In 1911 a German scientist, Friedrich Bergius, filed the world’s first patent on a process to produce steel using hydrogen. But it wasn’t until 1973 that Nippon Steel could design a steel-making facility based on the process. Then, in 2016, the Swedish steelmaker SSAB started working on the deep tech, teaming up with iron-ore leader LKAB and energy giant Vattenfall. Five years later, they succeeded in manufacturing the closest thing the world has seen to fossil-free steel, using green hydrogen to make steel with (almost) no carbon emissions. SSAB’s Hydrogen Breakthrough Ironmaking Technology facility, which emits mostly water vapor, will attain commercial production in three years’ time—which will mark the fruition of yet another deep tech.
As new sciences evolve, technologies mature, and customer demands are changing, deep tech is increasingly enabling business to develop radically new products and processes. We use the term “deep tech” to describe the problem-driven approach to tackling huge challenges by combining new physical technologies, such as advanced material sciences, with sophisticated digital technologies, such as A.I. and soon, quantum computing. The timing is fortuitous; several global crises—such as climate change, disease, and malnutrition—are escalating, so business has to develop radically different solutions to tackle them quickly. As a result, these deep tech-driven innovations will spawn new value-creation opportunities. It begs the question: Do you have a deep tech strategy?
Most deep technologies started developing a long time ago, but they will make an impact—sooner or later. As innovation quickens around the deep technologies that are now becoming accessible, companies will develop new offerings faster. Some technologies, such as synthetic biology and generative A.I., are already disrupting business, while others, such as nuclear fusion and quantum computing, will come to market only in the next decade.
Capturing business opportunities with deep tech requires the creation of a strategy. Many of the big challenges the world faces are industry-specific, so a given strategy must take that factor into account as well as company-specific ambitions and capabilities. In a recent MIT SMR article, we unveiled four archetypal deep-tech strategies that incumbents can deploy. Independent of the strategy, four requirements are critical to ensure that companies win with deep tech. They are:
Ensure deep tech leadership
Companies must start by creating a discussion and decision-making process for deep tech at the top management level, which will help figure out the actions to take and the responsibilities for their execution. The members shouldn’t be just CXOs; heads of functions such as R&D, digital, strategy, and sustainability as well as growth officers all have key roles to play in the process.
The deep-tech team must drive action on several fronts, from scanning for emerging technologies to managing partners, suppliers, and consumers. It must manage the transition from old to new technologies without losing revenues or customers. The team must set up mechanisms by which the organization can share its experiences and learn from those of partners, companies in adjacent industries, and rivals. Leaders must create an environment that offers creative liberty to “backcast”—that is, to identify the world’s biggest and most pressing problems, define a desirable future in which those issues have been resolved, and work backwards to identify solutions. This may involve significant changes to the existing business.
Deep tech innovations arise when technological maturity, consumer needs, and business value intersect. Companies should therefore focus on identifying the connections between emerging technologies, and their possible applications, in the industry’s value chain as well as across sectors. Assessing the scientific advances that could become available to address their most critical challenges will allow companies to make decisions about whether to develop promising technologies in-house, do so with partners, or use M&A to acquire them quickly.
Done right, constant technology scanning will lay the basis for growing partnerships over time. Recognizing that a deep tech like syn-bio could revolutionize the agrochemicals industry, for instance, Bayer set up a joint venture with the start-up Gingko Bioworks back in 2017. As technologies evolved and Gingko grew, Bayer sold the joint venture, and its syn-bio facilities, to Gingko last October. To replace the venture, Bayer struck a long-term partnership that will make it among the first to take Gingko’s future syn-bio innovations to market.
Rethink ecosystems
As companies come to grips with deep tech, they must rethink how they will engage with ecosystems. While the new technologies will drive major changes in the value chain, it’s difficult to simple swap one link for another, so companies will have to deploy new structures such as technological collaborations, partnerships, and joint ventures.
Externally, companies will have to align suppliers, distributors, and other partners with their new deep tech-based strategies, incentivizing some to invest in the new technologies and operating models. They must also figure out ways of collaborating in new ways with critical suppliers and distributors rather than losing them to traditional rivals.
Teaming up with a few market leaders in adjacent or related industries will enable incumbents to stress-test technologies and applications. For instance, several apparel companies—such as Adidas, Chanel, Inditex, Levi Strauss, Patagonia, and Stella McCartney—have signed up with Fashion for Good, an initiative to reimagine fashion. Launched in March 2017, it brings together brands, retailers, suppliers, innovators, and funders to change the apparel industry through “conversation and collaboration.” Because Fashion for Good funds and nurtures early-stage ideas, the leaders have come together to scale its innovations and ensure widespread adoption.
Tap deep tech talent pools
Deep tech usually requires an extended research phase and demands a large amount of specialized talent. That’s why companies need to hire talent specifically for such ventures, especially for R&D and customer-facing teams. In addition to upskilling existing teams and attracting best-in-class talent, smart companies will recruit from outside their industries.
The more ambitious will try to create talent pools, through incubators, universities, and R&D centers, in emerging application areas. For example, in December 2019, consumer goods giant Unilever opened a $100 million Foods Innovation Center, Hive, on the Wageningen University campus in the Netherlands. The location is no accident; nicknamed Food Valley, Wageningen is the epicenter of several agri-food technology breakthroughs made by the region’s start-ups, science institutes, NGOs, and companies. In addition to driving R&D and catalyzing collaboration, the Center is helping Unilever attract the kind, and amount, of talent it needs.
Leverage policy
Companies would do well to use policies and regulations to provide a fillip to their deep tech efforts. Not only do regulations influence the development of novel technologies, but they also increase the demand for new products and processes.
Many new laws have provided financial support for new technologies. For instance, to create the hydrogen economy, the EU has targeted the production and import of 20 mtpa of green hydrogen by 2030 under the Repower EU policy framework, while in the U.S., last year’s Infrastructure Investment and Jobs Act provided around $10 billion of incentives for green hydrogen.
Companies should explore the regulatory landscape to identify how deep tech can be supported by government policies such as subsidies and tax credits. For instance, the US Inflation Reduction Act has provided $370 billion of incentives to reduce carbon emissions including financial support for carbon dioxide capture, utilization and storage (CCUS, for short). In addition to higher tax credits, the IRA has reduced the thresholds that facilities must reach to qualify for them and even allowed companies to sell the credits to third parties. Savvy companies are bound to use such tax policies to kickstart their efforts in the U.S. to reduce carbon emissions.
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A deep tech strategy will be complete only when it’s accompanied by a plan to manage the transition from the old to the new. At one end of the spectrum, conservative incumbents may choose to screen the landscape for a few promising technologies and limit their initial investments. They should look for opportunities to collaborate so they can share costs, especially if large investments are necessary. At the other end, aggressive leaders will pool investments to commercialize innovations at scale quickly. If they don’t have sufficient funds, companies can develop niches for new solutions in the medium term while keeping eye open for opportunities to expand. Either way, businesses must learn to develop strategies that have deep tech at their core.
Read other Fortune columns by François Candelon.
François Candelon is a managing director and senior partner in the Paris office of Boston Consulting Groupand the global director of the BCG Henderson Institute (BHI).
Max Männig is a project leader in BCG’s Düsseldorf office and a BHI ambassador.
Vinit Patel is a project leader in BCG’s Mumbai office and a former BHI ambassador.
John Paschkewitz is a partner and associate director in BCG’s Washington, D.C. office and core member of BCG X’s Deep Tech team.
Some of the companies featured in this column are past or current clients of BCG.
