Where Do You Want to Grow?

Tool: Product-Market Growth Matrix

This tool provides a framework to discuss the various growth options available to a company. It is useful to align a management team around a common language for discussing growth options. This helps to eliminate confusion and circular discussions that can occur when discussing strategy.

This model was originally developed by Igor Ansoff, known as the Father of Strategic Management, over 40 years ago. There are several other models related to growth strategies; however, the beauty of this tool is in its simplicity. As Jim Collins, best selling author of 'Good to Great' says, “the essence of profound insight is simplicity”.

Overview

In deciding where to grow, a company basically has four different options to consider. The product-market growth matrix illustrates these options.

Product-Market Growth Matrix

An organization should consider the opportunities from both a product and market perspective.

1. Market Penetration – pursue a strategy of additional investment in the current market with current products. Investment is made in additional programs to win more customers in the current market segment. This could include expanded sales efforts, additional channel strategies, target account programs to win a greater share of a customer's business, increased spending on promotional programs to generate awareness, etc.

2. Market Development – pursue a strategy of expanding to new markets, bringing your current product to new customers. This can include new market segments or perhaps expanding to new geographies. Some minor adjustments may be made to the product but in essence the same core product is offered. This strategy is pursued by many firms after they have established themselves in their home market.

3. Product Development – pursue a strategy of building new products to satisfy the needs of existing customers. The strategy is to win a greater share of the existing customer's business, by offering additional products to solve their problems. The company capitalizes on its existing customer relationships and its core competencies to bring revenue to the company.

4. Diversification – pursue a strategy of new customers and new products in parallel. This takes the company in a new direction and does not leverage its existing products or markets. It is considered risky but is also done to mitigate risk longer term by expanding in to new business areas.

Try this tool with your team the next time you're discussing growth options for the company. Drawing it on a whiteboard and describing each option briefly can be a useful starting point to frame your discussions and help align your team.