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Strategic Direction: Corporate Level Strategy

This document discusses Ansoff's matrix, which provides four strategic directions for organizations: market penetration, product development, market development, and diversification. Market penetration involves increasing market share with existing products and markets. Product development means introducing modified or new products to existing markets. Market development is offering existing products to new markets. Diversification radically increases an organization's scope into both new markets and products.

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nurul amin
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140 views9 pages

Strategic Direction: Corporate Level Strategy

This document discusses Ansoff's matrix, which provides four strategic directions for organizations: market penetration, product development, market development, and diversification. Market penetration involves increasing market share with existing products and markets. Product development means introducing modified or new products to existing markets. Market development is offering existing products to new markets. Diversification radically increases an organization's scope into both new markets and products.

Uploaded by

nurul amin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Strategic direction: Corporate

level strategy
Learning outcomes
• This chapter is about choices of products and
markets for an organisation to enter or exit.
• Should the organisation be very focused on just a
few products and markets?
• Or should it be much broader in scope, perhaps
very diversified in terms of both products (or
services) and markets?
Learning plan
• This lecture will introduce Ansoff’s matrix, which
generates an initial set of alternative strategic directions.
• The four basic directions are –
▫ Increased penetration of existing markets;
▫ Market development, which includes building new
markets, perhaps overseas or in new customer segments;
▫ Product development, referring to product improvement
and innovation;
and
▫ Diversification , involving a significant broadening of an
organisation’s scope in terms of both markets and products.
Strategic Direction (Ansoff Matrix)
Product

Existing New

Existing
Markets

New
Market penetration
• Market penetration is where an organisation takes
increased share of its existing markets with its existing
product range.
• It builds on existing strategic capabilities and does not require
the organisation to venture into uncharted territory.
• Moreover, greater market share implies increased power vis-
à-vis buyers and suppliers (in terms of the five forces), greater
economies of scale and experience curve benefits.
However, organisations seeking greater market penetration may
face two constraints:
▫ Retaliation from competitors.
▫ Legal constraints.
Product development
• Product development is where organisations
deliver modified or new products (or services) to
existing markets.
• This is a limited extension of organisational scope.
In practice, even market penetration will probably
require some product development, but here
product development implies greater degrees of
innovation.
However, product development can be an expensive
and high-risk activity for at least two reasons:
 New strategic capabilities
 Project management risk
Market development
• Market development involves offering existing
products to new markets.
• Similar to market penetration and product
development, the extension of scope is limited too.
• Typically, of course, this may entail some product
development as well, if only in terms of packaging
or service.
Market development
• Market development might take three forms:
▫ New segments: For example, in the public services, a
college might offer its educational services to older
students than its traditional intake, perhaps via
evening courses.
▫ New users: Here an example would be aluminium,
whose original users in packaging and cutlery
manufacture are now supplemented by users in
aerospace and automobiles.
▫ New geographies: The prime example of this is
internationalisation, but the spread of a small retailer
into new towns would also be a case.
In all cases, it is essential that market development
strategies are based on products or services that
meet the critical success factors of the new market.
Diversification
• Diversification is defined as a strategy that
takes the organisation away from both its
existing markets and its existing products.
• In this sense, it radically increases the
organisation’s scope.
• Ansoff growth matrix tends to imply unrelated
or conglomerate diversification but a good deal
of diversification in practice involves building on
relationships with existing markets or products.
• Frequently too, market penetration and product
development entail some diversifying
adjustment of products or markets.

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