Already a Bloomberg.com user?
Sign in with the same account.
At a recent corporate retreat for Kleiner Perkins Caufield & Byers, partner Bill Joy presented what he called "the map of grand challenges." This chart of multicolored squares tracked the progress of the venerable venture capital firm in identifying and investing in key categories of green technologies, including transportation, energy efficiency, electricity generation, energy storage, and more. Joy also left blank spots on this chart that hinted at technologies that should be possible in the near future. For Kleiner Perkins, this map has come to represent a rough outline of tomorrow's clean energy economy. The firm now uses it as its investment playbook to help identify promising startups and stimulate universities and laboratories to create technologies that don't exist yet. Basically, if a green tech idea could fill in one of the blanks on Kleiner's map, the partners are interested. If not, then no one need apply.
While this approach might be new to venture capitalists, many companies use a similar approach to spot new sources of organic growth. Innovation teams inside companies often create maps like these to help them ascertain their most promising possibilities and create growth strategies. In our efforts at Jump Associates to create opportunity maps for clients, we've found that the most effective incorporate a variety of data within a given market by accounting for met and unmet consumer needs; emerging discontinuities such as cultural and technology trends; both direct and indirect competition; and internal and external competitive competencies. Synthesizing all of these data helps innovation teams separate the handful of opportunities they should target from the dozens they shouldn't.
At the start of this decade, Nike (NKE) used such an approach to determine how to grow beyond its core business. Their Explore team was given the audacious task of helping Nike become a sports company. The team met the challenge by creating a map to identify the richest opportunities, define a strategy for growth, and set first steps toward a future vision. The map helped the team see product beyond shoes, such as sunglasses, watches, MP3 players, and sports apparel. The data on their map included consumer needs, societal and technology trends, and Nike's chief competitors, adidas, Puma, and Reebok. It also included indirect competitors such as MTV, because it offers a rival option for what kids can do after school: Nike wants them playing sports; MTV wants them parked in front of the tube. By drawing such a comprehensive map, Nike was able to consider new directions, such as partnerships that marry sports and digital entertainment like its successful Nike + iPod platform.
Opportunity maps shouldn't be limited to organic growth initiatives. As Kleiner Perkins so aptly demonstrates, merger and acquisition teams can use a similar approach. In a 2001 Harvard Business Review article, "Not All M&As Are Alike—and That Matters," Joseph Bower identifies five types of mergers and acquisitions: overcapacity, geographic roll-ups, product or market extensions, M&A as research and development, and industry convergence. Because overcapacity M&As (think Daimler buying Chrysler to gain market share) and geographic roll-up M&As (Bank One buying scores of local banks) do not require unique insight into consumer behaviors, indirect competitive activity, or nascent discontinuities, they derive few benefits from an opportunity map. However, this approach can be particularly useful for the remaining three types of M&A. Here's why.
The product or market extension M&A
Extension acquisitions attempt to expand a company's product portfolio or international reach. A well-crafted opportunity map will reveal synergies between a company's competencies and its potential to serve both met and unmet consumer needs. Again, because opportunity maps synthesize both of these sets of data, they shed light on the most promising acquisition targets.
M&A as R&D
This type of deal attempts to vet and nurture technologies most likely to take off in the marketplace. Opportunity maps are particularly adept at identifying whether a white space is truly a lucrative field of opportunity or a toxic waste dump. White space opportunities can be spotted by the presence of indirect competitors who are meeting similar needs with very different solutions. This gives companies a clear sign that small technology acquisitions within the target space should lead to long-term growth.
Industry convergence M&A
This last type seeks to invent an industry or new business model. Convergences attempt to couple solutions from industries whose boundaries seem to be disappearing, as in the recent blending of technology and entertainment. Because opportunity maps synthesize a wide variety of data, they often redraw market landscapes that are in flux. They provide insight into evolutions in consumer behavior, alternative offerings that might become prominent, and the impacts of emerging cultural, regulatory, and technological trends. Ultimately, such knowledge points to emerging markets and provides insight into crafting viable and compelling business models for new industries.
The success (and frequent failure) of mergers and acquisitions is much debated. Despite a renewed focus on organic growth, M&As will continue to fuel companies for years to come. That said, M&A teams can benefit from the same tools and processes that have improved the effectiveness of internal innovation teams. As at Kleiner Perkins, they become your treasure map, identifying not only the islands but also the exact spots to dig for growth.
Alonzo Canada is a principal at Jump Associates, a growth strategy firm in San Mateo, Calif., that helps companies create businesses and reinvent existing ones. In addition to consulting with executives at a variety of S&P 500 companies, Alonzo teaches design methods at Stanford University.