Ansoff Matrix

ANSOFF MATRIX A common tool used within marketing was developed by Igor Ansoff in 1957.
His model gives organization five strategic business options. 1. Market Penetration: This involves increasing sales of an existing product and penetrating the market further by either promoting the product heavily or reducing prices to increase sales. 2. Product Development: The organization develops new products to aim within their existing market, in the hope that they will gain more custom and market share. For Example Sony launching the Play station 2 to replace their existing model.. 3. Market Development: The organization here adopts a strategy of selling existing products to new markets. This can be done either by a better understanding of segmentation, i.e. who else can possibly purchase the product or selling the product to new market overseas. 4. Diversification: Moving away from what you are selling (your core activities) to providing something new eg Moving over from selling foods to selling cars. 5. Consolidation: Where the organization adopts a strategy of withdrawing from particular markets, scaling back on operations and concentrating on its existing products in existing markets. GE/ MCKINSEY MATRIX In consulting engagements with General Electric in the 1970's, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic business units (SBU). This business screen became known as the GE/McKinsey Matrix. What is a portfolio? A business portfolio is the collection of Strategic Business Units that together form a corporation. The optimal business portfolio is one that fits perfectly to the company's strengths and helps to exploit the most attractive industries or markets. What is a Strategic Business Unit? A Strategic Business Unit (SBU) can either be an entire medium size company or a division of a large corporation. As long as it formulates its own business level strategy and has separate objectives from the parent company. The aim of portfolio analysis Analyze its current business portfolio and decide which SBU's should receive more or less investment Develop growth strategies for adding new products and businesses to the portfolio Decide which businesses or products should no longer be retained. The BCG Matrix (Boston Consulting Group Matrix) is the best-known portfolio planning framework. The McKinsey Matrix is a later and more advanced form of the BCG Matrix. The McKinsey Matrix is more sophisticated than the BCG Matrix in three aspects: Market (Industry) attractiveness is used as the dimension of industry attractiveness, instead of market growth. Market Attractiveness includes a broader range of factors other than just the market growth rate that can determine the attractiveness of an industry / market. Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. Competitive strength likewise includes a broader range of factors other than just the market share that can determine the competitive strength of a Strategic Business Unit. Finally, the GE Matrix works with a 3*3 matrix, while the BCG Matrix has only 2*2. This also allows more sophistication.
GE Matrix Positions and Strategy The GE / McKinsey Matrix are divided into nine cells - nine alternatives for positioning of any SBU or product offering. Based on the strength of the business and its market attractiveness each SBU will have a different position in the matrix. Further, the market size and the current sales will distinguish each SBU. Based on clear understanding of all of these factors decision makers are able to develop effective strategies. The nine cells in the matrix can be grouped into three major segments Segment 1: This is the best segment. The business is strong and the market is attractive. The company should allocate resources in this business and focus on growing the business and increase market share. Segment 2: The business is either strong but the market is not attractive or the market is strong and the business is not strong enough to pursue potential opportunities. Decision makers should make judgment on how to further deal with these SBUs. Some of them may consume too many resources and are not promising while others may need additional resources & better strategy for growth. Segment 3: This is the worst segment. Businesses in this segment are weak and their market is not attractive. Decision makers should consider either repositioning these SBUs into a different market segment, develop better cost-effective offering, or get rid of these SBUs and invest the resources into more promising and attractive SBUs. Typical (external) factors that affect Market Attractiveness: Size of market. Market rate of growth. The nature of competition and its diversity. Profit margin. Impact of technology, the law, and energy efficiency. Environmental impact. Typical (internal) factors that affect Competitive Strength of a Strategic Business Unit: Market share. Management profile. R & D. Quality of products and services. Branding and promotions success. Place (or distribution). Efficiency. Cost reduction.
GE/ MCKINSEY MATRIX Often, Strategic Business Units are portrayed as a circle plotted in the GE Matrix, whereby: The size of the circles represent the Market Size The size of the pies represent the Market Share of the SBU's Arrows represent the direction and the movement of the SBU's in the future The GE matrix has 5 steps: One - Identify your products, brands, experiences, solutions, or SBU's. Two - Answer the question, what makes this market so attractive? Three - Decide on the factors that position the business on the GE matrix. Four - Determine the best ways to measure attractiveness and business position. Five - Finally rank each SBU as either low, medium or high for business strength, or low, medium and high in relation to market attractiveness. LIMITATIONS OF GE/ MCKINSEY MATRIX: 1)The valuation of the realization of the various factors. 2)Aggregation of the indicators is difficult. Core Competences are not represented.3)There is no research to prove that there is a relationship between market attractiveness & business position interrelationships between SBUs, products, brands, experiences or solutions are not taken into account. 4)This approach does require extensive data gathering. 5)Scoring is personal and subjective.6 )There is no hard and fast rule on how to weight elements.7) The GE matrix offers a broad strategy and does not indicate how best to implement it.

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ANSOFF MATRIX A common tool used within marketing was developed by Igor Ansoff in 1957.

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