For example, they may continue to focus on their core products,
but sell them in new geographic regions, through new distribution
channels, or to new customer segments. Such companies develop-and
rigorously apply-a strict repeatability formula to these adjacency
moves. This formula enables them to change just one variable at a
time and execute moves faster.
The payoff? Companies that execute adjacency moves using a
repeatable formula grow revenues three times faster than average
firms in their industry. Take Nike. By systematically expanding
product sales into a series of sports, Nike raced past rival
Reebok-growing its profits from $164 million to $1.1 billion, while
Reebok's shrank from $309 million to $247 million in the same
timeframe.
The Idea in Practice
Rules for Adjacency Moves
The particular adjacency moves you select matter less than how
you choose and execute them. You generate the most growth by
carrying out your moves according to well-defined rules:
Example: Initially distributing one product
(Nigerian cashews), Olam now handles 12 agricultural commodities
and operates in 35 countries. It won a reputation for profitably
bringing commodity products out of developing markets-by developing
vehicles for hedging price and foreign-currency risks. These
vehicles formed the kernel of its repeatability formula.
Impressed, customers asked Olam to handle cashew producers in
other, nearby countries. It made this adjacency move first,
changing only one variable (geographic area). Next Olam started
selling coffee, cocoa, and sesame through its existing
infrastructure-again changing one variable (commodity product).
Soon it built businesses in hulling, sorting, and processing-and
eventually marketing, distribution, and risk management.
Build Your Repeatability Formula
Develop your repeatable formula based on insights about
customer behavior:
Segment customers. Use insights about
customers' behavior and purchasing decisions to identify potential
adjacency moves.
Example: Dell's direct-to-customer business
model lets it communicate regularly with end users. It uses this
information to subdivide and service customers more efficiently.
For example, it splits early education into primary and secondary
schools, and higher education into colleges and universities. It
locks onto high-priority segments and controls its margins with
remarkable precision.
Grow share of wallet. Sell related products to
customers whose behavior you know intimately.
Example: American Express strengthened its core
business by analyzing millions of daily transactions from
customers. The data suggested patterns of opportunity; for example,
expanding from individual consumers to corporate cardholders. AmEx
used these insights to create a family of credit cards with varied
interest rates, terms, services, and reward programs.
Mirror customer adjacencies. Track customers'
expansion plans and future needs.
Example: STMicroelectronics saw wireless phones
take off. Its main customer, Nokia, wanted to load phones with new
services without taxing batteries. ST adapted its microprocessor
power-management technology to grow with wireless handsets'
capabilities. It became Nokia's leading supplier of a one-chip
system that drove the entire phone.
