Strategic planning has a series of tools that facilitate the work of setting goals and making plans. The Ansoff matrix is one of them, use this model together with other analyzes and understand the growth potential of your company.
This methodology is a great support for all administrators who want to optimize the use of time and resources, and guarantee a safer path for their company.
The Ansoff matrix is one of the several tools that this process has, which will help you organize the objectives and better visualize the planning.
If on the one hand the SWOT and PEST analyzes provide relevant data for the organization’s performance, The Ansoff matrix indicates the possible paths that can be followed for the development of the company.
If you’re not familiar with the feature yet, don’t worry! This post is here to help you. Read it to learn how to apply the matrix to your business.
What is the Ansoff Matrix?
Of Russian origin, Igor Ansoff was a professor of engineering and mathematics who lived from the beginning to the middle of the 20th century.
He is known as the father of strategic management and also of the matrix that bears his name.
While management pioneers like Taylor, Fayol, and Mayo had the view that a company should find solutions to its growth problems from within, Ansoff had a different view: He believed that organizations should look at their context to improve their practices and grow.
In this way, the professor developed a matrix capable of designing paths for the development of the company, taking into account, at the same time, its macro reality. The Ansoff matrix has a very simple design and basically consists of two axes: markets and products.
Igor Ansoff’s idea was to cross these elements to create new opportunities for the organization, as well as to better exploit those that already exist.
The basis of his reasoning is the expansion and diversification of the company.
According to the Ansoff matrix, markets can be new or existing, and products can also be new or existing. From this combination of variables, there are 4 scenarios that result in 4 possible strategies.
1. Market penetration
is the combination of an existing market with an existing product. In this case, the main objective of the company is to conquer a greater market share, capture the clients of the competitors and retain its own consumers.
To give you an everyday example, this is what happens when a marketing agency meets with companies that already contract the service of another agency in an attempt to convince them that their service is better and more advantageous.
2. Market development
Here we have the combination of a new market with existing products. The idea in this strategy is to take the products that the company already offers to other markets. Opening a new store in a different city is a good example of market development.
Or, to be more daring, business internationalization also fits this strategy.
3. Product development
This is the scenario that results from combining an existing market with new products. In other words, the company will offer its usual market a new range of products or services in an attempt to satisfy the new needs of consumers and build loyalty.
When an offline advertising agency opens an Inbound Marketing department and offers service to its client base, for example, it is adopting a product development strategy.
Finally, we have a combination of a new product and a new market. Of all, perhaps this is the scenario that represents the greatest risk for the company, since both variables are unknown.
An example may be a Latin American advertising agency that will operate in the Spanish market offering Digital Marketing services.
In these cases, in addition to developing a new product, the company must dedicate efforts and resources to good communication of its presence in the new market. This is the best way to gain credibility and get the first customers.
Even within diversification, there are two types that can be explored by the organization’s strategy:
When there is synergy between the current business model of the company, the new product and the market. As in the example we cited earlier.
In these cases, there is no synergy between the current business model and the new activities. We can continue with the example of a Latin American advertising agency that goes to Spain, not to work on branding, but to open a language school.
What is the Ansoff Matrix used for?
Like other management and analysis tools, the Ansoff matrix is a platform that helps the manager in strategic planning. Through it, we can track possible scenarios for the business, as well as make projections.
The matrix itself does not respond to anything, because when we talk about administration, there is no magic recipe or formula.
It all depends on the company, the context and, ultimately, the administrator’s options to follow the path that he considers most favorable for the company.
Now, among what can be achieved with the Ansoff Matrix, it is:
Simplified display of the actions to perform
One merit of the Ansoff matrix is that it makes it easier to visualize each of these paths and makes the possibilities more tangible.
With this holistic view of the business, the entrepreneur or executive can make the right decisions that will benefit the organization.
The Ansoff Matrix can be interpreted as a derivation of the SWOT analysis, since opportunities play a relevant role in the matrix developed by the Russian professor.
Each strategy is a possibility path that the company may choose to explore.
Also, you can use it in combination with the Canvas model, discovering new sources of income, other partners and important points for your company.
Although the use of the Ansoff matrix is not a guarantee of success for the company, it is an additional tool to provide information and insights that allow decisions to be made in line with the reality of the company and not only with the vision of the administrator, which sometimes it can be very different from the objective facts.
Short and long term planning
Another possibility can also be apply Ansoff as a form of planning in the short, medium and long term. After describing the 4 scenarios proposed by the matrix, the administrator can choose which strategy to bet on first and which one to leave for later.
This decision can broaden business horizons and clarify future challenges.
How to apply the Ansoff Matrix to business?
For the Ansoff Matrix to have value for the organization, it must be full of information that reflects, as faithfully as possible, the context of the company.
It is no use trying to hide reality to give the matrix a more optimistic view. On the other hand, avoid creating an overly pessimistic scenario, as you run the risk of missing out on opportunities.
So how to apply it?
Collect company and market information
The first step to apply Ansoff to your business is to collect a selection of data about the company, its market and potential markets.
Another interesting set of information is benchmarking, which takes into account what the competition is doing.
With all this information in hand, you will be able to understand what is happening in each quadrant of the matrix. So, it’s time to move from paper to practice. Again, you can use the Ansoff Matrix combined with the SWOT analysis.
By comparing the information in these documents you will have an idea of which front you should attack first and how to best take advantage of the company’s potential.
Measure the acceptance of the products you already offer
If your organization has a great product but only a small portion of the market, it’s time to invest in a good marketing and communication plan. These are actions that will allow you to achieve greater market penetration.
On the other hand, if the market is saturated and the company is no longer able to attract customers, it is time to move on to the development of a new market. Therefore, the task should be a thorough study of the market you want to reach to show the need for your product.
Also, it is necessary to make the necessary adaptations for a new audience or buyer person, that is, the new potential consumers to whom we are going to deliver value.
Another possibility is product development. In this case, the manager must study his current market very well and investigate what needs are not being met. Some methodologies, like the Human Centered DesignThey can help a lot in this matter.
If the company is in a position to innovate, it is time to develop a new product and apply it to a new market. Everything new, great challenges and many discoveries to be made.
Although risky, this strategy can bring huge profits, so it should be studied thoroughly before putting it into practice.
All of these strategies can be viewed as a progression of business maturity, just as they can be aligned with the product life cycle. In this way, the company can reinvent itself and optimize its resources.
The Ansoff matrix allows us to see how the assets that the company already has can be fully exploited.obtaining, in this way, more profits for the organization.
If you enjoyed learning how Ansoff works, we think you will also like to learn about the RACI matrix, which will allow you to properly distribute responsibilities in your company. Do you want to know more about it? So, feel free to continue your reading.