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Ansoff Growth Strategy Matrix

First presented in the Harvard Business Review in 1957, H.I. Ansoff's growth strategy matrix remains
a popular tool for analyzing growth.

Ansoff Growth Strategy Matrix

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The matrix presents four main strategic choices, ranging from an incremental strategy in which
current products are sold to existing customers to a revolutionary strategy in which new products are
sold to new customers.

• Market penetration. In this quadrant, the company markets existing products to existing
customers. The products remain unchanged and no new customer segments are pursued; instead,
the company repositions the brand, launches new promotions or otherwise tries to gain market
share and accordingly, increase revenue.

• Market development. Here, the company markets existing products to one or more new
customer segments. These customers could represent untapped verticals, virgin geographies or
other new opportunities.

• Product development. This quadrant involves marketing new products to existing customers.
The company grows by innovating, gradually replacing old products with new ones.

• Diversification. This quadrant entails the greatest risk; here, the company markets new
products to new customers. There are two types of diversification: related and unrelated. In related
diversification, the company enters a related market or industry. In unrelated diversification, the
company enters a market or industry in which it has no relevant experience.
These quadrants represent varying degrees of risk. Assuming that the more a business knows about
its market, the more likely it will be to succeed, the market penetration strategy entails the least risk,
while the diversification strategy entails the most. (In fact, consultants often refer to the
diversification cell as the 'suicide cell.')

In 1998, Bruce D. Buskirk of Pepperdine University and Edward D. Popper of Bellarmine College
amended Ansoff's growth strategy matrix for the high-tech market. They argue that expanding the
original four-cell matrix was necessary because it assumes customers are "familiar with the products
(or product category) being offered (even if they are not familiar with the firm who offered the
product). Even without technological innovation, in an expanding market, customers will enter the
marketplace without product knowledge."

Ansoff Growth Strategy Matrix (Expanded)

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The expanded matrix includes cells that account for new technology—technology new to the market—
which, according to Buskirk and Popper, means the company will have to educate customers about the
technology before exposure to the product's benefits.

Sources

Ansoff, H.I.; "Strategies for Diversification"; Harvard Business Review; September-October 1957.

Buskirk, Bruce D. and Popper, Edward D.; "Growth Strategies for High Tech Firms"; The Graziadio Business Report;
Spring 1998.

BCG Growth Share Matrix

Developed by the Boston Consulting Group (BCG), the BCG Growth Share Matrix is a popular approach
to product portfolio planning. The matrix is defined by two factors: relative market share (the
company's market share relative to the competition) and market growth. To use the matrix, place
each individual product in your company's portfolio into one of the four quadrants and then do the
same for your competitors' products. The result has implications for brand positioning and market
share.
BCG Growth Share Matrix

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The matrix has four distinct quadrants:

• Stars. A star is a product in a high growth market that controls a sizeable share of that
market. Stars tend to generate strong revenues. Over time, as growth slows, stars become cash
cows if they hold their market share and dogs if they don't.
• Cash cows. A cash cow commands a large share of a slow growth market. The more the
company invests in cash cows, the greater the return. Cash cows tend to pay the dividends, the
interest on debt and cover the corporate overhead.
• Dogs. A dog has a low share of a slow growth market. Dogs often report a profit even though
they are net cash users. They are essentially cash traps.
• Question marks (sometimes called wildcats). A question mark is a product with a low share
of a high growth market. Their cash needs are great because of their growth, but generate little in
return because their market share is low. Question marks are difficult to turn into stars because the
cost of acquiring market share compounds the cash needs. They may be big winners if backed to
the limit, but most often, they fail to develop a leading market position before growth slows and
become dogs.
The purpose of this tool is to help you balance your product portfolio. Ideally, you would eliminate any
dogs, while keeping the others in a kind of dynamic equilibrium. The cash generated by cash cows can
then be used to turn question marks into stars, which, in turn, may become cash cows. As noted
above, many of the question marks will become dogs, which means you'll need to compensate for
these failures by improving margins on the stars and cash cows.

One of the underlying assumptions of this model is that higher rates of profit are directly related to
high market share. This isn't always the case, as indicated by the low cost leader position on
Bowman's strategy clock.
Bowman Strategy Clock

This competitive assessment tool developed by Cliff Bowman encourages managers to consider
competitive advantage in relation to cost advantage or differentiation advantage.

Bowman Strategy Clock

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The clock accounts for eight major strategic options:

• Low Price/Low Added-Value. This strategy is commonly considered to be appropriate only


on a segment-by-segment basis.

• Low Price. This strategy calls for the company to position itself as the 'low cost leader.' The
company risks low margins and a price war.

• Hybrid of Low Price/Differentiation. Here, the company establishes a low cost base and
reinvests to keep prices low, while still seeking differentiation.

• Differentiation. There are two versions of this strategy-with and without a price premium.
With a price premium, the company adds enough value to the product to justify its relatively high
price and so, increase margins. Without a price premium, the company adds value to the product in
hopes of gaining market share despite lower margins.

• Focused Differentiation. Here, the company adds enough value to the product for a specific
customer segment to justify a price premium.

• Increased Price/Standard Product. With this strategy, the company raises prices without
adding value to the product in hopes of higher margins. Unless the product is the de facto industry
standard, however, the company risks losing market share.

• Increased Price/Low Values. This strategy pertains only to monopoly situations.


• Low Value/Standard Price. This strategy invariably means loss of market share.
Source

Bowman, C. and Faulkner, D.; Competitive and Corporate Strategy; Irwin; 1996.

Brand Audit Sheet

According to Nirmalya Kumar, a professor of marketing at IMD in Lausanne, Switzerland and the
London Business School, most brands don’t make money and consequently, company portfolios are
chockablock with loss-making and marginally profitable brands. Kumar’s research shows that, year
after year, businesses earn almost all their profits from a small number of brands—smaller than even
the 80/20 rule of thumb suggests. To help brand managers routinely cull the list of brands for which
they’re responsible, Kumar developed the Brand Audit Sheet.

View Brand Audit Sheet

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The columns on the sheet indicate the geographic regions where each brand sells, among other
things. For each brand in each region, you enter two pieces of data. First, you characterize each
brand’s market position as ‘dominant,’ ‘strong,’ ‘weak’ or ‘not present.’ Typically, if the brand is a
market leader, it’s dominant; if number two or three in the category, it’s strong; otherwise, it’s weak.
Second, you capture the brand’s value proposition in one word such as ‘value,’ ‘upscale’ or ‘fun.’
Finally, you determine each brand’s profitability, identifying it as a ‘cash generator,’ ‘cash neutral’ or a
‘cash user.’

The resultant audit makes the need to prune brands apparent throughout the organization, minimizing
job- and turf-related battles, and serves as a springboard to the next step—laying down clear brand
selection criteria and constantly rationalizing the company’s portfolio. Kumar has also developed a
quick test to determine if your company has too many brands and should embark on a brand
rationalization program. The test consists of the following ten questions:

1. Are more than 50% of your brands laggards or losers in their categories?

2. Is your company unable to match your rivals in marketing and advertising for many of its
brands?

3. Is your company losing money on its small brands?

4. Does your company have different brands in different countries for essentially the same
product?

5. Do the target segments, product lines, price bands, or distribution channels overlap to a great
degree for any brands in your company’s portfolio?

6. Do your company’s customers think its brands compete with each other?

7. Are retailers stocking only a subset of your company’s brand portfolio?


8. Does an increase in advertising expenditure for any one of your company’s brands decrease
the sales of any of your company’s other brands?

9. Do brand managers spend an inordinate amount of time discussing resource allocation


decisions across brands?

10. Do brand managers see one another as their biggest rivals?


If you answered ‘yes’ to:

0 – 2 questions:
Minimal brand rationalization opportunity

3 – 6 questions:
Considerable brand rationalization opportunity

7 – 10 questions:
Brand rationalization should be a priority

As Kumar notes, before launching a brand, companies usually compare the additional revenues they
expect to generate with the costs of marketing the brand. The costs are often greater than executives
imagine because a multi-brand strategy has one serious limitation: It suffers from diseconomies of
scale. When a firm introduces several brands into the market, it incurs hidden costs and, after a point,
bumps into constraints. It’s not easy to tell, but the business has usually reached that point when its
brands no longer cater to distinct customer segments.

Source

Kumar, Nirmalya; “Kill a Brand, Keep a Customer”; Harvard Business Review; December 2003.

Buyer Utility Map

W. Chan Kim and Renee Mauborgne of the international business school INSEAD developed this tool to
help managers generate new business ideas. The buyer utility map brings out the possible ways in
which utility (or service) can be offered to customers in the different stages of the buying experience.
According to this map, there are six stages in the buying experience and some common determinants
of satisfaction at each stage.
Buyer Utility Map

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• Purchase: the time it takes to find the product; the attractiveness and accessibility of the
store; the level of security in making transactions; the speed with which purchases are made.
• Delivery: the speed and convenience of product delivery; the ease of unpacking and installing
the product.
• Use: the degree to which the product requires training or expert assistance; ease of storing
the product; the effectiveness of the product's features and functions.
• Supplements: whether other accessories are required to operate the product; the price of
these accessories.
• Maintenance: ease of maintaining and upgrading the product; the degree to which
maintaining the product requires expert assistance.
• Disposal: whether the product generates waste; the ease of disposing of this waste.
Every stage offers opportunities to enhance customer satisfaction by activating what Kim and
Mauborgne call "levers of utility." There are six levers:

• Customer productivity. The innovation helps customers do things faster, better or in


different ways.
• Simplicity. The innovation offers enhanced ease-of-use.
• Convenience. The innovation is easy to obtain or otherwise makes a desired activity easier to
perform.
• Risk. The innovation minimizes customers' financial or physical risks.

• Fun and image. The innovation delights customers.


• Environmental friendliness. The innovation facilitates recycling and other environmentally
sensitive practices.
By locating an innovation on one of the resulting 36 spaces of the map, you can see how the idea
"creates a different utility proposition from existing products." The tool is intended to encourage you
to come up with innovations that effectively "create new expectations for a familiar experience." To do
this, you may use the dominant utility lever in a new stage of the buying experience, as Dell did in
applying the productivity lever to the delivery experience, or using a new utility lever in a new stage,
as Philips did in marketing its environmentally friendly fluorescent bulb, the Alto.

Source

Kim, W. Chan and Mauborgne, Renee; "Knowing a Winning Business Idea When You See One"; Harvard Business
Review; September-October 2000.

Force Field Analysis

Force field analysis is a simple and common means of analyzing business situations. It presupposes
that any situation is in a state of equilibrium at any given moment. In this state, the forces of change
are balanced by those opposing change. Force field analysis assists in eliciting the major factors that
influence change.

Force Field Analysis

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There are six steps to conducting force field analysis:

• Define the nature of the change required.


• Identify the forces on each side, driving (+) and restraining(-).

• Determine the relative magnitude of the forces.


• Identify polarizing forces where a change in one (+) may influence a change in the
other (-) or vice versa.
• Sort the driving and restraining forces in order of importance based on:
• Their ability to affect more than one opposing force

• The size of the projected impact (small, medium, large)


• Ease of implementation

• Response time for effect of impact


• Develop an action plan to change the balance of the forces that specifies how you will bolster
the relevant driving forces and/or minimize restraining forces.
Force field analysis is most often used to identify change in organizations and can be enhanced by
diagrams that chart the flow of information and communications.

GE/McKinsey Matrix

The GE/McKinsey Matrix was developed in the 1970s by the management consulting firm McKinsey &
Co. as a tool to screen General Electric’s large portfolio of strategic business units (SBUs). The idea
behind the matrix (a.k.a., the GE Business Screen or GE Strategic Planning Grid) is to evaluate
businesses along two composite dimensions: industry attractiveness and industry strength.
Conceptually, this matrix is similar to the BCG Growth-Share Matrix in that it maps SBUs on a grid of
the industry and, at the same time, marks their competitive position. The GE/McKinsey Matrix
improves on the BCG approach in two ways: 1) it utilizes more comprehensive axes (the BCG matrix
uses market growth rate as a proxy for industry attractiveness and relative market share as a proxy
for the strength of the business unit); and 2) it consists of nine-cells rather than four, allowing for
greater precision.

GE/McKinsey Matrix

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Industry attractiveness and SBU strength are calculated by first identifying the criteria for each,
determining the value of each parameter in the criteria, and multiplying that value by a weighting
factor. The result is a quantitative measure of industry attractiveness and the SBU’s relative
performance in that industry. The industry attractiveness index is made up of such factors as market
size, market growth, industry profit margin, amount of competition, the degree of seasonal and
cyclical fluctuations in demand, and industry cost structure. The industry attractiveness index consists
of factors like relative market share, price, competitiveness, product quality, customer and market
knowledge, sales effectiveness, and geographic advantages.

Each SBU can be portrayed as a circle plotted on the matrix, with the information conveyed as follows:

• Market size is represented by the size of the circle.

• Market share is shown by using the circle as a pie chart.

• The expected future position of the circles is indicated by an arrow.


The sample diagram shows the relative position of an SBU with a market share of 65%. The arrow in
the upward right position indicates that the SBU is expected to lose strength relative to competitors,
and the that the business unit is in an industry that is projected to become increasingly less attractive.
The tip of the arrow indicates the future position of the center point of the circle.

Both axes are divided into three segments, yielding nine cells. The nine cells are grouped into three
zones:

• The Green Zone consists of the three cells in the upper left corner. If the SBU falls in this
zone, it’s in a favorable position with relatively attractive growth opportunities. This position
indicates a "green light" to invest and grow this SBU.

• The Yellow Zone consists of the three diagonal cells from the lower left to the upper right. A
position in the yellow zone is viewed as having medium attractiveness. Management must
therefore exercise caution when making additional investments in this SBU. The suggested
strategy is to protect or allocate resources on a selective basis rather than growing or reducing
share.

• The Red Zone consists of the three cells in the lower right corner. A harvest strategy should be
used in the two cells just below the three-cell diagonal. These SBUs shouldn’t receive
substantial new resources. The SBUs in the lower right cell shouldn’t receive any resources
and should probably be divested or eliminated from a firm’s portfolio.
There are strategy variations within these three groups. For example, within the Red Zone, a firm
would be inclined to quickly divest itself of a weak business in an unattractive industry, whereas it
might perform a phased harvest of an average SBU in the same industry.

While the GE/McKinsey Matrix represents an improvement over the relatively simplistic BCG Growth-
Share Matrix, it still encompasses a limited view of the competitive landscape. The matrix doesn’t take
into account interactions among SBUs or the core competencies that lead to value creation. For these
and other reasons, some believe the matrix is better suited for providing an overview of the current
market rather than serving as a resource allocation tool.

Porter’s Five-Forces Model

In his classic work, Competitive Strategy: Techniques for Analyzing Industries and Competitors
(1980), Harvard professor Michael E. Porter presents an analytical framework for understanding
industries and competitors, and formulating an overall competitive strategy. The model describes the
five competitive forces that determine the attractiveness of an industry and their underlying causes.

According to Porter, developing a winning competitive strategy requires a sophisticated understanding


of the rules of competition that determine an industry’s attractiveness. The rules of competition are
embodied in five competitive forces: the entry of new competitors, the threat of substitutes, the
bargaining power of buyers, the bargaining power of suppliers, and the rivalry among the existing
competitors (see Figure 1).

Figure 1

Five Forces of Competition Model

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The collective strength of these five forces determines the ability of firms in an industry to earn, on
average, rates of return on investment in excess of the cost of capital. The strength of the five forces
varies from industry to industry, and can change as an industry evolves. The result is that not all
industries are alike in terms of their inherent profitability.

The five forces influence industry profitability because they influence the prices, costs, and required
investment of firms in an industry—the elements of return on investment. Buyer power influences the
prices that firms can charge, for example, as does the threat of substitution. The power of buyers can
also influence cost and investment because powerful buyers demand costly service. The bargaining
power of suppliers determines the costs of raw materials and other inputs. The intensity of rivalry
influences prices as well as the costs of competing in areas such as plan, product development,
advertising, and sales force. The threat of entry places a limit on prices, and shapes the investment
required to deter entrants.

Of course, the five competitive forces and their structural determinants aren’t solely the function of
intrinsic industry characteristics. Firms, through their strategies, can influence the five forces. If a firm
can shape structure, it can fundamentally change an industry’s attractiveness for better or worse.
Many successful strategies have shifted the rules of competition in this way.
Figure 2 highlights all the elements of industry structure that may drive competition in an industry.

Figure 2

View Five Forces of Competition Model (Expanded)

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In any particular industry, not all of the five forces will be equally important and the particular
structural factors will differ. Every industry is unique and has its own structure. The five-forces
framework allows a firm to see through the complexity and pinpoint those factors that are critical to
competition in the industry, as well as to identify those strategic innovations that would most improve
the industry’s—and its own—profitability.

Source

Porter, Michael E.; Competitive Strategy: Techniques for Analyzing Industries and Competitors; The Free Press;
1980.

SWOT Matrix

The nine-cell SWOT matrix is a more flexible version of the traditional four-cell matrix. The main
advantage of this version is that, in addition to identifying major strengths, weaknesses, opportunities
and threats, it incorporates potential strategies for improving the company's competitive position.

SWOT Matrix

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There are four steps to developing this matrix:

1. Complete the S-W-O-T boxes as you would in a traditional SWOT exercise, prioritizing your
entries after you've generated an exhaustive list.
o Strengths: List company-specific internal strengths that bolster the company's
competitive position.
o Weaknesses: List company-specific internal weaknesses that hurt the company's
competitive position.
o Opportunities: List external opportunities available to the company and/or its
competitors.
o Threats: List external threats the company and/or its competitors must face.

2. Match combinations of internal and external factors into alternative strategies.


o S - O strategies: Explain how specific company strengths could help the firm take
advantage of market opportunities.
o S - T strategies: Explain how specific company strengths could be used to avoid or
minimize external threats.
o W - O strategies: Explain how the company can minimize its weaknesses to take
advantage of market opportunities.
o W - T strategies: Explain how, acting defensively, the company the company can
minimize its weaknesses and, in the process, avoid or minimize external threats.

3. Explain the potential strategies developed in the previous step in terms of three response
options: prospect, defend or harvest. This requires you 1) determine the relative magnitude of
your various SWOT entries and 2) develop logically feasible matches between internal and
external factors.

4. Recommend the best strategies to company decision makers.

Response Option Potential Actions


Prospect o Develop new distinguishing competency
o Initiate R&D in new technology
o Learn new manufacturing process
o Learn how to design and promote new
product
Defend o Preserve existing distinguishing
competency
o Reduce price of existing product
o Increase price of existing product
o Intensify R&D in existing technology
Harvest o Gradually dissolve the business
o Increase promotion of existing product
o Reduce expenditures for existing product

The Strategy Canvas


The Strategy Canvas is a way for you to visualize your company’s strategic position. As pointed out by
the creators of the Strategy Canvas, W. Chan Kim and Renee Mauborgne, the tool is unique because it
does three things in one picture. First, it shows the strategic profile of an industry by depicting very
clearly the factors that affect competition among industry players as well as those that might in the
future. Second, it shows the strategic profile of current and potential competitors, identifying which
factors they invest in strategically. Finally, the approach involves drawing your company’s strategic
profile—or value curve—showing how it invests in the factors of competition and how it might invest in
them in the future. The Strategy Canvas is comprised of two factors: the factors of competition for the
industry (the horizontal access) and the degree to which industry players and providers of substitute
products or services invest in the competitive factors. A relatively low position means a company
invests less and, hence, offers less in that factor—or, in the case of price, asks for less. By connecting
the dots across all of the factors for each player, you reveal the strategic profiles of your company, its
direct competitors and its main alternatives.

As detailed in Kim’s and Mauborgne’s Harvard Business Review article, “Charting Your Company’s
Future” (June 2002), there are four steps to creating a Strategy Canvas.

1. Visual awakening

• Compare your business with your competitors’ by drawing your ‘as is’ strategy picture.

• See where your strategy needs to change.

2. Visual exploration
Go into the field to:

• Discover the adoption hurdles for non-customers.

• Observe the distinct advantages of alternative products and services.

• See which factors you should eliminate, create or change.

3. Visual strategy fair

• Draw your ‘to be’ strategy canvases based on insights from field observations.

• Get feedback on alternative strategy pictures from customers, lost customers,


competitors’ customers, and non-customers.

• Use feedback to build the best ‘to be’ strategy.

4. Visual communication

• Distribute your before-and-after strategic profiles on one page for easy comparison.

• Support only those projects and operational moves that allow your company to close
the gaps to actualize the new strategy
The sample Strategy Canvas below (culled from Kim’s and Mauborgne’s article) represents the final
strategic picture for a corporate foreign exchange business.
Strategy Canvas

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For the sake of simplicity, this illustration leaves out the competitive profiles. Although the specific
factors for your company will undoubtedly differ, the principles behind creating the canvas and its
benefits are the same. The notion is to make investment decisions to shift your company’s profile from
the ‘before’ picture to the ‘after’ picture. Visualizing this shift can help improve your chances of coming
up with a winning formula.