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diff --git a/content/blog/2019-12-03-the-ansoff-matrix.org b/content/blog/2019-12-03-the-ansoff-matrix.org index a9eac0e..fe97830 100644 --- a/content/blog/2019-12-03-the-ansoff-matrix.org +++ b/content/blog/2019-12-03-the-ansoff-matrix.org @@ -5,118 +5,106 @@ * 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 -[[https://en.wikipedia.org/wiki/Ansoff_matrix][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. +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 [[https://en.wikipedia.org/wiki/Ansoff_matrix][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. * 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. +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). +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). +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). +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. +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 -[[https://en.wikipedia.org/wiki/Analysis_paralysis][paralysis by -analysis]] 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. +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 [[https://en.wikipedia.org/wiki/Analysis_paralysis][paralysis by analysis]] 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. |