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diff --git a/content/blog/2019-12-03-the-ansoff-matrix.md b/content/blog/2019-12-03-the-ansoff-matrix.md new file mode 100644 index 0000000..5e8fe05 --- /dev/null +++ b/content/blog/2019-12-03-the-ansoff-matrix.md @@ -0,0 +1,205 @@ ++++ +date = 2019-12-03 +title = "The Ansoff Matrix" +description = "Learn about the Ansoff Matrix, a strategic management tool." ++++ + +# 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"[^1]. + +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[^2]. 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[^3]. + +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. + + + +# 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[^4]. 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[^5]. 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"[^6]. + +## Product Development + +Product development uses existing markets to introduce new products so +that the firm can better meet customer needs[^7]. 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[^8]. 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[^9]. + +## 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[^10]. + +## 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. + +# Footnotes + +[^1]: + ```example + Dess, G. G., McNamara, G., Eisner, A. B., Lee, S. H. (2019). Strategic + ``` + + management: Text & cases, ninth edition. New York, NY: McGraw-Hill + Education. + +[^2]: + ```example + Juneja, P. (n.d.). Benefits of strategic management. Management Study + ``` + + Guide. Retrieved from + <https://www.managementstudyguide.com/strategic-management-benefits.htm>. + +[^3]: + ```example + Meldrum M., McDonald M. (1995) The Ansoff matrix. In: Key Marketing + ``` + + Concepts. London: Palgrave. + +[^4]: + ```example + Meldrum M., McDonald M. (1995) The Ansoff matrix. In: Key Marketing + ``` + + Concepts. London: Palgrave. + +[^5]: + ```example + Oakley, T. (2015). Coca-Cola: The Ansoff matrix. The Marketing Agenda. + ``` + + Retrieved from + <https://themarketingagenda.com/2015/03/28/coca-cola-ansoff-matrix/>. + +[^6]: + ```example + Oakley, T. (2015). Coca-Cola: The Ansoff matrix. The Marketing Agenda. + ``` + + Retrieved from + <https://themarketingagenda.com/2015/03/28/coca-cola-ansoff-matrix/>. + +[^7]: + ```example + Oakley, T. (2015). Coca-Cola: The Ansoff matrix. The Marketing Agenda. + ``` + + Retrieved from + <https://themarketingagenda.com/2015/03/28/coca-cola-ansoff-matrix/>. + +[^8]: + ```example + Lemke, T. (2019). The most diversified companies in the stock market. The + ``` + + balance. Retrieved from + <https://www.thebalance.com/the-most-diversified-companies-in-the-stock-market-4169730>. + +[^9]: + ```example + Johnson & Johnson. (2018). 2018 Investor Fact Sheet. [PDF file]. Retrieved + ``` + + from + [http://www.investor.jnj.com/_document/2018-investor-fact-sheet-4-19'id=0000016a-5681-d475-a17f-d78db54a0000](http://www.investor.jnj.com/\_document/2018-investor-fact-sheet-4-19'id=0000016a-5681-d475-a17f-d78db54a0000). + +[^10]: + ```example + Oakley, T. (2015). Coca-Cola: The Ansoff matrix. The Marketing Agenda. + ``` + + Retrieved from + <https://themarketingagenda.com/2015/03/28/coca-cola-ansoff-matrix/>. |