Ansoff, Boston, and the Strategy ClockUpdated: Oct 27, 2016
These tools are still widely taught but have largely fallen out of favor over time, as better and more detailed planning and strategic management tools have been developed. Nevertheless, these tools do offer some frameworks for assessing various kinds of strategies, and being familiar with them can serve as a good starting point for developing effective strategic planning methods. Remember, it doesn't matter how difficult your task is, our writers are ready to help you with any writing assignment you need!
The Ansoff Matrix
The Ansoff Matrix was developed in the mid-1950s by Igor Ansoff, a Russian-born applied mathematician described by The Economist as “the father of modern strategic thinking”. Ansoff’s original work was not actually concerned with business management at all but was developed to aid NATO in strategic problem-solving at the height of the Cold War in the early 1960s (Ansoff was an analyst for the Rand Corporation and a Vice-President at Lockheed before moving into the academic field).
In practice, various potential alternatives for growth strategies developed by planners are arranged in the matrix according to the generic strategies they represent, where they can then be analyzed in a systematic way through other methods. The biggest shortcoming of the Ansoff Matrix is that it is actually more an information-management tool than a planning or analytical tool; that makes it very helpful for assessing businesses from an external perspective (such as part of a competition analysis), but of limited use in strategic planning.
A market penetration strategy is one in which business markets existing products to existing customers. The options available to the company in this strategy would involve promoting the product, adjusting the price, updating or repositioning the brand, and so on; no new product is introduced, and the business is simply cultivating its present customer base. A product development strategy is one in which new products – but products that are still natural evolutions of existing products, rather than being something totally unrelated – are marketed to the existing customer base. A market development strategy is when new markets are sought for existing products. A diversification strategy involves the development of new products and new markets at the same time. Market and product development strategies are opposites of each other, as are market penetration and diversification strategies.
The Boston Consulting Group Product Portfolio Matrix (Boston Matrix)
The Boston Matrix was developed by the Boston Consulting Group in the 1970s as a tool for assessing a company’s product portfolio and is based on two variables, market share and market growth. Each product is placed into one of four categories:
- Stars are products with high market share in high-growth markets. These products generate high levels of revenue, though not always high margins.
- Cash cows are products with high market share in low-growth markets. These products generate stable revenue and high margins because they require little investment to maintain their competitive position.
- Question marks (in some versions, they are called problem children) are products with low market share in high-growth markets; they have potential because of that but are currently generating poor revenues and margins.
- Dogs are products with low market share in low-growth markets. They do not generate worthwhile income (and may actually be losing money for the company) and do not have prospects for improving.
In general, a company would want to rid itself of any Dogs and keep its Stars and Cash Cows; Stars may eventually become Cash Cows, and Cash Cows provide the source of funds to support promising Question Marks. Some Question Marks can become Stars, others will not, and become Dogs.
One additional advantage of using the Boston Matrix is that the format (in most cases, with the amusing graphics excluded) can be used to plot a competitor’s products alongside a company’s own products, thus creating a simple, clear competitive analysis. The biggest inherent disadvantage of the Boston Matrix is that it tends to lead to oversimplification because it has only two variables; it is best used as a tool that provides input to a larger portfolio analysis, rather than the sole basis of the analysis. Another problem of the Boston Matrix, which is not really a problem with the tool itself but rather the way in which it is used, is that it is often misapplied; using it as a tool to assess entire strategic business units has for reasons that are not entirely clear become somewhat of a management fad. In this usage, the oversimplification almost always leads to a bad decision, because business units are not products, but are rather more complicated.
The Strategy Clock
Unlike the Ansoff and Boston Matrices, which are designed for product and marketing planning, the strategy clock is a firm-level competitive analysis tool along the same lines as Porter’s Generic Strategies or Five Forces analysis. First published in 1996 (C. Bowman & D. Faulkner, Competitive and Corporate Strategy), the strategy clock presents options for competitive positioning according to price level (cost advantage strategy) or the level of perceived added value (a differentiation advantage strategy):
Of the eight options on the clock, options 6, 7, and 8 are almost certainly doomed to failure, so in practice, the company would want to determine first if it is following or is heading towards one of these strategies. Option 6, increasing the price of a standard product, can only be successful if competitors do the same, or lower the value of their products. Option 7, a high price on a low-value product, can only be successful in a monopoly situation. Option 8, offering a low-value product at a standard price, is an automatic failure because it provides the competition two opportunities to take away market share, either through lower prices or higher-value products. The three most successful strategies, options 3, 4, and 5, can be best illustrated with some well-known examples, auto manufacturers:
- Toyota pursues a hybrid strategy, maintaining relatively low prices while offering a high level of value, mainly through having a very wide range of products.
- BMW pursues a differentiation strategy, dividing it between providing high value at moderate prices at the lower end of its product range, where the value added comes mostly in the form of brand equity and product quality, and high value through premium pricing at the upper end of its product range.
- Ferrari pursues a strategy of focused differentiation, providing high value at premium prices to a specific market segment.
The only real drawback to the strategy clock is that it only provides any useful information when it includes more than one competing company; like the Ansoff Matrix, this makes it perhaps more useful as a case study or competition analysis than as a reflective strategic analysis and planning tool.
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More tools (ADL Matrix, Gap Analysis, and Directional Policy Matrix) can be found here.
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