How can the Ansoff Matrix help you develop a strategy for your company?

In 1957, Harry Igor Ansoff, an American economist and mathematician, developed a model for formulating the optimal strategy for an enterprise based on an evaluation of decision variables. His theory was called the Ansoff matrix. It is based mainly on the analysis of market and product, examining the relationship of the two factors and, ultimately, selecting the scenario that will best contribute to the company's growth.

What are the company's growth strategies?

The selection of an appropriate strategy for a company should be preceded by an in-depth analysis of the enterprise. It is worth noting the current performance of the market and the products sold in it, and then it should be evaluated whether any changes should be made in a particular area. In order to simplify the analysis, H. I. Ansoff presents four possible strategies for the development of the enterprise.

1. market penetration

When choosing this concept, the company remains in its current market, where it offers unchanged products or services. When deciding on this strategy, the company focuses on increasing the number of existing customers and reaching new groups of consumers within the same market. The intensification of marketing and promotional activities plays an important role here, in order to intensify its market share and thus increase sales.

2. market development

The choice of this strategy occurs when a company no longer has the ability to increase sales intensity in its current market and decides to distribute existing offerings in new markets. This can be understood geographically (e.g. expansion into foreign markets) or as expansion into new market segments. This is a scenario characterized by greater risk than the first strategy, as it requires the company to learn about the needs and requirements of new groups of consumers.

3. product development

In this case, growth occurs through the company's introduction of completely new or heavily modified products, while remaining in the same market. This situation assumes that the company, as in scenario two, no longer has the opportunity to intensify sales of its product, but this time decides to innovate in order to meet other needs of the same audience.

4 Diversification

This is the most expansive growth strategy, as it involves moving away from the current product and market and entering a new market with a new offering. There are three types of diversification:

Vertical - means the independence of the company from suppliers of products and materials needed to produce goods by producing them in-house.
Horizontal - the company produces a new product and introduces it to a new market, but at the same time does not change the production process and the technologies used so far.
Parallel - the strategy involves a company entering a completely different market from the one it currently operates in with a new product.

5. application of Ansoff matrix

Formulating an enterprise's strategy, using the Ansoff matrix, is a way to find a path to enterprise development. This tool requires a thorough knowledge of the product that the company produces, as well as the market in which it operates. In this way, the company looks for growth opportunities without having to change the market segment or the product offered. Only after an in-depth analysis of the company is the possibility of expansion and changes in the offer or area of operation explored. The Ansoff model also allows, depending on the strategy, to examine the risk of taking action toward a given scenario. This allows the development of an optimal plan of action for the organization.

6. is there an ideal strategy?

It is an undeniable fact that a strategy that currently works for a company will require specific changes over time. This is due to the fact that companies are oriented towards growth. It is believed that strategic directions should be chosen according to the "Z-rule," which means going through the strategies of market penetration, market development, product development and diversification in sequence. This is a way to allow the company to grow continuously. However, each company is a separate story, and each of the scenarios presented can have a different effect on the organization, depending on what the goal of its strategy is. The Ansoff matrix can be used, for example, to create a marketing strategy (which you can read more about in our previous article).

Summary

The model proposed by Ansoff allows to build a company's strategy based on two variables - product and market. The choice of a scenario should be preceded by a thorough analysis of the company. This is an important step, through which it may turn out that your company is at a higher stage of development than you think and needs a change of action plan. A solid strategy is the foundation of any enterprise, which should not be overlooked, but should be formulated on the basis of proven tools.