PRODUCT-MARKET-BASED VIEWS OF BUSINESS STRATEGY

Some of the earliest foundations of business strategy focused on the intelligent selection of particular product-market combinations to fuel economic growth and competitive success. Frameworks in this category primarily take the form of typologies that position strategy as being driven by a series of choices regarding specific products and markets. Some of the key business strategies in this category include the Ansoff product-market growth matrix, Abell's three-dimensional conceptualization of product market, and the Miles and Snow strategic organization typology. There is a rich history here, and the models selected are but a representative sampling of the evolution of thought regarding strategic product and market selection.

The Product-Market Growth Matrix

Key Thought Leader: H. Igor Ansoff, 1957

Although growth is a prominent and often primary assumption in modern business strategy, growth in response to competition was just emerging as a topic of consideration for businesses in prior generations. The Ansoff product-market growth matrix represents both an early theoretical approach and an applied business strategy tool.4

Ansoff introduced the matrix as a means of clarifying and differentiating true diversification strategies from other product-market-related expansion decisions a firm may make. One of the attractive aspects (and also limitations) of Ansoff's matrix is its simplicity. Ansoff conceptualized growth decisions as being a function of expanding either new or existing products within new or existing markets. The resulting 2 x 2 grid highlights four basic strategic options:

Market penetration. Growing the sale of existing products within existing markets represents a market penetration strategy. This growth can be fueled either by selling more of the same product to existing customers or by winning new customers within the same market. As markets saturate, the viability of market penetration as a growth strategy diminishes, and the other product-market strategies become more important.

Product development. The sale of new products to customers within existing markets is a product development strategy. New products may be developed and delivered by the firm itself or the firm may pursue product development by partnering with or acquiring other firms. Product development strategies can provide strong leverage of current capabilities and market positions.

Market development. When firms have strong product lines, they often pursue market development strategies to identify new markets within which to sell those products. Generally the products themselves will be enhanced or modified in such a way that they can suit the new market(s). The challenge for the firm is being able to successfully attract and adapt to new market segments.

Diversification. Ansoff's 1957 article on diversification strategies originally introduced the product-market growth matrix. Ansoff pointed out that diversification typically represents the riskiest of all of the strategic quadrants because it involves infusing new products into new markets, requiring both product- and market-related skills, experience, and capabilities that the firm may not adequately possess.

Ansoff emphasized that a company will choose various combinations of the product-market strategies (not just one). Each strategy represents an opportunity to leverage and grow upon past successes.

Three-Dimensional View of Product-Market Decisions

Key Thought Leader: Derek Abell, 1980

Numerous other typologies that expanded upon the simplified Ansoff 2 x 2 matrix have been introduced in the strategic management literature over time. One example proposed by Abell expanded on Ansoff's original conceptualization of market and "mission" by representing product-market decisions as a three-dimensional construct.5

Like Ansoff's matrix, Abell's typology characterizes strategic choices as expanding either new or existing business. However, rather than utilizing only product and market dimensions, Abell proposed three distinct dimensions to be considered: customer groups served, customer functions served, and technology employed. Each of these dimensions represents a distinct area of potential growth. Customer groups served relates most closely to the traditional understanding of "customer" and is focused on diffusion and adoption of a product to new customer groups. Abell recognized that the same customer group can have very different functional needs and expectations. Thus, the customer functions served dimension represents a distinct product-market expansion opportunity for firms. And technology employed considers the development and availability of alternative technologies that can potentially substitute for or extend the existing technologies.

The resulting 2 x 2 x 2 three-dimensional model offers firms eight distinct possible strategic options for growing existing or expanding into new domains. For example, a firm may choose to address a new customer function for its existing customers employing existing technology. Or the firm may employ new technology to meet an existing customer group's existing functional needs. The differentiation between customer group, function, and technology offers a broader set of options to consider than the more simplistic product-market grid.

 
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