The Ansoff matrix: when innovation meets growth strategy

The Ansoff matrix, or product-market expansion matrix, is a strategic planning tool used to plot the different growth alternatives for  a company. It was developed in 1965 by russian-american mathematician Igor Ansoff, considered by many as the father of modern strategic thinking. Charting the growth strategies in an Ansoff matrix or in any of its variants provides also a vision about the risk a company is assuming with its growth strategy.






In its classical form, the Ansoff matrix uses a 2x2 array plotting the variable "products and services" against "markets". In this discontinuous binary array, both axes take the discrete values "existing" or "new".

The four resulting areas in this plot represent the different growth strategies for the company:

• Market penetration:  the company seeks growth through its current offer of products and services, in its current market segment. This is the least risky, since it is based on the utilization of the existing resources and capabilities. In a growing market, maintaining market share will result in growth. On the other hand, in a stagnant market, growth comes only at the expenses of gaining market share from competitors. This is the playground for optimizing advertising, promotions, acquisitions and development of the sales force.
• Market development: the firm seeks growth by entering new market segments. A market development strategy carries more risks than a market penetration strategy. In this quadrant, the company will typically search new geographic locations, new distribution channels, or new target groups that may require additional and/or different marketing strategies.
• Market development: new products targeting existing market segments. In practice, companies very seldom release breakthroughs in this quadrant. New developments mostly refer to new flankers and SKUs, and the incorporation of new features into an already existing product range. As in the case of market development, product development involves more risk than simply aiming at increasing market share.
• Diversification: growth by entering new market segments, and by developing new products. It is the most risky of the four growth strategies. A quadrant that has been referred by some as "the suicide cell". Diversification holds the promise of great reward in case of success. However, it will usually require developing new market and product competences.

An interesting evolution of the Ansoff matrix, developed by Bansi Nagji and Geoff Tuff, is the Innovation Ambition Matrix. The matrix might be more appropriate to define the Innovation Strategy of the company, rather than to define its Growth Strategy. By conceptually plotting "how to win" vs "where to play", Nagji and Tuff define three levels of ambition:

• Core initiatives: optimization of existing products and services for the already existing costumer base.
• Adjacent initiatives:  adding incremental value to our range of products and services to target adjacent markets.
• Transformational initiatives: development of new products and services, that target new market segments.