The Signficance of Radical Adjacency
Radical adjacency is the most important change to corporate strategy in decades. It is wildly important but not just because it represents a significant change to the way companies envision their future. The importance lies in the remarkable success rate of its best exponents.
A simple definition:
A radical adjacency is an acquisition or market move that takes the buyer or executing company into areas where its management has no, or little, current experience.
A more detailed explanation would include the methods that companies use to achieve sucess with radical adjacency. In general they are the five pillars that we have documented in The Elastic Enterprise. Radical adjacency and elasticity are two sides of the same coin.
So what is radical adjacency and how does it work?
Chunka Mui and Paul Carroll point out, in Billion Dollar Business, the many ways that even simple adjacencies fail. Mui reiterates the point on his Forbes blog. A Bain study of 1,850 companies concluded that most sustained profitable growth does come when a company pushes its core business into an adjacent space. But 75 percent of companies that tried moving into adjacent markets, failed. Only 13 percent achieved “even a modest level of sustained and profitable growth.”
Yet what we are now witnessing is companies not just doing simple adjacencies. They are taking quite exceptional steps outside of their core and they are succeeding wildly. They are also doing it as if radical adjacencies are second nature.
Some examples of radical adjacency in action
NHN, the Korean search engine stepped easily into games and then microblogging as did China network company TenCent when stepping from IM to games to payment systems. Or BigPoint, the Germany gaming company that is in the throes of morphing from being an out and out game developer to being a top line distribution platform. Not to mention the exceptional radical adjacency successes of Apple and Amazon.com.
Or look at banker Francisco Gonzalez, CEO of BBVA. He began his working life in computing, switched to stockbroking where he founded his own company and then took on BBV as it was being primed for privatisation. Completely different roles, these are Francisco’s own personal adjacency moves. BBVA was until recently one of the few banks to weather the sub-prime crisis.
How radical adjacency works
Documenting how companies succeed with radical adjacency is one of the primary objectives of teh Elastic Enterprise. Adjacencies ar inherent to elassticity, the ability suscessfully to move in to and expand within new markets or to expand dramatically in existing markets. Elasticity and radical adjacency go hand-in-glove. Our observations to date are:
- Companies that succeed with radical adjacency have a strong business platform, that facilitates highly scaled interaction (TenCent has 700 million users), with a well worked out monetisation route or commerce engine.
- They will, generally speaking, have a strong business ecosystem – think about all the developers that contribute to the success of Apple, Android, and increasingly of Amazon.com.
- They will be experienced with universal connectors, mechanisms to construct highly scaled contractual relationships (think of all the writers whose work appears on Huffington Post via RSS).
- They will most likely be functioning in the Cloud and be drawing on numerous associated cloud services to make scaling fast, cheap and reversible, just like USAA did with Home Circle and Auto Circle.
- And their leadership is likely to come from diversified backgrounds and have a breadth of experience and knowledge to draw on.
Radical adjacency in other words is not only do-able and out there, it is also becoming more predictable. The pieces of the puzzle are becoming clearer. There are those five important pillars. We’d be interested in any examples you may have noticed of radical adjacency at work – there are failures out there too but we’re interested in companies that are showing there is a new and better way of doing business.