The pressure to grow has never been greater that it is today. And this explains why nearly 50% of current S&P 500 companies are forecasted to be replaced over the next ten years. This dynamic creates three imperatives for leaders. First, they must understand when core businesses need to change. Next they must determine what their new core business should be. Finally, they must understand the conditions for successful adjacency expansion so they can increase their odds of success.
Understanding when to focus, when to expand and when to redefine a core business has become leadership’s #1 imperative. While it is common for companies to abandon a core businesses too early, it is also common for them to cling to eroding ones for far too long. When core businesses actually are out of gas, it is usually for one of three reasons: 1) Your company is targeting a shrinking or shifting profit pool, 2) your company has inherently inferior economics, or 3) your company’s growth formula simply cannot be sustained. Knowledge Test
Research on the disruption and redefinition of core businesses suggests that hidden assets often become the centerpiece of the new core business. And these hidden assets tend to fall into one of three categories: 1) Undervalued business platforms operating in your company today, 2) untapped insights into customers that enable you to satisfy a broader array of their needs, and 3) underexploited capabilities that can be redeployed successfully in adjacent segments. Knowledge Test
Expansion into adjacent markets is a risky proposition that succeeds only about 25% of the time. Research suggests that successful companies share two common features: 1) A strong core business to build on and 2) a repeatable formula for adjacency expansion. While the majority of repeatable formulas are build upon customer driven insights, the efficient build out of networks and the application of core skills in new markets can be other viable ways to grow. Knowledge Test