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

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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