Functional diversification and exaptation: the emergence of new drug uses in the pharma industry[What is not a real option: considering boundaries for the application of real options to business strategy]

The process by which new uses or functions for an existing artifact (e.g. technology) emerge is an important yet understudied source of innovation. We call this process functional diversification (FD). We measure and characterize FD by focusing on the emergent uses of a class of technological resources: pharmaceutical drugs. We show that FD contains both an adaptive and an exaptive part and that it exhibits several empirical regularities regarding the number of new uses embedded in existing technological resources, the distant/proximate distribution of uses relative to their original use, and the role played by what in the life sciences are known as “mechanisms of action” and in the technology realm “functionalities” in the generation of new uses. We argue (or suggest) that FD is at the core of several theoretical perspectives—exaptation, Penrose’s firm growth, and shadow option theories—whose complementarities could be integrated into a general framework to understand and manage the emergence of new uses from existing resources.