Understanding Ansoff

Ansoff's Matrixis a key part of most business studies courses and on the face of it is an easy model for students to understand.

 The model was created by Igor Ansoff and was first published in 'Strategies for diversification' in 1957.

 The basic premise of the matrix is that there are 4 different strategies that a business can adopt with each one carrying a different degree of risk. At first glance this is simple to apply. For example, a business launching new products into new markets is a high risk strategy because it consists of both product and market development and the business may be operating outside of its comfort zone.

 Where Ansoff can become tricky is correctly classifying which strategy the firm is adopting.

For example, when Cobra launched a draft version of its bottled beer. Is this actually a new product? The beer is the same the only difference being its available on draft. Is it a new market? Could the market for bottled beer be classed as different to the marker for draft beer?

However, the most common area I find with students is that they miss perhaps the most important aspect of Ansoff which is the degree of risk. Most students can argue that diversification is a high risk strategy however, not many students go on to classify the degree of risk attached to diversification.

For example, take a hypothetical situation whereby a large supermarket aims to launch a chain of DIY stores. This would be classed as diversification as the move is a new product in a new market. Lets look at an actual example to compare and contrast. In the 1990's Nokia moved from being a producer of car tyres to become a major player in the mobile phone market. Again, this is diversification. However, which one has the greater degree of risk? One could argue that the supermarket moving into the DIY sector is less risky. The supermarket already operates in the retail sector and can transfer many of the skills and systems to its new strategy. Therefore this strategy would be perhaps at the top left hand corner of the diversifciation 'box' whereas in the case of Nokia, this might be placed in the bottom right hand corner of the diversification 'box'.

Students need to look deeper into the degree of risk attached which each individual strategy rather than just simply categorise a strategy as one of the four outlined by Ansoff. This allows greater analysis and with greater analysis comes higher marks.