The Strategic Planning Gap

The Strategic Planning Gap TDK blank CDs Figure 2.6 Ansoff’s Product-Market Expansion Grid Integration: backward - forward horizontal Diversification: related...samsung unrelated...walt disney The Growth of Starbucks GROWTH STRATEGIES THAT WORK midsize businesses managers do nothing more than distract themselves from the main job: getting the most out of their existing businesses. That takes people's eyes off the ball. …+ 15% to 20% per year, over the short term-by focusing on the untapped potential of seemingly mature businesses Whatever the industry, most companies with revenue of less than 750 millions don't have the financial or human resources to do everything at once. What can you make of the business you are in right now? Focus on mature activities - reinforce your foundation of operational excellence-high performance in all areas contributing to customer satisfaction: product quality, lead time, on time delivery, technical support. Fiberite, a producer of advanced composite materials for military and commercial planes, its value increased threefold . With a sequence of strategic priorities...formalize the process in a simple and logical "strategic pathway", one that can drive strategy development at most midsize companies. While it acknowledges the potential of new products and markets, it dictates that going after them should not be the first priority. I. protect your existing business II. penetrate further into existing market segments with existing products or upgrades III. extend the business by creating new products for existing segments or by entering new segments with existing products IV. diversify into new markets with new products 1. focus on what's going on in the SBUs Corporate strategy can guide acquisitions, divestitures, market and product development efforts outside the scope of individual SBUs but the importance of corporate strategy is often overrated. GE based its success more on initiatives such as Six Sigma and "Be nbr 1 or nbr 2 in an industry or get out" than on any overriding corporate strategy Operational excellence at the SBU level is fundamental for success. Y.T.D product quality reliability NOT IMPROVED customized design, improved lead time, comprehensive technical support Protecting What You Have If operational excellence is key to protecting your business, so is understanding - what you have, - why you have it - who's after it - how to keep it assuming it's worth keeping at all. One-Page Analysis. Competitor/segment matrix for evaluating market attractiveness and competitive position developed by McKinsey and GE in the 70s Include: - est. annual sales, for prev. year of each competitor in each segment. (use colors to show who is gaining and losing share ) - historical and projected growth rates and the company's current margin in each segment highlights where your base is threatened reveals unanticipated opportunities for growth within your existing businesses if managers underestimate market size and overestimate their company's share of it. Fiberite's Greenville division current product lines showed a potential for growth through improved operational performance that they had believed was only possible with the introduction of new products. SEGMENTATION: THE JAPANESE SECRET WEAPON ! Back to basics: market segmentation and competitive advantage. Define Segments Industrial manufacturers define them by the end-use industries for their products. Too crude a segmentation to uncover valuecreation opportunities and value-destruction threats. Ex: big customers always need technical support? They will often be a distinct segment from smaller customers that don't have the capabilities to solve their own technical problems. WHAT CAN WE MAKE OF OUR BUSINESS? ” Fiberite composite material you see inside a Boeing plane: cabin dividers, overhead luggage compartments, sidewall panels." Acquired 90% of the Boeing interiors: SOLUTION??? Acquire a company in another segment? (=horizontal integration?) NO! Boeing planes contain composite material that you don't see: floors and cargo-hold liners. Refine segmentation - subdivide interiors in 2 subsegments. - MKT much bigger than expected - competitors never heard of existed Pursuing greater mkt share made more sense than acquiring a company in a new segment! Knowing why you win Make a laundry weaknesses. list of strengths and Managers don't go beyond the obvious in putting the lists together: Customer relationships is on everybody's list... but personal relationships are an illusory strength: when buyers change, companies lose the accounts ! Lasting customer relationships are based on customers' satisfaction with what you deliver: consistently high-quality products + dependable, flexible and responsive service. Companies don't simply mischaracterize their strengths - they get them completely wrong ! Fiberite: strategy of product leadership, believing that technological improvements were why the company won business vs competitors…. Customers like Boeing didn‟t need or want product advancements. They wanted help using the products they already had. Get people close to the customer thinking: - salespeople - application engineers - folks from technical support and quality assurance. - if your company sells through representatives or distributors, bring them into the process as well! Discuss and test current beliefs and alternative hypotheses about the reasons for the company's success. Salespeople should report back on what customers value (factor in their tendency to highlight pricing or product features). Refine your market segmentation or you will tacitly and incorrectly assume that all customers value the same things. Fiberite restored the company's historically superior technical support, which had faltered because of budget cuts, and reduced lead times from 6/8 to 2 weeks. Knowing What's Worth Protecting most businesses are a long way from being all they can be, and they can usually benefit from operational improvements segment redefinition Fiberite's Greenville division fishing rods No subsgments golf clubs high-end (Calloway) low-end / discount stores. Taking Protective Action Different situations require different actions to protect the existing business. - Provide a defect-free product when the customer needs it. - Change prices - Modify your products - Shore up your critical skills - Negotiate long term contracts. Threat of substitute technology  develop or license new products or even acquire a company to fill a gap in your existing business. Direct contact by top SBU managers with important customers is a kfs Project One Step at a Time 2d NEW PRODUCTS NEW MARKETS RISK ???? 1st PROTECT ONLY SCENARIO (CURRENT BSNSS) CORP. FINANCIAL GOALS Present projections of annual sales and earnings separately for each step on the pathway: CORP. FIN. OBJECTIVES achievable w/out entering new product or segments? Don‟t cancel programs for new products or segments but be cautious in reaching ambitious financial goals with initiatives you don't need, particularly if those initiatives are high risk Each of the company's six divisions would be able to double sales and earnings within five years through internal growth. After improving operational excellence, increasing mgmt contact with customers, starting specific actions to protect the bsnss…we are ready for Moving Along the Strategic Pathway 1. Penetrate - Gain mkt share in segments you already serve and with products you already have (go to current, former, prospective customers) …NOW YOU KNOW: - which market segments are most attractive - which competitors are most vulnerable, why you win and why your rivals win COMPOSITE MATERIALS FOR SATELLITE: 2 WEEKS LEAD TIME 2. Extend. New products for existing customers or new customers for existing products. (bulk moulding compound for automotive bsnss) ACQUIRED A FRENCH PRODUCER OF BMC LOW RISK - NEW PRODUCT - EXISTING MKT ADJACENT MOVE At this stage, improving operational performance, so important to protecting your existing business, is of less direct importance. But if you haven't achieved that first, you'll have a shaky financial and organizational foundation for pursuing more adventurous strategies 3. Diversify. If done too early, earnings most likely won't grow. Fiberite bought the rights to a laminated fiberglass material, developed by an Italian shipbuilding company, that competed with steel as a material in ship construction. NEW PRODUCT + NEW MARKET 2 pillars. A) monthly operations reviews. B) a managerial style based on responsibility and trust. SBU, function or large project mgrs, present what that group did to meet the commitments it made at the previous month's meeting. Operating, not financial, data; this isn't a budget review. Take corrective action if required, intended action, name the person responsible and commit to a completion or milestone date. Monthly updates OK. The review also ensures direct, communication to and from the president or GM on a regular basis. In any organization, people consciously or unconsciously filter communication in both upward and downward directions. The Growth Crisis-and How to Escape It Just 10% of companies enjoyed 8 or more years of double digit growth between 1990 and 2000. THINGS ARE WORSE THAN EXPECTED! A UNIVERSE OF ‘HIDDEN ASSETS’ • traditional: brands + intellectual property • customer relationships: your reputation for expertise, your high level of customer interaction, your authority • strategic “real estate” - your strong market position and your place in the value chain to enter mkts quickly • networks - your installed product base, user communities, links with suppliers and 3d parties • information - your proprietary technical know-how, software systems valuable outside your company Stripping off the Growth Masks apparent strong growth with unsustainable, incremental moves: international expansion, acquisitions, or aggressive price increases …. NO steady growth OR slow pace from the core business . Int. mkts: EU + Japan as competitive and mature as the US. Emerging markets China: still small, characterized by weak consumer and industrial purchasing power, inefficient distribution channels, economic instability, and protectionist laws. 1 2 3 M&A in the 90s grew sevenfold from „94 to „99 $1.4 trillion Acquisitions rarely produce new value and often lead only to lay offs and disaster. Consolidation & antitrust concerns. Inflation of the „90s allowed price raises BUT in most industries demand decreased and competition has intensified so many businesses are concentrating on minimizing price declines. Aggressive and dubious accounting practices as in Enron‟s case boost reported revenues A) Many markets are saturated B) # of products exploded generating even more fragmented tiny markets (vanilla coke, cherry pepsi) = NO GROWTH C) slow innovation industries  largely undifferentiated in performance. Boeing vs Airbus Ford vs GM John Deere vs Caterpillar C) Product improvements aren't a source of long-term growth. The period of time to climb from 50% of their peak market value to the apex and then tumble back again as revenue growth stalls was just 3 to 5 yrs. Mkt data for each group represent an index of the companies’ stock prices A Succession of Bottle Rockets D) Development of entirely new products = unreliable source of growth. Sustained growth is rare or reveals a disturbing pattern: they experience a couple of years of spectacular market value growth followed by equally spectacular collapse. Most companies cannot offer investors a compelling vision of a 10 year run of robust growth ! Spotting Next-Generation Demand Overcome the limits of product-centric growth. HOW? Capitalize on "higher-order needs." they reflect customers' need to improve their overall economics, in which the product plays just one role Industrial products: Improve operational efficiency - maintenance support - remote monitoring - complete outsourcing Reduce risk - insurance or output guarantees 1990s: Johnson Controls SHIFT from assembling automobile seats (a commodity product), to providing automakers with integrated interior modules and, more recently, complete cockpits Solution: offer customers: specialized design - consumer research, testing, supplier mgmt. HIGH MARGIN & REVENUE: 7 VS 85 BLLN ! CONSUMER BSNSS TOO: SEARS GREAT INDOORS Improve ease and efficiency Home remodelling One source for flooring, lighting, kitchen bathroom accessories, appliances, curtains, furnishings design Financing construction and installation GOAL: GENERATE PROFIT! SO CHECK IF YOUR ASSETS CAN ADDRESS HIGH ORDER NEEDS! Johnson Controls hidden asset = the company's mkt position. Seating: the most valuable and complicated interior sub-system but also relatively self-contained and thus could be outsourced. Positioned to act as systems integrator: amortize its investments in new research and design skills more easily than smaller or peripheral players could. hidden assets alone are not sufficient to address higher order needs profitably ! Enhance the power of their existing asset base with ACQUISITIONS-PARTNERSHIPS-LICENSING Need to combine to create a unique and profitable strategic position tangible assets hidden assets acquired or licensed assets BUT owning the hidden assets can tip the balance in favor of a new business being both differentiated and profitable Benefits of Hidden assets 1. using them to address customers' higher-order needs reinforces, rather than cannibalize, the core product business on which they are based. By crafting a multidimensional connection with your customers, you're in a better position from which to sell your traditional products. 2. hidden assets often engender new assets that lead to more offerings. The more you use them, the more you have ! Establishing additional touch points with customers gives you more opportunities to understand-and solve-their problems. HIDDEN ASSETS THAT MEET HIGH ORDER CUSTOMER NEEDS HAS MORE POTENTIAL THAN INCREMENTAL GROWTH WITH PRODUCT AND BRAND EXTENSIONS BUT IS LESS RISKY THAN NEW PRODUCTS - NEW MKTS BECAUSE IT‟S BASED ON CURRENT PRODUCTS & MKTS Determining Your Core Growth A Universe of Hidden Assets Customer Relationships ….. allow delivery of new, more sophisticated offerings, less expensive to develop, and likely to be more readily accepted than your competitors'-typically at premium prices. REACH - CUSTOMER INTERACTION - INSIGHT AUTHORITY John Deere LANDSCAPING fragmented - multiple suppliers 2. integrate the purchasing process 3. develop services as consumer financing to improve the landscapers' business economics.  brand recognition  expertise in lawn care 1. enhanced this existing hidden asset with more traditional ones : it purchased the two biggest companies in the nursery products and irrigation products industries. 200 outlets, renamed John Deere Landscapes provide one-stop shopping for both landscaping and sprinkler products 4. ANCILLARY SERVICES: CREDIT PROGRAM TO FINANCE MAJOR PROJECTS. This builds stronger ties between contractors and customers; most purchasers of high-end landscaping services are excellent credit risks, the business is solidly profitable. Although entering this market required Deere to make a number of acquisitions, it required no additional investment in its relevant hidden asset: its authority with customers. Strategic Real Estate. Assets in this category relate to the position a company occupies within its industry: - a particularly strong market position - control of a portal through which others must pass to access information, products, or services. Cardinal Health  pharmaceutical distributor fragmented lowmargin business: deliver pills from Point A to Point B leveraged its value chain position to capitalize on the expertise, systems, and information gained in its oncerestrictive middleman role. Used it‟s value chain to link 26,000 retail pharmacies, hospital groups, managed care providers, and pharmaceutical manufacturers ENVIRONMENT hospitals + independent pharmacies DOWNSTREAM cost pressures -maintain quality care - increasingly complex body of patient and financial information 1. Using its distribution experience in inventory management and procurement, Cardinal began to host information systems for hospital pharmacies. 2. automated technology for ordering and dispensing medications and distributing them to hospital patients (reducing loss and theft, improving accuracy, and maximizing data capture) 3. developed a range of hospital pharmacy mgmt services: STAFFING & CONSULTING to complete outsourcing of the pharmaceutical function. 4. FRANCHISE option to independent retail pharmacists, offering them information systems mktg resources, and purchasing power 5. UPSTREAM specialized services for drug makers: customized packaging 6. reduced and linked manufacturing and distribution costs: enabled JIT replenishment and smaller inventories 7. aggregate demand for less common dosage forms, (freeze-dried tablets), from multiple pharmaceutical companies to achieve scale production advantages. Expanded its economic horizons beyond the pharmaceutical distribution market. Now it's a major player in a dramatically larger market-one that encompasses: - consulting - information technology - drug-packaging design and manufacture - pharmacy mgmt, and other health care services. * manages more pharmacies than all its competitors put together * handles prescription benefits for nearly 3 million individuals and provides automated drug deliveries to 4 million patients a day. Networks hidden assets are based on a company's extended set of enterprise relationships: third-party relationships with suppliers or channels strong user community that shares information and experiences access to a deal flow (info on coming mergers) Installed base Automakers few opportunities to interact with car owners repairs independent dealers Installed base GREAT HIDDEN ASSET ! GM: 80 MILLION VEHICLES !!! +5 MILLION PER YEAR recurring revenue as monthly subscriptions 70% cost advantage over an equivalent service that requires installation after the car is purchased. 2 million subscribers ! OnStar system - route-planning info - notification airbag is deployed - remote unlocking capabilities - remote engine diagnostics - customized financial, traffic, other info - concierge services…… - cellular telephone airtime - satellite-based digital radio service OnStar is now available in Acura, Lexus, Audi, and Subaru Information highly underutilized asset: information systems are expensive and time consuming to build, once the software has been written and the information captured, they can be reused at very low marginal cost. Included: - market window into the activity of a particular industry - proprietary technical know-how - internally developed software and systems that may have external value Hanover Compressor gas-equipment rental company that moves natural gas through production and distribution pipelines: made use of byproduct information to offer customers an unusual service. Start: - leveraging another hidden asset: its repeated interactions with customers to gain a clearer picture of customer needs. Expanded its offerings of gas production equipment and services: - took over the mgmt and maintenance of customers' pipeline-monitoring systems developing remote monitoring technology that provides a real-time picture of its customers' production systems, capturing a wealth of data about pipeline flows, gas impurities, processing down-times, and other industry metrics. New services address its customers' ultimate higherorder needs: cost predictability and risk minimization. Mkt share change in core bsnss: 20% to 40% Growth Outside the Core 75% of growth initiatives fail. How to generate sustained profitable growth? Expand their core business in adjacent space and in predictable, repeatable ways - into related markets where they can excel. focus on their core products, but sell them in new geographic regions, through new distribution channels, or to new customer segments They develop and apply a strict repeatability formula to these adjacency moves.This enables them to change one variable at a time and execute moves faster. …they 1995: Nike targets golf i. ii. 1999 The British Open Champion wore Nike's golf shoes 2000 Tiger Woods switched from Titleist golf balls to Nike iii. 2001 David Duval won his first major tournament just after switching to Nike golf clubs Formula for success • establish a leading position in athletic shoes in the target market • launch a clothing line endorsed by Tiger Woods (100 million $ deal) in 1996 - visibility to get traction in golf apparel and accessories. Expanding into new categories allows the company to forge new distribution channels and lock in suppliers. • market higher-margin equipment: irons, then drivers. • Nike moves beyond the U.S. market to global distribution. RULES FOR ADJACENCY MOVES I. Never pur your core business ar risk II. Make an adjacency move only if you expect to be among the top three players in the new space. III. Pursue One opportunity at a time. IV. Change one variable at a time. A. Segment customers (Dell) B. Grow share of wallet. (Amex) C. Mirror customer adjacencies (STM) A) The most sustained, profitable growth comes when a company pushes out the boundaries of its core business into an adjacent space. B) companies like Nike consistently, profitably outgrow their rivals by developing a formula for expanding those boundaries in predictable, repeatable ways Six Ways to Grow into an Adjacent Space (Excluded: growth through diversification - leads a company far away from its core business); also excluded inside-core growth moves, like accelerating innovation in R&D, investing in corporate ventures, and stepping up the company's metabolism by speeding up operations or hiring more salespeople) Six Ways to Grow into an Adjacent Space -EXPAND ALONG THE VALUE CHAIN one of the most difficult adjacency moves. De Beers extended its diamond business from wholesaling into retailing. - ADDRESS NEW CUSTOMER SEGMENTS often by modifying a proven product or technology. Charles Schwab expanded its advisory services for discount brokerage customers to target highnet worth individuals. - MOVE INTO „WHITE SPACE” - GROW NEW PRODUCTS / SERVICES IBM moved into global services, now 50% of the company's revenue and pretax profits. - USE NEW DISTRIBUTION CHANNELS EAS: minor changes in formulation, packaging, and celebrity sponsorship of its Myoplex sports bar and moved from a niche position in specialty nutrition stores to become the leader in its category selling to Wal Mart. - ENTER NEW GEOGRAPHIES Vodafone from UK to Europe, USA, Germany, and Japan. with a new business built around a strong capability.This is the rarest and most difficult adjacency move. American Airlines created Sabre, a spin-off worth more than the aitline itself. Sabre, in turn, went on to create a new business adjacency of its own in the online travel agent Travelocity. Olam (Nigeria): in ‟89 distributed one product in one country… in only 13 years became a $1.9 billion multinational business. cashews and shea nuts (karitè) poorly capitalized local exporters would sell forward contracts for commodities and simply default if the price turned unfavorable at delivery time. Olam created its own vehicles for hedging commodity price risks and foreign currency risks in currencies where there are no forward-exchange markets, offering a better security proposition to customers. Mars Planters This competitive advantage for Olam became the kernel of its repeatable formula Customers, recognized Olam's expertise in distribution so asked the company to handle cashew producers in Burkina Faso, Ivory Coast, Ghana, and Cameroon = adjacency move with little risk …after geographical expansion …changed commodity: coffee, cocoa, sesame Δ commodity supply chain geography channels CUSTOMERS DON‟T CHANGE! Olam controls most of the supply chain for existing products in the countries where it operates. Core business: trading Once a middleman, raw cashews, Moved into shelling and blanching cashews. Similarly, its strength as a trader of cocoa, coffee, cotton, and sesame enabled it to build businesses in hulling, sorting, and processing those crops change a single variable at a time FAILURES black pepper and rubber differences in industry regulations and trading norms across Africa and Asia Top 3 + 4 Criteria 1. the opportunity will allow Olam to function as supply chain manager, not simply as intermediary? 2. will the company be dealing in agricultural raw materials-the products it knows best? 3. will it be operating on the ground in emerging markets-the terrain it understands well? 4. Can it be in the top three in terms of global market share in that product? 5. have a physical presence in all the key processing countries 6. adjacency provides clear opportunities to expand into higher-value processing 7. new products must have strong end-market customers-big players willing to enter long-term contracts The Benefits Gained A) LEARNING CURVE EFFECT REPEATABLE MODEL ALLOWS REFINING AND SYSTEMATIZATION OF PROCESS (1ST TIME IS GUESSWORK) B) REDUCED COMPLEXITY P&G managed to consistently outperform its industry. "Complexity is the bane of a large organization” CREST: late90s 2 large adjacencies -teeth whitening and brushing: Crest Whitestrips and SpinBrush. Same Crest brand Same P&G marketing infrastructure Same channels ….and same set of customers. $200 million of new sales in one year. By holding other variables constant and changing one thing at a time, P&G reduces complexity, with adjacency moves one after the other without straining the system. The Benefits Gained C) Speed. MASTER FORMULA THEN START AND FINISH FASTER THAN COMPETITORS Vodafone collects high-potential properties in wireless communications, thanks to a rigorous formula for evaluating and acquiring regional cellular phone service companies: rapidly teasing out key criteria, mapping market boundaries, calculating the profit potential of future add-on services enabled Vodafone to snap up the number 1 or nbr 2 wireless players in quick succession in markets across Europe, North America, and parts of Asia, while competitors gave chase. D) Strategic Clarity: COMPAQ VS DELL COMPAQ failed to convince investors that its superscale growth rationale could work Dell's succeeded. IDENTIFYING AND EXECUTING A REPEATABLE FORMULA HAS STRATEGIC CLARITY: COMPELLING AND EASY TO UNDERSTAND Handicap for Reebok: undisciplined approach to growth. From one adjacency to the next without a clear plan. Positioned itself as a sports and performance company, not a fashion and fitness one; unrelated investments… while its core shoe business was under severe attack. Nike, meanwhile, was refining its repeatable formula. Sell shoes for 22 years  1985 basketball with Michael Jordan's endorsement  1986 John McEnroe  1990s, baseball, football, cycling, volley-ball, hiking, soccer, and then golf. Shoes drove the business, but increasingly Nike replicated its success with adjacency moves into apparel and hard goods. Nike increased its global mkt share from 22% in 1990 to 38% in 2002, four times the share of its nearest com-petitor. I) REPEATABILITY DOESN‟T HAPPEN OVERNIGHT Nike took a while to find its repeatable pattern. A repeatable formula for adjacency expansion is practically imitation proof. Reebok's efforts to duplicate Nike's "Air Jordan" halo, for instance, led to the "Shaq Attack" sneaker. But copying one move in Nike's pattern gave Reebok little traction, and by the time Reebok figured out Nike's game, Nike had pulled too far ahead to catch II) REPEATABILITY IS ABOUT STRATEGIC FOCUS Nike accomplished its expansion without displacing its core athletic shoe business. The company increased the strength of the original business, then drove that market power into new adjacencies just a step or two away from the core Get confidence to say no when the organization is stretched. Golf clubs may be too much even for Nike. In 2003 Tiger Woods seemed to think so. Sources of Repeatability ~ 8o% of successful adjacency formulas are built around insights about customer behavior Segmenting Customers on lifestyles - psychological motivations: MYTH: seen as the domain of marketers and ad agencies-useful for marketing campaigns but not as a lever of growth strategy. Not practical for allocating resources. REALITY: Structured properly customer segmentation becomes a seedbed of repeatable adjacency moves. Framework for analysising large scale investment decisions to pursue new adjacencies. A) Identify the lifetime value of each segment B) determine a company's mkt share within each C) rank the attractiveness of opportunities. new adjacency - enters one adjacency after another - communicates with end users regularly and feeds info into deep and detailed segments - subdivides segments again, making slight adjustments to its direct model to tap sources of new growth. Public sector: education - government Education: primary - secondary schools Higher education: colleges and universities. * Product focus changed in each segment * Rewired its salesforce training * Modified its salesforce cost structure * Prioritized segments and controled margins with precision. Competitive advantage is based not on volume alone, but on knowledge of its customers and ability to serve them efficiently. Growing Share of Wallet AMEX: repeatable formula based on selling related products to customers it knows. 1970s switch from checks to "plastic" : basic green and gold cards. 1980s assemble a "financial supermarket" of products around the core credit card business  7 acquisitions in 6 yrs: Shearson Loeb Rhodes in „81 - E.F. Hutton in „87. Size grew but profitability suffered and the stock price dropped by more than 50% from 1987 to 1991  top management was replaced. Strengthen the original core business of charge cards: Analyze the buying behavior reflected in millions of transactions per day. EXPAND individual consumers retail and everyday spending Individual travel business-travel corporate cardholders Create a family of cards with varied interest rates, terms, services, and reward programs...discovering: 4 repeatable formulas: - finding new customer segments - creating new, more precisely targeted charge and credit-card products (incl. reward programs) - expand the types of merchants where cardholders can use their cards - additional services to existing card customers. LAUNCH NEW PRODUCTS: CHECK MKT DATA TO SEE IF CURRENT BUYING BEHAVIOUR SUPPORTS THE MOVE. "We're often serving the same customers," ... "They just might be in different segments depending on whether they are at work, on vacation, or shopping on the weekend." Mirroring Customer Adjacencies. Uncover opportunities by tracking NOKIA NEW customers' expansion plans and FUNCTIONS WITH LOW anticipating their needs BATTERY CONSUMPTION USED KNOWLEDGE IN POWER MGMT FOR MICROPROCESSORS TO SUPPORT NOKIA CUSTOMERS IN THE COMPUTER IND. EXPANDED IN DISK DRIVES, PRINTERS, MONITORS MKT IGNORED BY INTEL ADAPTED ITS LOGIC CHIPS BECOMING THE LEADING SUPPLYER TO COMP. PERIPHERAL Cos. > 95% of ST's R&D bgt to develop new capabilities for existing customers, rather than making bets on future technologies that look generally promising. 2 Key principles 1. adjacency expansion succeeds only when built around strong core businesses that have potential for leadership economics. 2. the best place to look for adjacency opportunities is inside a company's strongest customers.