Adjacent innovation refers to expanding a company’s existing products, services, or capabilities into new areas closely related to its core business. It lies between core innovation, which involves improving existing offerings, and transformational innovation, which explores entirely new markets or technologies.
Adjacent innovation allows companies to leverage their existing expertise, resources, and market presence while entering new spaces with lower risk than transformational ventures. Companies can grow sustainably and diversify their revenue streams by making incremental expansions—such as modifying an existing product for a new market or adding new features to appeal to a broader customer base. This approach often serves as a bridge, helping businesses stay competitive without veering too far from their strengths.
Benefits of Adjacent Innovation
Adjacent innovation allows businesses to expand into new but related markets, leveraging their existing strengths to fuel sustainable growth. Companies can reduce risks while exploring new opportunities by capitalizing on familiar products, services, or expertise.
Risk Mitigation
Adjacent innovation has less risk than radical or transformational innovation. Since companies are expanding into areas closely related to their core business, they can leverage their existing knowledge, customer base, and capabilities. This familiarity helps minimize uncertainties and allows companies to test new markets or products with a safety net of proven experience.
Sustainable Growth
Instead of relying solely on incremental improvements or entering new markets at high risk, businesses can gradually expand their offerings. By introducing variations of current products or services to new customer segments or regions, companies diversify their revenue streams and reduce reliance on any one market.
Enhanced Market Reach
With adjacent innovation, businesses can extend their market reach without the steep learning curve of entering entirely new sectors. By modifying existing products or services, companies can cater to adjacent markets or new customer demographics. This incremental expansion helps them capture additional market share, increase brand visibility, and improve customer loyalty.
Leverage of Existing Resources
A significant benefit of adjacent innovation is that it allows companies to maximize the use of their current resources—technology, intellectual property, or skilled labor. Organizations can innovate without significant additional investment by adapting or repurposing what they already have. This efficient use of resources leads to cost-effective innovation while opening new growth avenues.
How Adjacent Innovation Relation to Other Innovations
Adjacent innovation is a key component of a comprehensive innovation strategy. It allows businesses to explore growth with manageable risks while leveraging existing strengths.
Core Innovation And Adjacent Innovation
Adjacent innovation builds on the foundation of core innovation, which focuses on improving existing products or services within the company’s current market. While core innovation involves incremental changes to enhance what the company already offers, adjacent innovation takes these enhancements further by adapting them for new markets or customer segments. It’s essentially an extension of core innovation, pushing the company into new adjacent spaces that are still related to the core business.
Transformational Innovation And Adjacent Innovation
Adjacent innovation acts as a middle ground between core and transformational innovation. Transformational innovation is much more radical, involving new products, services, or markets that often redefine the business. Adjacent innovation, by contrast, offers a safer route to growth by expanding into familiar territory. It allows companies to explore new opportunities without the high risks of completely uncharted markets.
Incremental and Disruptive Innovation Relation with Adjacent Innovation
Incremental innovation focuses on small, continuous improvements to existing offerings, whereas disruptive innovation seeks to upend traditional markets with groundbreaking ideas. Adjacent innovation finds a balance by introducing new features or targeting new markets connected to existing ones. It offers innovation without the drastic shifts of disruption but still provides more substantial growth than incremental improvements alone.
Examples of Adjacent Innovation
Here are some examples of Adjacent Innovation:
Amazon Web Services (AWS)
Originally an online retailer, Amazon expanded into the cloud computing industry with Amazon Web Services (AWS). This is a classic example of adjacent innovation because it leveraged Amazon’s existing infrastructure expertise, developed for managing its massive e-commerce operations, and applied it to a new market—cloud computing. AWS has become one of Amazon’s most significant revenue streams, far beyond its original e-commerce roots.
LEGO’s Move into Video Games
LEGO, traditionally known for its physical construction toys, expanded into the digital world by creating LEGO video games. This adjacent innovation allowed LEGO to tap into the growing gaming industry while leveraging its strong brand and the creativity associated with its products. By entering an adjoining market, LEGO has stayed relevant to a new generation of consumers, extending its influence beyond traditional toy manufacturing.
Starbucks Ready-to-Drink Beverages
Starbucks, known for its coffee shops, ventured into adjacent innovation by offering ready-to-drink bottled beverages in grocery stores and supermarkets. This allowed Starbucks to leverage its brand and expertise in coffee while reaching customers outside its traditional café setting. This move extended its reach to new consumer segments and distribution channels, diversifying its business.
Conclusion
Adjacent innovation is a powerful strategy allowing businesses to explore new markets and opportunities while leveraging their strengths.
By expanding into areas closely related to their core products or services, companies can grow sustainably and diversify their offerings with lower risk than pursuing transformational innovation.
Over the long run, adjacent innovation helps businesses stay competitive by tapping into new customer segments, enhancing market reach, and maximizing the use of existing resources.
