Growth initiatives often fail due to inadequate leadership, resourcing, measurement, and governance. However, those that succeed deliver substantial rewards. Before launching a new initiative, leaders should ensure they can articulate detailed answers on strategy, capabilities, team composition, performance metrics, funding models, and links to core capabilities. Ultimately, sustainable growth requires balancing focus on strengthening the core business with carefully planned expansion into closely aligned markets. Leaders must steer this delicate balance to maximize chances of success.
Business adjacencies are strategic moves where a company expands into new but related areas to drive additional growth. These expansions can manifest in various ways, such as launching new products or services, entering new geographic markets, moving into different parts of the value chain, leveraging new distribution channels, targeting new customer segments, or creating new businesses that capitalize on existing capabilities. Despite the potential for growth, the reality is that most adjacency moves do not succeed in creating value. Research tracking the growth patterns of thousands of companies globally indicates that only about 25% of these moves are successful. This statistic underscores the complexity of growth challenges, with even the most skilled business leaders experiencing a 75% failure rate in their adjacency expansion attempts. The research that led to these insights was comprehensive, involving interviews with 25 CEOs of the world's fastest-growing companies, comparative analysis of companies that made different growth moves in the 1990s, examination of 181 major growth initiatives in the US and UK from 1995 to 1997, multiple global executive surveys on growth, and analysis of 14 years of financial data for over 8,000 public companies across seven countries. Six primary methods companies use to push into adjacencies were identified. The most common is product adjacencies, where new products and services are offered to existing customers. Geographic adjacencies involve entering new markets to sell current products, which often proves more complex than expected. Value chain activities include moving up or down the value chain to capture more value. Channel adjacencies exploit new distribution channels, such as direct sales. Customer adjacencies target new customer segments with existing products, and new business adjacencies involve building new businesses around existing organizational capabilities. Three strategic motivations for pursuing adjacencies were also highlighted: to directly spur profitable growth, to strengthen and reinforce the core business, or to respond to significant marketplace challenges. The data clearly shows that adjacency expansion is a complex and risky endeavor. Many leaders underestimate the challenges associated with significant business model expansion. Successful adjacency moves can differentiate exceptional leadership teams, while failures often lead to CEO departures when promised growth does not materialize. Thus, while adjacency expansion offers great potential, it also carries a significant risk.
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