The Paradox of Adjacency

An interesting article appeared this morning in The Economic Times : The Paradox of Adjacency by Ashish Singh and Chris Zook of Bain and Company. I have written to Ashish with my views.

Yes Nokia-India is a successful example of ‘adjacency strategy’. While product proposition for entire consumer spectrum (BOP included) and Product Innovation did contribute to its success, there were other factors which contributed in equal measure, such as: Quick to identify the Opportunity (1995)-ahead of Change curve, Localizing the business strategy, Focus on core business ( Nokia only had mobile phones , while other players had consumer electronics and home appliances) etc.

Google is another great company at identifying ‘adjacent opportunities’. From Google search to Google Video to Google Books to Google News to You tube ....

However, we have also seen many unsuccessful attempts at adjacency strategy, for example:

• Reebok’s foray into fashion wear;
• Intel’s foray into digital media and Internet space;
• Starbucks-which tried to get into ‘grab and go customers’ express format is shutting down 600 stores in US alone.

These mixed results raise few obvious questions:

• Is it beneficial for an organization to expand (to adjacent market) even though there is enough ‘cheese’ at the center? Is there an inherent danger of ‘spreading too thin’ or ‘getting strayed’?
• If the adjacency opportunities are so obvious, why do most of the companies fail to identify them? I know it’s a common observation that many firms, especially larger ones, are limited in their tendency to exploit the abundance of lucrative opportunities that surface from within, but how to overcome this ‘cognitive inertia’?
• How to identify the true potential of adjacent markets, given that data is limited?
• When to press the ‘go’ button? and how to successfully transition into ‘adjacent territory’ without diluting the existing core (am assuming resources are limited and opportunity cost associated)?

Let me know what do you think?