Module 4: Strategic Frameworks and Models

Ansoff Matrix:
A Powerful Tool for Business Strategy and Growth
o The Ansoff Matrix is a strategy framework that has helped numerous organizations navigate the
complexities of business growth for over half a century, enabling them to identify promising
opportunities for expansion and weigh associated risks.
o The Ansoff Matrix, developed by H. Igor Ansoff in 1957, is a structured tool for evaluating growth
strategies based on product and market involvement. It provides insights into risks and rewards, aiding
decision-making and resource allocation.
o This article delves into the Ansoff Matrix's role in business strategy, discussing its key characteristics,
benefits, challenges, and practical tips for implementing it effectively.

Understanding the Four Quadrants of the Ansoff Matrix

o At the heart of the Ansoff Matrix lie four distinct growth strategies, each defined by a unique
combination of products and markets (existing or new). These strategies are:

i. Market Penetration: Focusing on increasing sales of existing products in existing markets.

ii. Market Development: Introducing existing products into new markets.
iii. Product Development: Developing new products for existing markets.
iv. Diversification: Creating new products for new markets.

The Four Growth Strategies of the Ansoff Matrix

each quadrant and the key considerations for pursuing growth within these areas.
i. Market Penetration
o The market penetration strategy aims to boost product sales within existing markets, utilizing the
company's established strengths and market knowledge, making it the least risky option.
Typical tactics for achieving market penetration include:
 Increasing marketing and promotional efforts to attract new customers.
 Improving product quality or features to encourage repeat purchases.
 Adjusting pricing strategies to boost sales volume.
 Acquiring competitors to gain market share.
o For example, A snack food company can boost its market share by investing in advertising campaigns,
new packaging designs, or promotional discounts.
Market penetration strategy capitalizes on current assets, reducing investments in product development or
exploration. However, growth potential may be limited in saturated markets with high competition.
 ii. Market Development
o The market development strategy involves taking existing products into new markets, whether by
targeting different customer segments, expanding into new geographic regions, or exploring alternative
distribution channels. This approach enables companies to leverage their proven product offerings
while tapping into fresh sources of demand.
Common market development tactics include:
 Adapting products or marketing messages to appeal to new demographics.
 Establishing a presence in untapped geographic markets, either domestically or internationally.
 Partnering with new distributors or retailers to reach wider audiences.
 Developing online sales channels to complement brick-and-mortar operations.
o A classic example of successful market development is Apple's expansion into the Chinese
market, where the company's iconic iPhone and iPad products have found a massive new
customer base.
While market development can open up significant growth opportunities, it also comes with its
own set of risks and challenges. Entering new markets often requires substantial investments in
market research, localization, and infrastructure development, and companies may face intense
competition from established players or cultural barriers to adoption.

iii. Product Development

o Product development involves creating new products to meet market needs, leveraging brand
reputation and customer loyalty to introduce innovative offerings and capitalize on emerging trends.
To implement a product development strategy, businesses should:
 Invest in research and development to identify opportunities for innovation and create products that
align with customer needs.
 Gather customer feedback and insights to inform product design and features.
 Collaborate with key stakeholders, such as suppliers and distributors, to ensure successful product
launches.
 Develop a strong value proposition and marketing strategy to generate interest and demand for the
new product.
o An example of product development is a smartphone manufacturer introducing a new model
with advanced features to appeal to its loyal customer base.

iv. Diversification
o Diversification is the riskiest of the four growth strategies, as it involves entering entirely new markets
with new products.
This strategy can be further divided into two types:
a. Related Diversification: Diversification involves expanding into new markets or products, allowing for
potential synergies in resources, capabilities, or customer base, as seen in a car manufacturer focusing
on electric bicycles.
b. Unrelated Diversification: Diversification involves entering unrelated markets or products to reduce
risks associated with relying on a single market or product line.
To pursue a diversification strategy, businesses should:
 Thoroughly assess the risks and potential returns associated with entering new markets or developing
new products.
 Conduct extensive market research to validate the demand for the new product or service in the target
market.
 Develop a clear understanding of the resources and capabilities required to successfully execute the
diversification strategy.
 Create a robust plan for integrating the new business into the organization's overall structure and
operations.
o The Ansoff matrix helps business leaders make strategic decisions for growth and risk
management by balancing existing strengths with new opportunities, aligning with the
company's vision and goals.
Benefits of Using the Ansoff Matrix
The Ansoff Matrix offers several key benefits for business leaders and organizations:

1. Strategic clarity: By providing a clear framework for evaluating growth options, the Ansoff Matrix helps
business leaders gain clarity on their strategic direction and prioritize initiatives based on their risk-
return profile.
2. Risk assessment: The matrix helps businesses understand the relative risks associated with each
growth strategy, enabling them to make informed decisions and allocate resources appropriately.
3. Structured decision-making: Using the Ansoff Matrix encourages a structured approach to decision-
making, ensuring that all relevant factors are considered when evaluating growth opportunities.
4. Alignment with business objectives: By aligning growth strategies with the overall business strategy
and objectives, the Ansoff Matrix helps ensure that initiatives are focused and purposeful.
5. Adaptability: The framework can be applied to various industries, business sizes, and market
conditions, making it a versatile tool for any organization seeking growth.

How to Apply the Ansoff Matrix in Your Business

To effectively use the Ansoff Matrix in your business, follow these steps:

 1. Assess your current situation: Evaluate your existing products, markets, and capabilities to establish
a clear understanding of your starting point.
 2. Identify potential growth opportunities: Brainstorm potential growth options within each of the
four quadrants of the Ansoff Matrix, considering your business's strengths, weaknesses, and market
trends.
 3. Evaluate risks and potential returns: Assess the risks and potential returns associated with each
growth option, taking into account factors such as market demand, competition, and required
resources.
 4. Prioritize growth strategies: Based on your risk assessment and alignment with business objectives,
prioritize the growth strategies that offer the best balance of risk and return for your organization.
 5. Develop an implementation plan: Create a detailed plan for executing your chosen growth strategy,
including resource allocation, timelines, and key performance indicators (KPIs) to measure success.
  6. Monitor and adapt: Continuously monitor the performance of your growth initiatives and be
prepared to adapt your strategy as market conditions or business circumstances change.

Real-World Examples of Ansoff Matrix Application

Here are some real-world examples of Ansoff Matrix application:
 Market Penetration: Coca-Cola, the global beverage giant, has successfully employed market
penetration strategies by increasing its advertising efforts, running promotional campaigns, and
expanding its distribution network to reach more consumers within its existing markets.
 Market Development: Netflix, the streaming service provider, has pursued market development by
expanding its services globally, entering new countries, and adapting its content offerings to suit local
preferences.
 Product Development: Apple, the technology company, consistently engages in product development
by introducing new products and services, such as the iPhone, iPad, and Apple Watch, to its existing
customer base.
 Diversification: Amazon, the e-commerce and cloud computing company, has diversified its business by
entering new markets and offering new products, such as Amazon Web Services (AWS) and Amazon
Prime Video, which are distinct from its original online retail business.

UNDERSTANDING THE BGC

GROWTH SHARE MATRIX AND
HOW TO USE IT
“To be successful a company should have a portfolio of products with different growth rates and different
market shares”
- BRUCE HENDERSON

What Is the BCG Growth Share Matrix?

o Is called as GROWTH-SHARE MATRIX BOSTON BOX and PRODUCT PORTFOLIO MATRIX. BCG MATRIX is
developed by BRUCE HERDERSON of Boston consulting group in the early 1970’s. According to this
technique, business or products are classified as low or high performance depending upon their market
growth rate and relative market share.

Understanding the BCG Growth Share Matrix

o The BCG growth share matrix breaks down products into four categories known as dogs, cash cows,
stars, and question marks. Each category quadrant has its own set of unique characteristics.

Dogs (or Pets)

o A company is considered a dog and should be sold, liquidated, or repositioned if its product has a
low market share and is at a low growth rate. Dogs are found in the lower right quadrant of the grid.

o Dogs don’t generate much cash for the company because they have a low market share and little to
no growth. They can turn out to be cash traps, tying up company funds for long periods, so they’re
prime candidates for divestiture.
CASH COW
 Products that are in low-growth areas but for which the company has a relatively large market share
are considered cash cows. The company should milk the cash cow for as long as it can.
 Cash cows are seen in the lower left quadrant. They’re typically leading products in mature markets.
 These products often generate returns that are higher than the market’s growth rate. They sustain
themselves from a cash flow perspective. These products should be taken advantage of for as long as
possible
 The value of cash cows can be easily calculated because their cash flow patterns are highly predictable.
Low-growth, high-share cash cows should be milked for cash to reinvest in high growth, high-share stars
with high future potential.

STAR
 Products that are in high-growth markets and that make up a sizable portion of that market are
considered stars and should be invested in. Stars appear in the upper left quadrant.
 Stars generate high income but also consume large amounts of company cash. A star eventually
becomes a cash cow when the market’s overall growth rate declines if it can remain a market leader.

QUESTION MARKS
 Questionable opportunities are those in high growth rate markets but in which the company doesn’t
maintain a large market share. Question marks or problem children appear in the upper right portion of
the grid.
 Question marks typically grow fast but consume large amounts of company resources. Products in this
quadrant should be analyzed frequently and closely to see if they’re worth maintaining.

LIMITATION OF THE MATRIX

o The matrix is a decision-making tool. It doesn’t necessarily take into account all the factors that a
business must ultimately face. Increasing market share may be more expensive than the additional
revenue gained from new sales. Product development can take years, so businesses must plan carefully
for contingencies.

Example of a BCG Growth Share Matrix

 We can apply the growth matrix to many companies in the real world. Apple (AAPL) is a great
candidate. Let’s take a look at the products Apple has on the market according to the matrix categories:
Star: iPhone
Cash cow: Mac book
Question mark: Apple TV
Dog: iPad
What Are the 4 Quadrants of the BCG Matrix?
o The BCG growth share matrix uses a 2×2 grid with growth on one axis and market share on the other.
Each of the four quadrants represents a specific combination of relative market share and growth:
1. Low growth, high share: Companies should milk these cash cows for cash to reinvest elsewhere.
2. High growth, high share: Companies should significantly invest in these stars because they have high
future potential.
3. High growth, low share: Companies should invest in or discard these question marks, depending on
their chances of becoming stars.
4. Low share, low growth: Companies should liquidate, divest, or reposition these pets.

How Does the BCG Matrix Work?

o The BCG growth share matrix considers a company’s growth prospects and available market share by
assigning each business to one of these four categories. Executives can then decide where to focus
their resources and capital to generate the most value, as well as where to cut their losses.

Is the BCG Matrix Used in the Real World?

o The growth share matrix was used by about half of all Fortune 500 companies at the height of its
success, according to BCG. It’s still central in business school teachings on business strategy.

The Bottom Line

o The BCG growth share matrix is a business management tool that allows companies to identify which
aspects of their business should be prioritized and which might be jettisoned. A company’s businesses
can be categorized into one of four classifications—stars, pets, cash cows, and question marks—by
constructing a 2×2 table along the dimensions of growth and market share.

GE MCKINSEY
MATRIX

Definition:
o GE-McKinsey nine-box matrix is a strategy tool that offers a systematic approach for the
multi-business corporation to prioritize its investments among its business units.
o GE-McKinsey is a framework that evaluates business portfolio, provides further strategic
implications and helps to prioritize the investment needed for each business unit
What is GE McKinsey Matrix
➢ McKinsey and General Electric, 1970s.
➢ It is also known as the GE (General Electrics) matrix or the Nine-Box Matrix.
➢ Managing complex, multi-business organizations profitably.
➢ Need of eliminating the shortcomings the BCG matrix.
➢ The most precise and popular method of analyzing the competitive position of organizations with diverse
portfolios.
➢ Identifying the strong and weak business units in the company’s portfolio.

Industry Attractiveness
o Industry attractiveness indicates how hard or easy it will be for a company to compete in the market
and earn profits. The more profitable the industry is, the more attractive it becomes. When evaluating
the industry attractiveness, analysts should look at how an industry will change in the long run rather
than in the near future, because the investments needed for the product usually require long-lasting
commitment.
• Long-run growth rate
• Industry size
• Industry profitability: entry barriers, exit barriers, supplier power, buyer power, threat of substitutes and
available complements (use Porter’s Five Forces analysis to determine this)
• Industry structure (use Structure-Conduct-Performance framework to determine this)
• Product life cycle changes
• Changes in demand
• Trend of prices
• Macro environment factors (use PEST or PESTEL for this)
• Seasonality
• Availability of labor Competitive strength of labor

Competitive strength of a business unit or a product

o Along the X axis, the matrix measures how strong, in terms of competition, a particular business unit is
against its rivals. In other words, managers try to determine whether a business unit has a sustainable
competitive advantage (or at least a temporary competitive advantage) or not. If the company has a
sustainable competitive advantage, the next question is: “For how long will it be sustained?”
The following factors determine the competitive strength of a business unit:
• Total market share
• Market share growth compared to rivals
• Brand strength (use brand value for this)
• Profitability of the company
• Customer loyalty
• VRIO resources or capabilities (use VRIO framework to determine this)
• Your business unit strength in meeting industry’s critical success factors (use Competitive Profile Matrix to
determine this)
• Strength of a value chain (use Value Chain Analysis and Benchmarking to determine this)
• Level of product differentiation
• Production flexibility

Advantages
 Helps to prioritize the limited resources in order to achieve the best returns.
 Managers become more aware of how their products or business units perform.
 It’s more sophisticated business portfolio framework than the BCG matrix.
 Identifies the strategic steps the company needs to make to improve the performance of its
business portfolio.

Disadvantages
 Requires a consultant or a highly experienced person to determine industry’s attractiveness and
business unit strength as accurately as possible.
 It is costly to conduct.
 It doesn’t take into account the synergies that could exist between two or more business units.

DIFFERENCE BETWEEN GE MCKINSEY AND BCG MATRICES

 GE McKinsey matrix is a very similar portfolio evaluation framework to the BCG matrix. Both matrices
are used to analyze a company’s product or business unit portfolio and facilitate investment decisions.
The main differences:
 Visual difference. BCG is only a four-cell matrix, while GE McKinsey is a nine-cell matrix. Nine
cells provide a better visual portrait of where business units stand in the matrix. It also
separates the invest/grow cells from harvest/divest cells that are much closer to each other in
the BCG matrix and may confuse others about as developed is that BC what investment
decisions to make.
 o Comprehensiveness. The reason why the GE McKinsey framework was developed is that the BCG
portfolio tool wasn’t sophisticated enough for the guys from General Electric. In the BCG matrix, the
competitive strength of a business unit is equal to the relative market share, which assumes that the
larger the market share a business has the better it is positioned to compete in the market. This is true,
but it’s too simplistic to assume that it’s the only factor affecting the competition in the market. The
same is true with industry attractiveness that is measured only as the market growth rate in BCG. It
comes as no surprise that GE, with its complex business portfolio, needed something more
comprehensive than that.

USING THE TOOL

Step 1. Determine industry attractiveness of each business unit
Industry Attractiveness (1/2)

Business Unit 1 Business Unit 2

Factor Weight Rating Weighted Score Rating Weighted Score

Industry growth rate 0.25 3 0.75 4 1

Industry size 0.22 3 0.66 3 0.66

Industry profitability 0.18 5 0.90 1 0.18

Industry structure 0.17 4 0.68 4 0.68

Trend of prices 0.09 3 0.27 3 0.27

Market segmentation 0.09 1 0.09 3 0.27

Total score 1.00 – 3.35 – 3.06

Industry Attractiveness (2/2)

Business Unit 3 Business Unit 4

Factor Weight Rating Weighted Score Rating Weighted Score

Industry growth rate 0.25 3 0.75 2 0.50

Industry size 0.22 2 0.44 5 1.10

Industry profitability 0.18 1 0.18 5 0.90

Industry structure 0.17 2 0.34 4 0.68

Trend of prices 0.09 2 0.18 3 0.27

Market segmentation 0.09 2 0.18 3 0.27

Total score 1.00 – 2.07 – 3.72

Step 2. Determine the competitive strength of each business unit

Competitive Strength (1/2)

Business Unit 1 Business Unit 2

Factor Weight Rating Weighted Score Rating Weighted Score

Market share 0.22 2 0.44 2 0.44

Relative growth rate 0.18 3 0.48 2 0.38

Company’s profitability 0.14 3 0.42 1 0.14

Brand value 0.10 1 0.10 2 0.20

VRIO resources 0.20 1 0.20 4 0.80

CPM Score 0.16 2 0.32 5 0.80

Total score 1.00 – 1.96 – 2.74

Competitive Strength (2/2)

Business Unit 3 Business Unit 4

Factor Weight Rating Weighted Score Rating Weighted Score

Market share 0.22 4 0.88 4 0.88

Relative growth rate 0.18 4 0.64 2 0.36

Company’s profitability 0.14 3 0.42 3 0.42

Brand value 0.10 3 0.30 3 0.30

VRIO resources 0.20 4 0.80 4 0.80

CPM Score 0.16 5 0.80 5 0.80

Total score 1.00 – 3.92 – 3.56

Step 3. Plot the business units on a matrix

Step 4. Analyze the information

Step 5. Identify the future direction of each business unit

Business Unit 1 Business Unit 2 Business Unit 3 Business Unit 4

Industry attractiveness Decrease Stay the same Stay the same Increase

Business unit competitive strength Decrease Increase Increase Decrease

Step 6. Prioritize your investments

o The last step is to decide where and how to invest the company’s money. While the matrix
makes it easier by evaluating the business units and identifying the best ones to invest in, it still
doesn’t answer some very important questions:
• Is it really worth investing into some business units?
• How much exactly to invest in?
• Where to invest into business units (more to R&D, marketing, value chain?) to improve their performance?

Understanding the Red Ocean vs. Blue

Ocean Strategies
o The Red Ocean strategy emphasizes competition and gradual improvements while taking on
established competitors in a well-known market. On the other hand, the Blue Ocean strategy
stimulates businesses to venture into uncharted territory, establishing new markets through
creative thinking and originality. These strategic decisions set the direction for a company's
journey through the vast ocean of business opportunities and influence how it deals with the
difficulties of competition and market development.

WHAT IS THE RED OCEAN STRATEGY AND ITS BENEFITS

o The traditional business strategy known as the "Red Ocean" strategy is when businesses
compete in their current markets to outperform competitors and capture a larger market share.
This frequently entails emphasizing differentiation, price, or a mix of the two. The phrase "Red
Ocean" refers to a metaphorical situation in which competitors are engaged in a fierce battle for
the same customer base. This tactic has advantages even though it might seem obvious.
Benefits
 Competes in the current market.
 Outperforms the opposition.
 Takes advantage of the current demand.
 Makes the trade-off between value and cost.
 Synchronizes a company's entire operational system with its low-cost or differentiation strategy
choice.

What is the Blue Ocean Strategy and Its Benefits

o The Blue Ocean Strategy is an innovative marketing technique that emphasizes innovation over direct
competition to revive companies. The strategy, which was first introduced in 2005 by W. Chan Kim and
Renée Mauborgne, entails creating new market niches and increasing customer demand to eliminate
the need for competition.
Benefits
 Makes market space uncontested.
 Renders the rivalry meaningless.
 Generates and seizes additional requests.
 Overcomes the value-cost trade-offs to achieve low cost and uniqueness by coordinating with
all of a firm's operations.

BLUE OCEAN VS. RED OCEAN STRATEGY: MAIN DIFFERENCES

o The two concepts that outline different market strategies are the Red Ocean Strategy and the Blue
Ocean Strategy. Here's a table comparing them: