emerging technologies and startups, the issue of relevance to a specific business outcome has to be one of our primary concerns. Simply implementing a nicely designed methodology for technology foresight or running weighted queries in a startup database is of little or no value. We find it much more meaningful and, ultimately, more productive, to frame to innovation scouting challenge starting from the desired outcome.

Generally speaking, there are three typical outcomes to an innovation scouting initiative: procurement, product development, and investment/M&A. The general process may be similar, but the different aim informs the depth, breadth and complexity of each initiative type.

Innovation Scouting for Procurement

A marketing organization looking for a new AI-powered pricing optimization solution. A CISO tasked with implementing a new cybersecurity solutions to protect data flowing from IoT systems in the plant to the company’s cloud ERP system. A supply chain leader scoping out a pilot for a blockchain-based solutions to supplant old EDI infrastructure….

In those examples, a corporate function, like marketing, IT or purchasing, is on the hunt for a novel solution to a narrowly-defined technology need. The innovation scouting process involves investigating, shortlisting and selecting one or more organizations that can build and sell emerging technology that matches that procurement needs. Vendors, that is.

Implicitly, that excludes organizations, like R&D teams, unfunded startups or academic tech transfer offices, that aren’t structured to be technology vendors. It also means that selection criteria very likely must include service delivery considerations, the overall robustness of the business and its ability to support customer implementations,

Innovation Scouting for Product development

Companies may pursue innovation scouting because they see it as an efficient way to complement (or edge) their internal R&D investment or as a way to experiment in categories that are adjacent to their core business lines.

Usually corporations will rely on trusted suppliers to introduce new technology and solutions on the front-end of product development. However, when an industry is headed towards a significant technological shift, suppliers may no longer be a reliable source of innovation and new know-how. As an example, think of the restructuring happening in the automotive industry due to the advent of mass-scale autonomous electric transportation.

Within product or category development, the range of scouting target options can be wide. Technology can be sourced from, or co-developed with, startups, universities, specialized R&D labs or technology transfer offices. Due to the symbiotic nature of the partnerships that stem from these types of collaborations, considerations about IP development, ownership and licensing become of paramount importance and contractual arrangements must align a complex set of incentives,

Innovation Scouting for Investment/M&A

Finally, companies may determine that the best, or fastest, way to acquire technological know-how and customer penetration in new technology domains and markets is to acquire high-growth, high-potential startups.

With that as a starting point, this type of scouting searches typically involve an extensive requirement list. Parameters include growth projections, valuation, deal financing, ownership structure, availability of key employees post-acquisition and other financial and strategic considerations that would not come into play in a normal scouting project.

Even when they are driven purely by the need to acquire technological know-how, and that is rarely the case, innovation scouting projects for M&A require a much more stringent vetting of information, well beyond matching startups against an abstract technology radar matrix.

Strategic fit within the acquiring company’s broader business model, compatibility with existing internal technology know-how or platforms and post-transaction integration constraints further reduce the total “universe” of realistic M&A targets. If that were not hard enough, timing must be absolutely right both for the buyer and the potential seller.

Innovation scouting is complex. Cookie-cutter approaches simply do work in a wide range of scouting exploration scenarios. Online databases, media mentions and investment signals are simply not enough to uncover innovation and partnership opportunities that have the best potential to generate a non-obvious competitive advantage.

And yet, a structured process and methodology are needed, given the sheer volume and the accelerating speed with which innovations hit worldwide markets.

It helps to develop innovation scouting processes working backwards from the specific outcomes that a company wants to achieve. With that outcome in mind, you can then start to build a disciplined plan that focuses on relevant data sources, discards research approaches that are less likely to be productive, leverages the right people from the right expert networks.

Such an approach makes it easier to execute focused, thorough searches, while minimizing the risk of spending resources, effort and time on innovation opportunities that have a low probability of succeeding.

After all, who has time to read 3,500 patents a day?

Searchlight is FireMatter’s innovation scouting offering for international corporations. We help CEOs, CIOs, CMOs, R&D and Corporate Development executives discover emerging technologies and startups.