Looking to plan your company’s growth and don’t know which way to go? Use the Ansoff Matrix to opt for the right growth strategy for your business!
- What is the Ansoff Matrix useful?
- What are Ansoff Matrix’s 4 growth strategies?
- Who created the Ansoff Matrix?
- Why is the Ansoff Matrix useful?
What is the Ansoff Matrix?
The Ansoff Matrix is a strategic planning tool that provides a framework to help executives and managers devise strategies for future growth.
What are Ansoff Matrix’s 4 growth strategies?
The Ansoff Matrix also called the Product/Market Expansion Grid, is a method for measuring the profit potential of alternative product-market strategies.
Here are the 4 growth strategies: market penetration, market development, product development, diversification.
The Ansoff Matrix – Market penetration
Market penetration is an effort to increase company sales without departing from an original
product-market strategy.
The company seeks to improve business performance either by increasing the volume of sales to its present customers or by finding new customers for present products.
This growth strategy presents the least risk to a company because it focuses on existing products in existing markets.
The Ansoff Matrix – Market development
Market development is a strategy in which the company attempts to adapt its present product line (generally with some modification in the product characteristics) to new missions.
The market development growth strategy is somewhat less risky since it refers to existing products in new markets.
The Ansoff Matrix – Product development
A product development strategy, on the other hand, retains the present mission and develops
products that have new and different characteristics. These products will improve the performance of the mission.
This growth strategy is not as risky as diversification because it is easier to develop new products in a market the company already has.
The Ansoff Matrix – Diversification
Diversification is the fourth growth strategy and the riskiest. It calls for a simultaneous departure from the present product line and the present market structure.
Developing new products in new markets requires extensive research conducted by the company: market research, customer research, buying behaviour analysis, external influences on the market, business environment analysis etc.
A healthy company can take any of the above growth strategy paths to survive and thrive.
Or it can choose to pursue three of them simultaneously: market penetration, market development and product development.
Diversification is the most difficult growth strategy a company can implement.
While the other three require the same technical, financial and operational resources used for the original product line, diversification requires a distinct break with past business practices.
New skills, new technologies, new resources are needed in order to diversify. Diversification basically means starting a new business which entails organizational changes and other unforeseen challenges that management needs to address.
Two types of diversification
There are two types of diversification: related diversification and unrelated diversification.
In related diversification, the company develops a new line of products but remains in the same industry.
Toyota Company is a car manufacturer and a humanoid robots developer. The company has the knowledge and the resources in place (automated assembly lines) to develop both lines of products.
In unrelated diversification, the company develops products that are outside its original industry.
A good example is Tesla, the leading electric car manufacturer, which moved into spirits with the launch of Tesla Tequila, an exclusive, premium beverage.
Who created the Ansoff Matrix?
The tool was developed by Igor Ansoff known as the father of Strategic management.
Igor Ansoff was an applied mathematician and business manager who worked at Lockheed Aircraft Corporation where he became Vice President of Planning and Director of Diversification.
Following his tenure at Lockheed, Igor went into academia and was a Professor of Management at Owen Graduate School of Management.
In 1983 he joined the U.S. International University (USIU, now Alliant International University) where he created the school’s strategic management program.
He has consulted with hundreds of multinational corporations including, Philips, General Electric, and IBM.
To honour his body of work, the prestigious Igor Ansoff Award was established in 1981 in the Netherlands. The award is given for research and management in the study of Strategic Planning and Management.
Igor first described the matrix in Strategies for diversification, an article published in 1957 in the Harvard Business Review. The strategic planning tool was subsequently published by Igor in his book Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion (1965).
Why is the Ansoff Matrix useful?
The Ansoff Matrix is a highly useful strategic tool that allows executives, business developers and managers to make the right decision for the company growth-wise.
Here are the benefits of using the Ansoff Matrix:
- It helps executives analyse the risk involved while moving in a particular direction;
- It provides managers with a clear map of possible strategies for growth;
- This tool provides different options that managers can go with according to two variables: products and market;
- It helps marketers determine marketing strategies, planning activities and opportunity costs.
Sources: Strategies of Diversification (1957), AnsoffMatrix.com
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