Core vs. Adjacency Growth in Digital Businesses (Tech Strategy – Podcast 104)

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This week’s podcast is about core vs. adjacency growth. This is a good framework for thinking about growth in digital businesses’.

You can listen to this podcast here or at iTunes and Google Podcasts.

Most of this is a summary of work by Chris Zook at Bain’s strategy practice. I am citing the books:

Most all sustainable growth is based on 1-2 strong cores.

  • A profitable core is centered on the strongest position in terms of loyal customers, competitive advantage, unique skills, and ability to earn profits.
    • My list for strong cores are growth / market, competitive advantage and attractive unit economics.
  • Adapting the core can be:
    • New products / services
    • New customers – microsegments
    • New geographies
    • New businesses.

Six growth adjacencies:

  • New customer segments:
    • Micro-segmentation of current segments
    • Unpenetrated segments
    • New segments
  • New geographies
    • Global expansion
    • Local expansion
  • New channels
    • Internet
    • Distribution
    • Indirect
  • New products
    • New to world
    • Complements
    • Support services
    • Next generation
    • Just new products / services
  • New Businesses
    • New to world needs
    • New substitutes
    • New models
    • Capability adjacencies
  • New value chain steps
    • Forward integration
    • Backwards integration
    • Sell capability to outside

How to assess an adjacency move:

  • Factor 1: Adjacency is tightly tied to a strong core.
    • Economic distance is short. How much does it overlap?
    • Need a strong core or a strong position in a channel, customer segment or product line in weaker core.
    • Usually the linkage is considered superficially. Snapple is close to Gatorade? Production is totally different. So are customers and advertising. And points of purchase and distribution.
  • Factor 2: An attractive adjacency market in terms of profit pools
  • Factor 3: The ability to capture economic leadership in that market. Competitive advantage as an attacker and then an incumbent.

Digital adjacencies are moderate, relentless expansions versus big trees.

A great quote from Beyond the Core

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Related articles:

From the Concept Library, concepts for this article are:

  • Growth: Core vs. Adjacency
  • Digital Operating Basics

From the Company Library, companies for this article are:

  • n/a

Photo by Volodymyr Hryshchenko on Unsplash

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I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

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