ACADEMIC ARTICLE

CORPORATE LENDING
By Tony Dennant
Is the Ansoff Growth Matrix the answer in a lending scenario?
When considering a corporate lending proposition such as that in Question 1 of the
Corporate Lending exam paper, there are a number of models or structures that can
assist the analysis. These could include Porter’s Five Forces, SWOT analysis and
PESTEL, and these are all very valid tools to assist the analysis of the proposition.
This article looks at one of the less-used models – the Ansoff Growth Matrix – and
considers how suitable it is within a lending proposition.

What is the Ansoff Growth Matrix?

The matrix has been written about in a number of articles and texts since Ansoff’s
article ‘Strategies for Diversification’ was first published in the Harvard Business
Review (1957).
There are a number of visual representations of the framework, such as below:

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 Corporate Lending Academic Article – May 2016

The matrix identifies four growth strategies that a firm could follow:
• Market penetration – where within the existing markets, the firm looks for
further product penetration that will increase its market share on the same
product or service.
• Market development – where the firm sells its existing products or services
into new market segments and/or geographical regions.
• Product development – where the firm develops new products and/or
services in its existing markets.
• Diversification – where the firm looks at growing into both new products or
services, and new markets.

Applying the model

The matrix is obviously a theoretical one, although based upon Ansoff’s extensive
experience, and the key for a lender is how the application of the model can support
the analysis of any proposition.
Its main use will be in considering the key questions that the model raises when
applying it to a case study or lending proposition. These questions and the firm’s
responses will also assist the lender in understanding the risks associated with the
lending proposition.
It is this analysis and interpretation that will bring the matrix to life and make it as
applicable as a Porter’s Five Forces’ analysis or similar. All of the analysis will
obviously be dependent on the actual case study or lending proposition that is being
assessed, but general questions could include the following.
Market penetration:
• Increasing the existing share in the existing market to facilitate growth is
potentially considered the first strategic option for a firm, as it is the market it
already knows best.
• The firm will understand the market and also the competition within that
market and may therefore be well positioned to take advantage of any growth
opportunities.
• Market penetration, for the reasons given above, is often considered the
lowest-risk method to grow the business, although there are of course always
some risks.
Market development:
• The benefit of this strategy is that the firm already supplies the product or
service so it is not new to it, but moving into new markets can be risky.
• Taking a successful domestic product into an overseas market can be
challenging – for example, issues such as potential exchange-rate
fluctuations, political interference or even simply the logistical issues of
getting the product or service to market.

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 Corporate Lending Academic Article – May 2016

• The product or service could also be targeted on a different customer

segment in the same market, but again there are potential risks with new
buyers and their buying behaviour.
Product development:
• Product development by offering new products or modifying existing products
into their existing markets is again a strategic option.
• The positive is that the marketplace is known to the firm and there will be
existing routes to market for the firm.
• The risk here is in regard to the product – if it is a new product, then the
questions will be around whether there is demand for it and whether it can
compete on price/quality in the marketplace. The research and development
activity undertaken by the firm will need to be validated.
Diversification:
• This is generally considered the riskiest of strategies for new products in new
markets, with obvious risks associated with both.
• The rewards for the firm can, however, be higher if the products are
appropriate and the market research is correct.
• As a lender, this would need to be clearly justified to make the risk one worth
taking.

Summary
The matrix clearly has a place in the lending analysis of a proposition, but it is likely
to be a complementary one in addition to other tools such as Porter’s Five Forces,
SWOT, PESTEL, etc.
The matrix is particularly useful for reviewing the business strategies of the firm that
is requesting the lender’s support for expansion or growth.
The analysis may cover some key strategic questions for the business, including:
• Which business/market is the firm in and which business/market does it
intend to be in? How will the proposed lending assist in achieving this aim?
• What are the firm’s specific products/services that give it a competitive
advantage and where will it look to sell these?
• Which of Ansoff’s options for growth is the firm intending to use and is it
justified?
• With each of the questions above, what are the risks and the potential
rewards – and are they likely to lead to the success anticipated?
• Finally, does the strategy chosen fit with the firm – for example, do they have
the skills and expertise to deliver the growth strategy?

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Reference
Ansoff, I. (1957) Strategies for Diversification. Harvard Business Review, 35 (5),
Sep–Oct 1957, p113–124.

Further reading
Cilley, J. (2011) A Road Map for Growing Your Business. Business NH Magazine,
Oct 2011, 28 (10), preceding p32–32, EBSCOhost: Business Source Corporate Plus
[online]. Available through ifs KnowledgeBank website at:
http://search.ebscohost.com/login.aspx?direct=true&AuthType=url&db=plh&AN=668
19385&site=ehost-live [Accessed: 6 May 2016].
Richardson, M. and Evans, C. (2007) Strategy in action applying Ansoff's Matrix.
British Journal of Administrative Management, Summer 2007, 59, pi-iii, EBSCOhost:
Business Source Corporate Plus [online]. Available through ifs KnowledgeBank
website at:
http://search.ebscohost.com/login.aspx?direct=true&AuthType=url&db=plh&AN=270
19121&site=ehost-live [Accessed: 6 May 2016].

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