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+date = 2019-12-03
+title = "The Ansoff Matrix"
+description = ""
+draft = false
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+
+# Overview
+
+As the world of business evolves, managers must approach business
+planning and strategy with a contemporary mindset. According to Dess,
+McNamara, Eisner, and Lee, managers must be willing to adapt to the
+modern business environment by going beyond \"\'incremental
+management\', whereby they view their job as making a series of small,
+minor changes to improve the efficiency of the firm\'s
+operations\"(2019).
+
+One reason that strategic management is crucial is because most
+businesses that fail in the United States each year fail due to a lack
+of strategic focus or direction(2019). The rate of failure for
+businesses with poor strategies shows that strategic planning and
+management are crucial to a business\'s strength and longevity,
+injecting the critical factors of growth and direction into a company\'s
+business plan.
+
+One of the most significant strategic planning and management frameworks
+that companies can use is the [Ansoff
+Matrix](https://en.wikipedia.org/wiki/Ansoff_matrix). While this
+framework has unique purposes and use-cases, it can effectively help an
+organization grow and compete. Specifically, the Ansoff matrix is one of
+the most effective frameworks for companies who want to focus on
+increasing sales revenue or profitability(2019).
+
+This framework uses a two-by-two figure to show the four strategic
+options for companies to use in this framework: market penetration,
+market development, product development, and diversification (see
+**Figure 1**). The x-axis of the matrix focuses on the firm\'s markets
+and also determines if the firm is looking to enter new markets or
+innovate in its current markets. The y-axis of the matrix focuses on the
+firm\'s products and determines if the firm wants to pursue strategies
+around their existing products or explore new products.
+
+![The Ansoff Matrix by JaisonAbeySabu, Own work, CC BY-SA
+3.0](https://img.cleberg.net/blog/20191203-the-ansoff-matrix/ansoff_matrix-min.png)
+
+# Strategic Options
+
+## Market Penetration
+
+The most straightforward strategy in the Ansoff matrix is to focus on
+existing products in existing markets, also known as market
+penetration(2019). Companies such as Coca-Cola have used market
+penetration successfully by investing a lot of money to get further
+value out of their current markets. Coca-Cola does this by introducing
+new features such as Christmas-themed bottles, personal names on the
+bottles, and other marketing schemes.
+
+## Market Development
+
+Market development extends existing products into new markets in an
+attempt to increase the number of buyers. One interesting way that
+Coca-Cola used this strategy comes from the stigma that Diet Coke is a
+woman\'s drink(2019). Coca-Cola introduced Coca-Cola Zero, which
+contained the same nutritional content as Diet Coke, but was packaged in
+a dark black can to appear more \"manly\"(2019).
+
+## Product Development
+
+Product development uses existing markets to introduce new products so
+that the firm can better meet customer needs(2019). The extreme end of
+diversification is home to companies such as Johnson & Johnson, a
+healthcare company that has developed a business portfolio of more than
+60,000 different products(2019). Johnson & Johnson\'s dedication to
+continuous diversification has led them to a balance sheet rating of
+\"AAA\", industry recognition for diversification, and increases in
+their investor dividends for 57 consecutive years(2019).
+
+## Related Diversification
+
+Diversification, the final strategy of the Ansoff Matrix, is more
+difficult than the others since it involves exploring both new markets
+and new products. Related diversification is a diversification strategy
+that closely relates to the firm\'s core business. Coca-Cola\'s best
+example of related diversification is its acquisition of Glaceau and
+Vitamin Water, which expanded their drinking lines of business(2019).
+
+## Unrelated Diversification
+
+Unrelated diversification is a diversification strategy that does not
+really relate to the firm\'s core business but still diversifies their
+business portfolio. A good example of this would be a coffee company who
+has decided to enter the market for bicycle sales. The main purpose of
+this strategy is to an extremely diverse company that will not go
+bankrupt if one market goes through difficult times. However, this
+requires a lot of independent skills and heavy investments since the
+company most likely cannot easily transfer knowledge between the markets
+they compete in.
+
+# Requirements for Success
+
+To use the Ansoff Matrix framework, managers need to formulate corporate
+goals and objectives. Without goals and direction, management frameworks
+do not present much practical utility. Further, the Ansoff Matrix
+requires the managers involved to make tactical decisions and create a
+path for the company to take toward their goals. Lastly, both the Ansoff
+Matrix needs to consider both internal and external perspectives
+throughout the strategy formulation process.
+
+One interesting probability is that companies will be using multiple
+strategic planning and management frameworks at the same time. While
+this may sound like it could crowd the management process, there are
+numerous reasons to do so. For example, the Ansoff Matrix and the
+Balanced Scorecard are relatively popular, and they cover entirely
+different parts of a company\'s strategy. Using the results from the
+Balanced Scorecard could inform a company of the potential product and
+market demands, such as from customer or supplier survey results, to
+help the company determine which Ansoff Matrix strategy to pursue.
+However, a combined approach at this level would require mature
+frameworks and focused managers who are able to strategize at a high
+level.
+
+Lastly, it should be noted that the author of the Ansoff matrix, Igor
+Ansoff, often used the term [paralysis by
+analysis](https://en.wikipedia.org/wiki/Analysis_paralysis) to explain
+the mistake of companies who overuse analysis and spend too much time
+planning. Companies need to understand the utility of a strategic
+management framework while ensuring that the company is poised to
+execute as efficiently as they have planned.