Ansoff Matrix & Growth

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Ansoff Matrix
• The famous management expert, Igor Ansoff provided a roadmap
for firms to grow depending on whether they are launching new
products or entering new markets or a combination of these
options.

• This roadmap has been presented in the form of a Matrix that has
four quadrants with the axes of products and markets being the
determinants of the strategies.

• The four quadrants pertain to increasing market share

through market penetration, venturing into new markets with the
existing products or market development, and launching new
products in existing markets with product development, and
finally, diversification when firms seek to enter new markets with
new products.
Market Penetration
• Market penetration happens when the existing products are marketed in
a way to increase the market share of the firm.
Marketing
• This is a minimal risk strategy as all that a firm has to do is to increase its Efforts
marketing efforts and improve on its market share. Market Minimal
• In other words, the firm has to ensure that it leverages the current Share risk
capabilities, resources, and gears towards a growth-oriented strategy.
Growth strategy

• However, market penetration has its limitations and these manifest when Market
the market is saturated and hence, growth diminishes for the products. Penetration

• Examples of market penetration would include the Television Channels

and Media Houses trying to maintain their existing features in the
existing markets and ensuring that they grow because of the growth in
the size of the market or because they have provided a value proposition
that is better than their competitors are.
Market Development
• When firms seek to expand into new markets with their existing products, market
development happens.

• This is suitable for firms that have the capabilities and the resources to enter new Growth
markets in pursuit of growth.
Core
• Further, the firm’s core competencies must be aligned with the products rather than New Market
Competency
the markets and wherein the firm senses an opportunity in the new markets for its
existing products.
Market
• Market development is more risky than market penetration as the firm is entering Development

uncharted waters and therefore, it is in the interests of the firms to do their due
diligence before entering new markets.

• Examples of market development would be the mobile telephony companies like

Vodafone and Nokia entering African markets where these markets are yet to be
tapped and where these firms can leverage their existing expertise to enter these
markets.
 Product Development
• When firms seek to launch new products in existing markets, product
development happens.

• This strategy can be successful when the firms have already established
Leverage
brand
themselves in the existing markets and all that they need to do is to launch name
new products, which leverage the brand image and the brand value and meet New
Risky
the expectations of the customers in the existing markets. Product
• For instance, whenever consumer giants like Unilever and Proctor and Gamble
Product
(P&G) launch new products in existing markets, they have the advantage of a Development
strong brand value and top of the mind recall among the customers about
them, which would help them to garner market share.

• When compared to the previous two strategies, this strategy is more risky as it
is not sure whether the transfer of customers from the existing products to
the new products would happen as seamlessly as the firms strategists believe.
Diversification
• When firms launch new products in new markets, diversification happens which
entails both new products to be developed and new markets to be tapped.
New
• This is the most risky of the four quadrant strategies in the Ansoff Matrix as
Market
essentially the firms are not only testing the waters in uncharted territory but New
High
they are also launching new products that may or may not be well received by Produc
Risk
the customers. t
• Examples of diversification would include companies like Reliance venturing
Diversification
into mobile telephony and retail segments where they not only have to move
away from their core competencies but also have to launch new products
targeted at the new customer segment.

• Management experts recommend diversification only when the firms are sitting
on enough cash and other resources, as the firms need to have deep pockets to
stay the course until the time profits are realized.
Food for Thought
• It is imperative for firms to grow as otherwise their resources would not generate the returns needed
for the firms to make profits as well as deliver value to their shareholders.

• Moreover, firms need to continually look for ways and means to increase their market share, which
would help them create value for their stakeholders.

• This is the reason why the Ansoff Matrix has become so popular because it charts the strategies that
the firms must follow in each option, which again is a combination of the firms’ current capabilities,
and the possibility of new market led growth.
Diversification as a Viable Corporate Strategy
Types of Diversification

Concentric
Diversification
• Diversification is one of the strategies pursued by
firms wishing to grow in newer markets and by Horizontal
launching newer products. Diversification

Conglomerate
Diversification
Concentric Diversification
• The first type of diversification is concentric diversification wherein the firms ensure that there is a technological
similarity between its existing core competencies and the newer product lines.

• Indeed, this type of diversification is aimed at leveraging the existing competencies and expertise and which is aligned
with its resources and capabilities.

• In this type of diversification, firms typically launch additions to their product lines and at the same time target newer
market segments.

• The idea here is to ensure that their brand image and brand loyalty are transferred to the newer products.

• Further, this type of diversification is sometimes not done strictly to target newer market segments but ensure that the
untapped market segments are targeted.

• Examples of this would be launching Tablet computers by companies like Apple and Samsung, which are already present
in the Smartphone market.
Horizontal Diversification
• This type of diversification happens when firms tag on to the existing market segments and leverage the existing
customer base though the products that they launch are aimed at sub segments in the current market.

• This type of diversification is usually followed when the firms launch newer products that have some relation to
the existing products but at the same time, the firm is entering a new business.

• This new business can be related or unrelated to the current businesses in which the firm operates and the idea
here is to ensure that the existing customers transfer their loyalties to the new product lines.

• Lest this sounds confusing, it needs to be noted that horizontal diversification as the name implies is all about
entering newer market segments and launching newer products on the “same plane” horizontally which means
that there is little alignment unlike vertical integration and concentric diversification.
Conglomerate Diversification
• The third type of diversification or conglomerate diversification is completely different from the previously discussed
strategies as this type of diversification is a strategy where conglomerates launch entirely new product lines that have
no alignment with their existing resources and capabilities and enter completely new markets where they do not have a
presence.

• For instance, Reliance, which ventured into Retail and Mobile Telephony, is an example of a conglomerate diversification.

• The sole intention is to leverage the positive brand image and the existing brand loyalty in its existing market segments
as this firm has launched entirely new products unrelated to its core competencies and entered newer market segments
where it has no presence at all.

• This type of diversification is the most risky of the three types discussed, though if the firm is successful, then it can aim
for further diversification, which is indeed a profitable, and growth oriented strategy.
Risks with Diversification
• Diversification has become necessary in the current global economic system wherein firms are forced to look for
new markets and launch new products.

• Having said that, it must be noted that diversification is a risky strategy as it entails embracing uncertainty and
unfamiliarity.

• Further, the firms are entering into uncharted territory and hence, they need to have a good compass of where
they are headed if they are to successfully navigate the choppy and the tricky waters of the new markets and
new products.

• As has been emphasized earlier, firms must choose diversification carefully and even Igor Ansoff who proposed
this strategy in his Ansoff Matrix has pointed to diversification being the most risky of the four types of strategies.
Organic Growth
• Organic growth in management parlance refers to the growth of a company that occurs naturally. In
other words, if a company grows through increased revenues and increased profitability on its own
without resorting to mergers and acquisitions, then it is known to grow organically.

• For instance, companies like Infosys are known to shun mergers and acquisitions and instead,
concentrate on growing through expansion its business.

• The main advantage of organic growth is that it helps companies focus on their core competencies and
avoid the traps of cultural clash and differing value systems that happens when two firms merge.

• Apart from this, organic growth is natural as mentioned earlier which means that the management of
the company can feel comfortable about the growth prospects by doing what they are good at.
Inorganic Growth
• On the other hand, inorganic growth refers to the expansion of the bottom line through mergers and acquisitions.

• The main advantage of inorganic growth is that it helps companies with large cash reserves to invest them in productive
mergers and acquisitions that help the bottom line of the company.

• Apart from this, companies in distress can benefit through inorganic growth as a more successful company can bid for it
and help both companies in the process.

• Further, inorganic growth helps in consolidation of similar strategic imperatives and business drivers. Of course, when a
company grows inorganic it has to go through all the joys and perils that mergers entail in a way that is similar to how
couples go through when they get married.

• On a serious note, inorganic growth helps companies beat the downturn as was evident in the recent merger between
American Airlines and US Airways.
Which is Preferable?
• The answer to the question as to which kind of growth is preferable depends on the strategic intent of the
companies involved.

• If the driver of strategy is increased market share alone, then inorganic growth makes sense. On the other
hand, if operational imperatives are involved, inorganic growth leads to friction and mismatch between
organizational cultures between the two companies.

• Apart from this, when the objective is to keep the two companies distinct and the merger is only to
consolidate operations, there is a chance that inorganic growth might work.

• Finally, organic growth helps the organizational identity whereas when companies grow inorganically, there is
the possibility of the merged organization losing its identity.
Let’s apply this knowledge on Game for
Growth…