Ninety percent of companies worldwide failed to achieve sustained, profitable growth over the past decade. While current business wisdom calls for "new rules" for strategy and organization, our research reveals that the answer to the growth dilemma actually lies in enduring economic principles. 

Most growth strategies fail to deliver value—or even destroy it—primarily because they wrongly diversify from the core business. This timeless strategic precept—building market power in a well-defined core—remains the key source of competitive advantage and the most viable platform for successful expansion. 

How to grow

Having a clear sense of business boundaries and of the definition of your core is a critical starting point for growth strategy. Identifying the core of your business is the first step in determining how to grow. In order to do that, you must identify your key assets:

• Who are your most potentially profitable, franchise customers?
• Which are your most differentiated and strategic capabilities?
• What are your most critical product offerings?
• Which are your most important channels?
• Are there any other critical strategic assets that contribute to the assets above, such as patents, brand name, or position at a control point in a network?

Once you have successfully identified your core business, you should examine the three elements of a possible growth strategy. 

1. Strengthen and defend the core. One of the three options to consider is strengthening and defending the core. There are three essential steps involved in this strategy:
   • Define the business boundaries and your own core business
   • Identify and verify the sources of differentiation that will continue to create market power and influence over your customers, competitors and industry profit pool
   • Assess whether the core is operating at or near full economic potential
2. Grow through adjacencies. The second element of a possible growth strategy is adjacency expansion from the core. Adjacency expansion is a company's continual moves into related segments or businesses that utilize and, usually, reinforce the strength of the profitable core. Critical to improving the odds of profitable, sustainable growth are:
   • Identifying adjacent business opportunities and recognizing the most common patterns
   • Assessing and choosing the right adjacencies
   • Avoiding some common pitfalls of adjacency expansion
3. Redefining your core business. The third element of a growth strategy is redefining the core.
   • How do you know when it may be time to redefine your core business?
   • What are the best organizational methods for tackling this difficult task?
   • What are the lessons learned from past successes and failures at redefining a core business?

Bain Book

Profit from the Core

Learn more about how companies can return to growth in turbulent times.

Where to grow

Between defining and redefining a core business lies the second element of our growth strategy, adjacency expansion from the core. Adjacency expansion is a company's continual moves into related segments or businesses that utilize and, usually, reinforce the strength of the profitable core. Critical to improving the odds of profitable, sustainable growth are:

1. Identifying adjacent business opportunities and recognizing the most common patterns
2. Assessing and choosing the right adjacencies
3. Avoiding some common pitfalls of adjacency expansion.

What makes adjacency expansion different from other growth strategies is its use of existing customer relationships, technologies or core business skills to build competitive advantage in a new area.

Companies pursuing new growth initiatives without jeopardizing a strong core can benefit from methodically inventorying and mapping out their adjacent opportunities.

Map your growth opportunities

The process of mapping does more than just help organize opinions and inventory ideas. It reveals the extent to which the organization has a multiplicity of choices for growth and makes it easier to understand the trade-offs that may need to be made in choosing which to fund. In the absence of such a process, organizations often lack an agreed-on big-picture context for making decisions, fund an excessive number of initiatives to an insufficient extent, and take too seriously the "idea of the day."

There are many different processes to map out and characterize the full range of business adjacencies. The following is an example of one way to map your adjacencies. 

Step One: Define your cores. Rank them from strongest to weakest based on economics and relative competitive strength. Rank them also according to the richness of adjacent growth opportunity from "limited" to "unlimited." Identify the core that should be the highest priority for growth, balancing these two factors.

Step Two: For the strongest core(s), map out adjacencies in more detail using the following type of sequence.

• Identify the adjacencies you are already in and array the data on how you are doing there (market share, profitability, investment)
• Identify the adjacencies the organization is considering or has rejected
• Identify other known adjacencies, possibly requiring two or three strategic moves to get there
• Identify adjacencies suggested by studying investment action of competitors
• Identify adjacencies suggested by potential new competitors, often small companies
• Identify future adjacencies due to technology or other developments

Put these adjacencies on a single grid or map and push the thinking on what is missing. 

Step Three: Do a quick ranking or rating of each adjacency. This will result in a ranking along the following types of measures:

• potential size,
• strength of advantage due to the uniqueness of the core,
• strength of probable competition,
• offensive and defensive importance to the core (warding off invaders),
• a longer term perspective on multi-step moves
• and ability to implement. 

Step Four: Develop cluster of moves, or strategic scenarios.

Step Five: Determine implementation phases within each scenario. Assign time periods against each.

Successful growth strategies are those that revitalize their core, identify the next wave of profitable growth, and build on it successfully—providing a source of competitive advantage in times of market turbulence.

Chris Zook is a partner in Bain & Company's Boston office. He was coleader of the Global Strategy practice for 20 years. James Allen is a partner in Bain’s London office and coleader of the firm’s Global Strategy practice.