67 Reading: Strategic Opportunity Matrix
The last strategic framework that we will consider is the strategic opportunity matrix (sometimes called the Ansoff matrix, named after its creator, Igor Ansoff). Whereas the SWOT analysis can help organizations identify new market and new product opportunities (it’s the “O” in SWOT), the strategic opportunity matrix focuses on different growth strategies for markets and products. The matrix examines the following:
- New vs. existing markets
- New vs. existing products
As the diagram shows, each quadrant represents a different growth strategy:
- Market penetration: focus on current products and current markets with the goal of increasing market share
- Market development: use existing products to capture new markets
- Product development: create new products that can be sold in existing markets
- Diversification: create completely new opportunities by developing new products that will be introduced in new markets
Each strategy entails a different level of risk. Market penetration has the lowest risk since it emphasizes known markets and existing products. Diversification has the highest risk because it involves the development of new products and taking them to new markets. The company must consider whether it can achieve the desired returns without risking a move into new markets or introducing new products. Often, though, higher risk leads to a higher return.
Which strategy should the company pursue? The answer can be informed by a SWOT analysis, which takes into account the strengths and weakness of a company’s existing products, as well as the opportunities and threats in the competitive market.