Introduction to the Ansoff Matrix
The Ansoff Matrix, or Ansoff Box, is a business analysis technique that provides a framework enabling growth opportunities to be identified. It can help you consider the implications of growing the business through existing or new products and in existing or new markets. Each of these growth options draws on both internal and external influences, investigations, and analysis that are then worked into alternative strategies.
The SWOT analysis serves to identify the strengths and weaknesses of your organization, as well as the external threats to it and the opportunities available to it. Once these have been identified you can use the Ansoff Matrix to investigate the implications of your organization's current strategy and those of any changes that are suggested by the SWOT analysis.
The usefulness of both the SWOT analysis and Ansoff Matrix depends on the quality and accuracy of the market intelligence they are based on. This information is best supplied by working managers who can provide accurate and up-to-date information on everything from customer feedback to competitor activities.
The need for this information means that you may find yourself in strategy meetings; a familiarity with the underlying business analysis techniques and jargon can help you to make a valuable contribution by bringing your own area of expertise into the discussion.
The Ansoff Matrix, created by the American planning expert Igor Ansoff, is a strategic planning tool that links an organization's marketing strategy with its general strategic direction. It presents four alternative growth strategies in the form of a 2x2 table or matrix.
One dimension of the matrix considers 'products' (existing and new) and the other dimension considers 'markets' (existing and new).
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The resulting matrix offers a structured way to assess potential strategies for growth. As part of this framework you will have to consider possible technological advances that could affect your current and future products, as well as potentially new markets for both sets of products during their life cycle.
The sequence of these strategies is:
1. Market Penetration - You focus on selling your existing products or services to your existing markets to achieve growth in market share.
2. Market Development - You focus on developing new markets or market segments for your existing products or services.
3. Product Development - You focus on developing new products or services for your existing markets.
4. Diversification - You focus on the development of new products to sell into new markets.
The matrix does not present you with a final decision as to whether or not to develop new products or enter new markets, but it does provide you with an outline of alternative methods by which you can achieve your mission or growth targets.
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It is particularly useful in showing how you can develop a strategy for altering your market position as well as increasing or improving your product range. The four different options are not mutually exclusive and in certain circumstances your organization might want to combine different elements.
The output from an Ansoff Matrix is a series of suggested growth strategies that serve to set the direction for the business and provide marketing strategies to achieve them. Each of these options carries a certain amount of risk and involves differing levels of investment.
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To be able to take an active part in discussions regarding any one of these four strategies requires you to have a general idea of the implications each strategy could have on your organization.
When using the Ansoff matrix within your organization, the biggest downside is the potential for investing large amounts of time and capital in efforts that may not be successful. Some of the options, especially product development and diversification, can be very costly and require a high degree of confidence to undertake. When done right, these moves can take a business to a whole new level. The possibility of failure always exists when expanding, however, and those failures can be catastrophic if not mitigated properly.
The strength of the Ansoff matrix is opening up the eyes of managers to new possibilities for marketing efforts that can increase the growth potential of the company. It is easy to get stuck in the traditional ways of thinking about marketing and forget to think about expanding the horizons of the business. Considering the Ansoff matrix sectors will encourage all managers to keep an open mind when plotting upcoming marketing efforts.
Good managers will use the Ansoff matrix as a way to think about all marketing angles going forward. There is no one right way to use the matrix - rather, it is a good way to start a marketing discussion and begin the process of developing ideas. Include this matrix in your next marketing staff meeting and look forward to finding new ways of growing the business that you may have never thought possible.
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You may also be interested in: Introduction to the Ansoff Matrix, Market Penetration Strategy, Market Development Strategy, Product Development Strategy and Diversification Strategy.
