The allure is undeniable. For companies with stagnating core businesses, it is tempting to stretch into new markets to invigorate growth. Stretch strategy has worked for high-tech titans such as Google, Apple, and Cisco, and also for firms in more prosaic industries such as BMW, Whirlpool, and UnitedHealth.
Yet there are also countless examples of moves into adjacent businesses going awry. How can companies assess their strengths and odds of success?
From a strategic perspective, six factors — in rough order of attractiveness — impact whether firms should consider moves into adjacent businesses:
Adjacent businesses offering new markets are a powerful way to grow, but they must be handled with care. When considering a stretch strategy, ask questions such as:
Don’t be half-pregnant. While the adjacent businesses must be funded cautiously, much as a venture capitalist would, give them the latitude they need to compete vs. the start-ups who will inevitably be rivals.
Above all, stay mindful of why your company makes the best corporate parent for the new venture. Adjacencies are excellent avenues for new growth, but drive with open eyes.
Story by Steve Wunker.