Ansoff Matrix

„I didn’t study business management to then use such a simple tool,“ is an answer I sometimes get from managers when introducing them to the Ansoff Matrix. To my mind, they are underestimating a very profound tool for making fundamental strategic decisions. Be one step ahead:

The Ansoff Matrix (proposed by Igor Ansoff in 1957) is made up of the two axes „products“ and „markets“, each ranging from „present“ to „new“.

Source: http://en.wikipedia.org/wiki/File:Ansoff_Matrix.JPG

Four basic strategies

The four quadrants shown in the illustration refer to four basic strategies:

Market penetration: Attract new customers in the current markets with the current products

Product development: Find customers in current markets by offering them new products

Market development: Offer current products to customers in new markets

Diversification: New products placed in new markets

Ansoff Matrix in practice

Print out the matrix and place each item in your business portfolio within it, with the position relating to the intended strategy. Now use this as a basis for discussing whether this is the right basic strategy or whether you want to rethink it.

Keep in mind that the four strategies listed above imply market and product development to a certain extent. The more development this involves, the higher the risk! Cuno Pümpin studied the different probabilities of success and found them to be:

• Market penetration: 50%
• Product development: 33%
• Market development: 20%
• Diversification: 5%

That does not mean that you should avoid „diversification“ at all costs; situations might arise that call for a move into new markets and/or developing new products. However, there should be a good reason (anticipated profits!) to justify taking the risk.

Personal experience

My personal experience is that companies that think carefully of their strategy and then stick to it (except when there is a good reason for revising it) will succeed. The Ansoff Matrix is a good starting point for reaching a meaningful decision.