Expanding into Adjacencies is Risky, But Risks Must be Taken

When firms look for growth in slow-growth businesses, one obvious option is to seek adjacent roles in the ecosystem. The other common routes to “diversify” are to add new customer segments, new roles for existing products, new products, distribution channels or geographies. 

It never is especially easy, as analysts note that the odds of success decrease as firms move further away from their present “core” competencies and roles. 

source: Harvard Business Review 

The same holds for internal reform of organizations. Consider a study by McKinsey on successful organizational change. That study suggests that about 26 percent of all attempted organizational transformations succeed, whether or not change agents have taken at least 24 discrete actions in support of the change. In that study, the suggested actions are not necessarily the same as approval hurdles. But the principle is likely at work.

source: McKinsey

This should not come as a surprise. All proposed internal changes encounter resistance. Management experts sometimes note that the chances of any successful organizational change are somewhat slim, and more difficult as the number of approvals grows. 

source: Purdue University

If you have ever spent time and effort trying to create something new in the communications business, you know it rarely is easy, simple or uncomplicated to do so, and the larger the organization you work for, the harder it seems to be. That is because all organizational change involves power and politics, and changes will be resisted.  

You might be familiar with the rule of thumb that 70 percent of organizational change programs fail, in part or completely. 

There is a reason for that experience. Assume you propose some change that requires just two approvals to proceed, with the odds of approval at 50 percent for each step. The odds of getting “yes” decisions in a two-step process are about 25 percent (.5x.5=.25). 

source: John Troller 

The odds of success get longer for any change process that actually requires multiple approvals. Assume there are five sets of approvals. Assume your odds of success are high--about 66 percent--at each stage. In that case, your odds of success are about one in eight for any change that requires five key approvals (.66x.66x.66x.66x.66=82/243). 

You might argue the difficulty of change means firms should not try to change. That might work in stable industries, for stable firms, when demand is constant and profit margins are reasonable.

But connectivity firms do not work in that environment. There essentially is no option to “do nothing.” All legacy product lines are shrinking and must be replaced. So the risk of change must be taken.