Laser technology seemed an obvious solution

Intensive however, identical to a core business exploitation is still insufficient to develop income and profits in a sustainable manner. The imperative of growth forced the company to explore new territories and elsewhere seek new sources of enrichment. But manage their exploration while pursuing the development of the core business is delicate. Cases of failure are many. Analysis of the 25 most expensive examples between 1997 and 2002 excluding Internet bubble shows that three times in four, the inability to grow in a cost-effective manner in other than their core business activity explains alone, or contributes largely to the woes of Swissair, Worldcom, Kmart and others still. Beyond these failures, the frequent gap between announced targets and actual growth of market share, sales business or profitability, shows the difficulty to inscribe on the agenda of business growth. All do not have the chance to wear a market in full expansion or the benefit of a technological breakdown. But all can develop one or more adjacencies to their core business, i.e. using one or more of the core business assets (technology, a portfolio of customers, expertise, etc.) to extend their scope of activity. In this field, the champions are those who Excel both in the preparation and execution. Expediency or "beating" have courses, at least in the long term. But a few rules substantially improves the chances of success.

Stay close to the core business

A champion of the growth is characterized by a heart of strong trade, basement of development and point of departure of adjacencies. The adjacency to anchor in the heart of business and uses the forces, it is close to the core business, and more chances of success are high. The distance to the heart of business can be measured by the number of new variables that adjacency leads to manage. Six dimensions should be considered: are those of the heart of business customers targeted by the adjacency; change the structure of cost; requires new channels of distribution; requires it to compete faced with competing new; require new skills or technology; the success rate of adjacencies decreases with the number of new variables to manage, from 37 for a single variable to 28 for two, 7 to 3 and less than 1 for 4 new variables (referred to as diversification).

As such, the example of Gillette is significant. Based on a core business focused on razors and blades, Gillette has developed successfully in razor for women and Europe (adjacencies to a new one variable each time in the first case, new customers, in the second, a new territory). Development in batteries (Duracell) attempts, the pens (Parker, Waterman), watches (adjacencies to three new simultaneous variables or true diversification) have, failed, or have experienced difficulties.

In particular, the evaluation of the sharing of costs and clients between the core business and the adjacency is determinative. When owner of Gatorade Quaker Oats buys Snapple in 1994, a first analysis shows that it is both non-alcoholic, non-carbonated beverages sold in large area and bottle. But further investigation would have revealed differences in production processes and behaviours to purchase consumer, requiring an advertising and specific marketing modes. Purchased 1.7 billion in 1994, Snapple was resold $ 300 million three years later.

Follow the customer

Accompany customers is often the best starting point to develop of adjacencies. Three champions of growth four thus based their success on the intimate knowledge and segmentation of customers. Methods and approaches are multiple: develop specific for each customer segment offers, increase the share of portfolio with existing customers declining ranges in place (new formats, new packaging...), responding to a growing number of needs by analyzing all of the purchases made by customers... Pasquale Pistorio, former President and CEO of STMicroelectronics, confirms this angle of attack: "our biggest mistakes of growth." Whenever we have capitalized on a product or a technology rather than adapt to the needs of customers.

For Pius Baschera, CEO of Hilti (world leader in professional equipment), it is the understanding of the functioning of the building which allowed to explore and exploit important deposits of growth. "In 1996, with a team of experts in ergonomics, we analyzed in detail how our customers use our tools." Our goal was to define how to improve productivity on the building. For example, by studying how the electricians were cables

in the floors and ceilings, we realized that they spent more than a third of their time to determine the place where piercing to move cables. With difficulty, conducting these surveys by hand, on scales, with a bit of meters. Laser technology seemed an obvious solution... Result four years later: a product line that generates an annual turnover of more of 60 million euros... We are building a strong position on this market and well intend to continue our momentum...

Find a reproducible form

A reproducible form of growth "institutionalized" organizational effectiveness required for assessing and implementing the adjacencies. The most significant benefits are to shorten the time required to pass an adjacency with an ability to make faster more reliable decisions, reduce complexity and to inform the strategy with a simple and predictable pattern growth to look regularly and in detail on the understanding of customers...

The success of Nike illustrates the effectiveness of a reproducible form. The sign at the "swoosh" almost quadrupled its capitalization between 1990 and 2000, while Reebok, which did not follow a clear guideline in its developments, divided his own by two. Two sports footwear manufacturers had yet left the same point in 1990: close financial results ($ 2.3 billion in sales for Nike, against 2.2 for Reebok; 481 million result of exploitation for Nike, against 300 for Reebok), activity focusing on sports footwear, awareness of their brands. During this period, Reebok has invested in activities unrelated to its core business. The addition of brands such as Ralph Lauren and Polo Footwear returned in complete contradiction with the positioning claimed in sport and performance (and not in fashion and fitness). During this time, Nike, of the running, is positioned successively in basketball, tennis, and then accelerated the movement in the 1990s with baseball, football, cycling, volleyball, walking, soccer, and more recently golf. These developments have followed a similar operandi modus: start by producing shoes, evolve into textiles, complete equipment (in the case of golf: Accessories bags, glasses, gloves - as early as 1996, balls in 1999, clubs), promote these products by champions in the United States prior to be released in the rest of the world.

Invest in preparation

A strict discipline in the selection and evaluation of adjacencies characterized the champions of the adjacency. First, they consider "profitability tanks" more than the markets, taking into account the size, but also (and mainly) the structure economic and ultimately the ability to generate profit. Then, they systematically seek a leading position: If the company does not have the best chance to be in the three largest players in the market, it is preferable to give up the proposed adjacency.

Simply estimates of the size of a market at the place of interest in its ability to generate profit, understate the level of control of the market by the main competitor, did not understand the mechanisms of market (and therefore not define what is the leadership), underestimate the impact of dynamic competitive on the evolution of profitability, incorrectly assess the competitiveness of competitors... are common in the assessment of an adjacency errors and can lead to costly failures.

Choose the right moment

The answer to some questions to evaluate the appropriateness of a development by adjacency. The full potential was reached on the core business At what maturity activity heart should be reviewed to continue to serve customers Adjacencies are likely to provide the skills that business need What are the criteria for evaluation of these adjacencies Is there a repeatable formula

However, the actual decision to engage in an adjacency is difficult. Jim Vincent, former CEO of Biogen, a biotechnology company, said that "decide when and how to evolve the core business to one or more adjacencies is the most difficult decision for a CEO." Tom Stemberg, founder of Staples, confirms: "growth by adjacency is one of the two most delicate decisions a CEO, the other being to create and"loyalty"the best possible management team."

This decision is essential. To the erosion of their core business, many companies are struggling to use their assets such as the distribution channels or their mark to bounce, the image of Polaroid disappeared in 2001 despite a trademark of first order, a very in-depth knowledge of the expectations of customers for the film of the technological objectives skills, expertise in the manufacture of boxes