1. Which Growth Opportunities Are Most Likely to Succeed?

2. Expansion into adjacent markets is a risky proposition
Bain & Company compiled a database of 181 adjacency moves by publicly traded US and UK based companies
They then researched the results through press releases, analyst reports, press coverage and direct contact with these companies
Across this sample only 27% of adjacency moves could be considered successful, 48% had neutral or ambiguous returns and 25% were clear failures
And while it’s impossible to determine how much of this wide variation in results can be attributed to individual variables like initial market position, execution and luck, three critical factors coexisted in the overwhelming majority of Bain’s sample
Beyond the Core, Chris Zook, HBS Press, 2004

3. 1. Each company had a strong core business to build on
Bain & Company analyzed 501 companies in 51 industries over a ten year period
Companies with the strongest core businesses (those ranked #1 or 2) retained those positions more than 70% of the time
Companies with weaker core businesses (those ranked #3-5) reached #1-2 positions just 12% of time
Bain & Company analyzed 501 follower companies, that is companies ranked #3 or lower in their respective markets, in 51 different industries over a ten year period. These industries were chosen because consistent market share data was available for each.
Beyond the Core, Chris Zook, HBS Press, 2004

4. 2. These companies identified a repeatable formula for adjacency expansion
83% of top performing companies had clear formulas for defining where to play and how to win
Have clear formula
Source: Bain 200 Company Database of Repeatable Models

5. Repeatable formulas confer 4 major advantages
Learning curve effects: Enable companies to refine and systematize complex and time consuming processes
Speed: Companies can successfully start and finish competitive moves faster than the companies around them
Reduced complexity: By holding other variables constant and changing one thing at a time, companies reduce risk
Strategic clarity: Employees understand the company’s strategy and their role within it
Beyond the Core, Chris Zook, HBS Press, 2004

6. The mathematics of repeatable formulas
3.5x
Beyond the Core, Chris Zook, HBS Press, 2004

7. 3. 80% of their formulas were built around specific insights generated by customers
Uncovering new customer segments
Growing your share of wallet with existing customers
Mirroring customer adjacencies
Third, these companies’ formulas were 80% of the time built around specific and deep insights about customer behavior that could be replicated in different
Beyond the Core, Chris Zook, HBS Press, 2004

8. Uncovering new customer segments
Product
Customers
PCs
Home
Large Enterprise
PCs
Business
S/M Businesses
PCs
Government
Education
Second, these companies identified a repeatable formula for adjacency expansion that generated strong economic and competitive benefits
Government
Health care
Law Enforcement
Beyond the Core, Chris Zook, HBS Press, 2004

9. Uncovering new customer segments

10. Growing share of wallet with existing customers
Product
Customers
Propane-fueled mini-refrigerators
Hotels
Interior systems
Recreational Vehicles (RVs)
Recreational Vehicles (RVs)
Trucks
Trucks
Second, these companies identified a repeatable formula for adjacency expansion that generated strong economic and competitive benefits
Boats
Boats
Beyond the Core, Chris Zook, HBS Press, 2004

11. Growing share of wallet with existing customers
In 1994, the company launched its Optima card which was it’s first revolving credit card; In 1996 it launched its Delta SkyMiles Card and a family of special-purpose business cards for activities like Purchasing. Shortly after, it launched its Bluecard with special internet payment features and its Black card which requires $250,000 in annual expensditures and a $2,500 annual fee in order to get exclusive offers and white glove treatment

12. Mirroring customer adjacencies
Product
Customers
Geography
Power mgmt. technology
Europe (Nokia)
Europe (Nokia)
US, Asia
Mobile phone microprocessors
Second, these companies identified a repeatable formula for adjacency expansion that generated strong economic and competitive benefits
Beyond the Core, Chris Zook, HBS Press, 2004

13. Mirroring customer adjacencies
Product
Customers
Geography
Power mgmt. technology
Europe (Nokia)
Europe (Nokia)
US, Asia
Mobile phone microprocessors
PC microprocessors
Europe
Europe
USA, Asia
Second, these companies identified a repeatable formula for adjacency expansion that generated strong economic and competitive benefits
Microprocessors for peripherals
Beyond the Core, Chris Zook, HBS Press, 2004

14. Mirroring customer adjacencies
Originally known as "Chemcor" glass, the product was used until the early 1990s in various commercial and industrial applications, including automotive, aviation and pharmaceutical uses where minimizing the vehicle's weight is essential. Shortly before the launch of the first iPhone, Steve Jobs visited Corning CEO Wendell Weeks to ask him if he had a glass for his new smart phone that would not scratch if it rubbed against car keys in user’s pockets and purses. Weeks immediately dedicated an entire factory to producing the new glass and the first iPhone was sold in mid By 2012 sales of Gorilla glass exceeded $1 billion

15. The other 20%
~15% of successful adjacency formulas were based on economies of scale in the build-out of a network
UPS’s global delivery network
Vodaphone’s global mobile phone network
Tesco’s European distribution network
Fewer than 5% of successful adjacency formulas were based on the application of core capabilities in totally new markets
Apple’s shift from PCs to music and entertainment retailing
Nike’s expansion from running to basketball to golf
Beyond the Core, Chris Zook, HBS Press, 2004

16. Summary
Expansion into adjacent markets is a risky proposition that succeeds only about 25% of the time
To increase their odds of success, leading companies follow three basic principles:
Build around strong core businesses with the potential for leadership economics
Leverage repeatable formulas that facilitated earlier adjacency expansion and then follow them with discipline
Pursue adjacency opportunities that lie within their strongest customers
Beyond the Core, Chris Zook, HBS Press, 2004

17. And what if you don’t have a strong core business to build on?
Research shows that weak followers have three viable options:
Integration into a leader
Consolidation of weaker industry competitors
Shrink to grow (building on narrower customer segment)
Beyond the Core, Chris Zook, HBS Press, 2004