This week’s Pearl of Leadership Wisdom is on Growth.
Igor Ansoff was a Russian-American who is lauded as the father of Strategic Management.
His most famous contribution is his eponymous matrix, which helps firms decide what their product and market growth strategy will be.
It comes to my mind because I’ve spoken to a number of leaders recently who want to do very different things to what they are doing now. This may be right for them. But the grass is always greener on the other side of the fence. And the fence is often topped with razor wire. And the field beyond is a minefield.
The Ansoff Matrix looks at products and markets – both existing and potential new ones.
Stick to the knitting…Market Penetration
Growing by selling your existing products into your existing markets is called market penetration.
Market penetration can seem boring – the same old stuff. But wait – you know what you’re doing. You already make these products (or services). You already understand the markets. You’re already there. You can do more of what you’re already doing. You know you can. You can make things more difficult for your competitors. You can sell more, more often, to more people, for more money. Importantly, it’s low risk.
Some managers want to move away from market penetration because there are environmental issues looming that will make their existing market much tougher. But remember – markets don’t disappear, competitors do. Someone will win – you can make sure it’s you, in this lowest risk growth area.
Examples of market penetration? They are legion. Nokia, Ericsson etc – all the telecoms companies.
Risk rating – low. No bullets to dodge here.
Now with wings…Product Development
Growing by selling new products into your existing markets is called product development.
You’ve got some fabby new products and you want to sell them to your existing markets. The key issue here is how expensive is it to develop new products. If you can knock these out inexpensively, this is a great strategy and is not much riskier than market penetration. If your new products take time to develop, and money, and then fulfil some critical role in your customers business, like maybe a new aero engine, then there’s a real risk.
Example – most healthy companies most of the time. Supermarkets selling, eh, everything…insurance, banking. What does it look like when it goes wrong? – Toyota Prius.
Risk rating – low to medium. Death unlikely, but possible.
Just arrived from the UK…Market Development
Growing by selling your existing products into markets that are new for you is called market development.
OK, so you decide to sell your widgets into a new market. Lots and lots of lovely new customers. What could be better. The new market is huge. If we get 2% we’ll be rich. Yes, but that 2% already belongs to someone. And they want to keep it. You’ll have to fight. And they know the territory.
This is a higher risk strategy. It might be the right thing to do. But you better make sure you’ve done your market research, and you have a USP that’s watertight, airtight and extremely shiny.
Example – Lucozade – I remember my Gran drinking it when she was ill. Now it’s a sports drink!
Risk rating – low to medium. Death unlikely, but more likely that with market development.
And finally, growing by selling new products into markets that are new to you is called diversification.
I’ve got a great idea. I’ve spotted this great new market that’s growing like topsy. We can buy loads of new products and make a killing! We’ll all be rich. What could possibly go wrong? How difficult can it be to understand this new market? We’re smart guys.
This strategy has all the other risk factors combined, and some. To make it work you need to get an awful lot of stuff right. In order to speed the process of getting into new markets with new products, companies often go on an acquisition spree…
Example – GEC/Marconi. Was in defence, diversified into telecoms. Total car crash. Value of £34 billion reduced to £66 million. Board members last seen skulking around the US, hoping nobody Googles their names).
Risk factor – running with scissors, with your shoe laces tied together. In the dark.
No risk, no reward…
It’s all about managing the risk in your growth strategy. Risks are not to be avoided. They are to be understood and managed.
But remember, the greatest risk is having no growth strategy.
Example – a lot of wee companies.
Risk rating – Russian Roulette.