This week’s podcast is about core vs. adjacency growth. This is a good framework for thinking about growth in digital businesses’.
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
- New products
- New to world
- 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
- Growth, ROIC / RONIC and Growth + Sales in Digital Valuation (Asia Tech Strategy – Podcast 102)
- An Intro to Growth and “Birds in the Bush” in Digital Valuation (Asia Tech Strategy – Daily Lesson / Update)
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:
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