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
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.
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)
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.
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
The matrix has four distinct quadrants:
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.
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
The clock accounts for eight major strategic options:
Source
Bowman, C. and Faulkner, D.; Competitive and Corporate Strategy; Irwin; 1996.
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.
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:
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.
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
Every stage offers opportunities to enhance customer satisfaction by activating what Kim and Mauborgne call "levers of utility." There are six levers:
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 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
There are six steps to conducting force field analysis:
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.
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
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:
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:
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.
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
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)
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.
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
There are four steps to developing this matrix:
| Response Option | Potential Actions |
| Prospect |
|
| Defend |
|
| Harvest |
|
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.
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
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.
Source
Kim, W. Chan and Mauborgne, Renee; “Charting Your Company’s Future”; Harvard Business Review; June 2002.
