Archive for October, 2010

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Desired State of Evolution – the newest instrument in the managerial toolkit

Friday, October 29th, 2010

The pursuit of organizational clarity and alignment towards a strategic direction has preoccupied researchers and practitioners for many decades. Especially over the last 50 years, a variety of management concepts have been popularized and adopted by organizations with more or less success.

Integrating strategic management concepts

Some of the early articles on the topic of strategic planning and clarity focused on clarifying how the concept of planning applies to various settings (Pryor 1964, Smiddy, 1964) or in proposing frameworks for strategy formulation (Ansoff 1964). Two such management concepts that gained popularity since then are mission and vision statements.

Towards the end of 1990, the interest of both researchers and practitioners focused increasingly towards exploring the use of integrated approaches that link strategic management concepts related to corporate identity: mission, vision, values and capabilities or competencies (Raynor 1998, Stuart 1999).

The trend of integrating  mission and vision statements in strategic management models or frameworks continued with the anchoring in the vision statement of concepts such as the Balanced Scorecard. Kaplan & Norton (1996) placed vision and strategy at the centre of the development of the Balanced Scorecard.

Since then a vast literature analyzing the connections between an organization’s approach to strategic planning and its business performance in relation with the Balanced Scorecard was developed (Ahn, 2001; Niven, 2002; Mooraj et al, 1999, Andersen et al, 2001; Kaplan and Norton, 2001).

Desired State of Evolution

In order to implement a logical and articulated strategic performance management system based on the Balanced Scorecard, an organization should clear identify what is the direction it is heading for, what it is trying to achieve (Andersen et al, 2001 citing Senge, 1990 and Kotler, 1996). The process of integration of all strategic statements of an organization that comprises values, mission, destination statement and vision can be facilitated by the creation of the Desired State of Evolution (Brudan, 2010).

Source: Brudan, 2010

Desired State of Evolution incorporates a combination of new and old strategic management concepts concepts, grouped in three levels: Purpose and Identity at the bottom, Desired State in the middle and Vision at the top. Together, they are linked in a sequence that can be described as the “Desired State of Evolution”.

The first level, “Purpose and Identity” is represented by the mission and values of the organization. The mission statement is essential, as it represents the reason why the organization exists. Linked to it are organizational values used by many organizations to drive behaviour, being considered an integral part of organizational culture. By linking them to the mission, desired state and vision, they become an important component of the strategy management system and key elements or organizational communication.

“Desired State”, the second level of components is represented by three sets of elements. This is an intermediary level that makes the link between mission and vision. It integrates the “destination statement” approach (Lawrie and Cobbold, 2004) of representing the desired state of the organisation at a future point, while adding by internal oriented capabilities, competencies, value drivers or key success factors and the projection of the organization in the external environment.

The third level of the “Desired State of Evolution” is represented by the vision statement, as a representation of the desired state of the organization in a more distant future.

The sequence: Values -> Mission -> Desired State -> Vision represents a storyline that illustrates the desired evolution path of the organization.

More details on the new integrating strategic management tool can be found at www.balancedscorecardreview.com

Reference

• Ahn, H. (2001), Applying the Balanced Scorecard concept: an experience report, Long Range Planning, Vol. 34, pp 441-461

• Ansoff, H.I. (1964), A Quasi-Analytic Approach to the Business Strategy Problem, Management Technology, Vol. 4, No 1, pp 67-77

• Andersen, H., Cobbold, I., Lawrie, G. (2001), Balanced Scorecard implementation in SMEs: reflection in literature and practice, 2GC conference paper

• Brudan, A. (2010), Desired State of Evolution – An integrating management tool, paper accepted at the 2010 Australian New Zealand Academy of Management (ANZAM) Conference, Adelaide, Australia

• Kaplan, R; Norton, D. (2001), The strategy focused organization, Harvard Business School Press, Boston, Massachusetts

• Lawrie, G. & Cobbold, I. (2004), Third-generation balanced scorecard: evolution of an effective strategic control tool, International Journal of Productivity and Performance Management, Vol. 53, No 7, pp 611-623.

• Mooraj, S.; Oyon, D.; Hostettler, D. (1999), The Balanced Scorecard: a necessary good or an unnecessary evil, European Management Journal, Vol.17, No. 5, pp 481-491

• Pryor, Jr M.H. (1964) International Corporate Planning: How is it Different?, Management Technology, Vol. 4, No 2, pp 139-148.

• Raynor, M.E. (1998), That Vision Thing: Do We Need It?, Long Range Planning, Vol. 31, No 3, pp 368-376

• Smiddy, H.F. (1964), Planning, Anticipating and Managing, Management Technology, Vol. 4, No 2, pp 83-91

• Stuart, H. (1999), A definitive model of the corporate identity management process, Corporate Communications: An International Journal, Vol. 4, No 4, pp 200-207

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smartKPIs.com Premium – The ‘gold standard’ in KPI documentation

Thursday, October 28th, 2010

Melbourne, Australia, 28 Oct 2010 – eab group is pleased to announce the launch of smartKPIs Premium, the most comprehensive and well documented selection of Key Performance Indicator (KPI) examples in the world.

smartKPIs.com Premium is available online in the Premium services section of the www.smartKPIs.com platform. It consists of over 1,000 KPI examples preselected by the eab group’s research team as the most relevant for practice across functional areas and industries. They were thoroughly documented in over 30 fields, 10 times more than the number of fields used by most other lists of KPI examples.

While the popularity of KPIs used to guide performance management decisions at strategic, operational and individual level continues to grow, one major issue in their successful deployment is the level of documentation. Simply listing the name of a KPI without thoroughly documenting it hinders its proper understanding and oftentimes generates communication issues. Thoroughly documenting KPIs in a standardised template has become a key success factor in working with KPIs. However, due to time pressures and lack of structure or clarity, oftentimes this step is skipped in the process of establishing KPIs within organisations.

smartKPIs.com Premium comes to address this issue by providing a structured template as well as the complete documentation of the fields for the most common KPIs used by businesses. Available both online and in PDF format, these documented KPIs can be adjusted and customised offline to match the specifics of each organisation. The benefit is the readily available template and documented fields that make the customisation much easier compared to starting with a blank page.

smartKPIs.com Premium was developed by a team of experienced researchers and practitioners specialised in organisational performance management and with a wide range of skill sets across business disciplines. It complements the existing database of KPIs available on www.smartKPIs.com which contains over 5,000 KPI examples grouped in a taxonomy of 14 business functional areas, as well as 24 industries that can be accessed by browsing or searching relevant topics.

“Many members of the smartKPIs.com online community asked for more details on the documentation page of each KPI example, possibility to export the data in a print friendly format and the approval to use the data for commercial purposes. smartKPIs Premium responds to these suggestions.” said Aurel Brudan, founder and director of eab group. “A yearly subscription is charged for accessing the smartKPIs Premium, however access to the database of 5,000 KPI examples and 1,000 examples of performance reports remains free.”

Features and Pricing


About eab group

eab group is an innovative research driven provider of integrated performance management solutions, assisting organisations to achieve results by architecting performance. Our expertise in strategy, organisational performance management, business intelligence and project management helps clients in sustainably delivering value for their stakeholders. Our services include consulting, training, research, technology and building online communities, such as www.smartKPIs.com. For more details, visit http://www.eabgroup.com.au

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2010 Trends for workers compensation claim frequency

Wednesday, October 27th, 2010

A research brief released recently by the USA based National Council on Compensation Insurance Inc. (NCCI) indicates that the workers compensation claim frequency declined with 4% in 2009, compared to 3,4% in 2008. However, the data also reveals that though claim frequency is down, indemnity and medical severity continue to rise, outpacing the wage inflation.

These two performance measures for work safety have a great impact upon both the employer organizations and the insurance companies. Large employers that can afford safety programs saw the steepest decline in injuries, due to the reduced costs paid for workers compensation claims. On the other hand, the insurers earnings are highly correlated with the increased indemnity and medical severity, that are outpacing the average weekly wage.

Source: NCCI (2010)

Since 1990, injury rates have dropped nearly 55%, due to some key factors influencing the long term decline in workers compensation claim frequency:

  • Global competition – advances in automation, technology, and production;
  • The aging of the workplace – older workers tend to have fewer workplace accidents;
  • Employers’ continuing focus on workplace safety over the years;
  • Reforms that tightened compensability standards in the 1990s (NCCI, 2010).

Over the latest five years, the decline in claim frequency continues to be widespread, being observed for all industries, geographic regions, and employer sizes, as well as for most claim types. However, the frequency changes vary considerably by type of injury: for example, the more complex such as carpal tunnel and lower back claims declined more than average.

Regarding future trends, economic factors suggest further reductions of claim frequency are likely in 2010. The economic recessions typically put additional downward pressure on claim frequency, because of less “job creation” which translates into a more experienced, and therefore less accident-prone, workforce. (NCCI, 2010).

References

NCCI (National Council on Compensation Insurance Inc.) 2010, Workers Compensation Claim Frequency Continues to Decline in 2009, available at: https://www.ncci.com/Documents/research-claims-frequency-sept-2010.pdf (accessed 25 October 2010)

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Google Price Index – a new KPI for mapping inflation trends using web data

Tuesday, October 26th, 2010

According with a recent article published by Harding (2010) in the Financial Times citing Google’s Chief Economist, Hal Varian, Google is currently developing and testing a new daily measure of inflation using web data.

Google Price Index (GPI) is envisaged to provide accurate daily statistics of the inflation trends for the products and services transacted via web, and could one day provide an alternative to the Consumer Price Index (CPI), once with the generalization of the online shopping.

Currently, the Consumer Price Index data is collected manually from shops and published monthly with a time lag of several weeks. Alternatively, the new Google Price Index will be able to offer automated daily updated figures, a tremendous improvement in the current status of the inflation intelligence data provision process.

Even, if the Google Price Index is already considered by many as an extraordinary alternative for the Consumer Price Index, as Google Chief Economist emphasizes, GPI is not a direct replacement of the CPI and most probably will not be in the near future. This is mostly due to the differences between the mix in the online shopping basket and the mix in the wider economy one.

As an example, housing accounts count for about 40% of the US CPI, while only for 18% of the GPI at this point.

While promising, the GPI is still in development and Google has not decided yet if it will be released to the public. In the meantime, Google Product Search provides a product research and comparison service and gives a glimpse of the algoritm behind GPI.

For more details on Key Performance Indicators specific to the Online Presence – eCommerce or Sales functional areas visit the KPI examples section on smartkpis.com.

References

Additional resources

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Toyota Motor Corporation and TPS – champions of performance improvement

Monday, October 25th, 2010

Today more than ever, Toyota continues to be studied by scholars and professionals that are interested to understand how a handful of people that formed the early Toyoda family succeeded in setting one of the one world’s greatest manufacturers. It took decades of hard work, innovation and a unique philosophy to turn what was first a small manufacturer of looms used in the textile industry into a champion in the more competitive and tough automotive global market.

Why is Toyota interesting to study and understand? Because the Toyota Production System (TPS) is an example of great performance and innovation, of tools, philosophy and practices that not only outstand by their beauty, but have also proved their effectiveness, in the volumes of vehicles Toyota sold and continues to sell, its market capitalization, customer attitudes and preference for Toyota cars and, not less important, its overall corporate philosophy that has crystallized.

So what is the Toyota Production System and how it has made the company perform that well?

The TPS was developed by Toyota at the end of the World War II, when the automotive manufacturing industry was dominated by Ford and General Motors, which made use of big equipment, mass production and economies of scale to produce as much as possible with costs as low as possible (Liker 2004). What these two giants were lacking was a customer-oriented approach, clients desiring more flexibility and customization. So this was what Toyota needed to tackle, but how could it do it with not too high costs? The result was an innovative approach to the production process, with the major focus on eliminating waste from all stages beginning with the raw material and ending with the final product. And this stands at the base of the lean manufacturing concept that would be embraced by many other manufacturers in the world, with more or less success.

Several specific techniques and concepts were put in place, focusing on different areas of improvement, such as (Liker 2004):

  • Just-in-time – the focus was to reduce inventories and associated carrying costs by using signals between different points in the process, which tell production when to make the next part;
  • One-piece-flow – involved moving one workpiece at a time between operations within a workcell;
  • Jidoka (‘automation with human intelligence’) – meant freeing the equipment from the necessity of constant human attention, separate people from machines and allow staff to conduct multiple operations;
  • Kaizen – described the focus on small, incremental, continual and adding-value improvements;

Source: toyoland.com (2010)

In this context, several KPIs can be used to measure performance in the production process (Liker 2004):

  • # Lead-time to produce
  • # Work-in-process inventory
  • # Finished-goods inventory
  • # Overtime
  • # Productivity (pieces per man hour)

However, for long-term success and sustainability of the operational excellence, techniques must be supported by an organizational philosophy that frames the context of operations. And Toyota understood this, establishing several immutable principles (Liker 2004) that would guide its existence over decades:

  • Long-term thinking, focus on adding value to the society
  • Performing the right processes leads to the right and desired results
  • Develop Toyota’s people and partners
  • Solve root problems, thus drive organizational learning

Reference

Liker, JK 2004, The Toyota Way: 14 Management Principles from the World’s Greatest Manufacturer, McGraw-Hill.

Note

For more KPI examples in Production and Manufacturing, visit smartKPIs.com.

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Over 5100 Key Performance Indicator (KPI) examples on www.smartKPIs.com

Friday, October 22nd, 2010

Registered members of the www.smartKPIs.com community can now select their Key Performance Indicators (KPIs) from over 5100 performance measures documented and published in the online repository. The team focused over the last few days on publishing examples from the Information Technology, Supply Chain, Procurement & Distribution and Knowledge and Innovation functional areas. Examples from  Government -State/Federal and Government – Local sectors were also added to the KPIs repository.

The functional areas with the highest number of KPI examples are:

The industries with the highest number of documented performance measures are:

Example of a documented performance measure: % Performance appraisals completed on time

Registered member experience on http://www.smartKPIs.com

  • Learn: To learn more about performance management and Key Performance Management visit the Resources section.
  • Explore: To explore the library of KPI examples by navigating the functional area and industry directory, visit the Browse KPIs section.
  • Customize: To build your customized KPI library by saving favorite examples for later use, visit the My KPIs section.
  • Contribute: To propose a new example of KPI, visit the Submit KPIs section.
  • Collaborate: To collaborate with other users and to discuss KPI examples, add comments on each KPI description page, ask questions on smartKPIs Answers, or contribute to the smartKPIs Forum.
registered members

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USA top hospitals ranking based on performance improvement

Thursday, October 21st, 2010

The Thomson Reuters 100 Top Hospitals: National Benchmarks is an annual, quantitative study dedicated to measuring performance across the industry, that identifies the best hospitals in USA, overall, as measured on the 100 Top Hospitals Balanced Scorecard. For the edition launched in 2010, hospitals are evaluated against similar hospitals for their performance in 2009, in terms of size and teaching status.

According to the study, if all the hospitals in the U.S.A. would have similar standards as the top 100 hospitals, the estimated impact would be:

  • 98,000 additional patients would survive each year;
  • About 197,000 patient complications would be avoided annually;
  • Expenses would decrease $5.5 billion a year;
  • The average patient stay would decrease by nearly half a day (Thomson Reuters, 2010).

The top-performing hospitals are listed by comparison group and number of winners, as it follows:

Source: Thomson Reuters (2010)

In the study, each performance measure is explained briefly, containing the reason why the indicator is included, the calculation, comments and favorable values. The key performance indicators used for this ranking are illustrated in the table bellow, setting a national performance comparison:

Source: Thomson Reuters (2010)

Nationally, the 100 Top Hospitals show us that high quality patient outcomes can be achieved while keeping finances in line. For example, the patient safety index of 0.87 means that they had 13% fewer adverse patient safety events than expected. Moreover, the award winners had 6 % fewer deaths than expected, with a 30-day mortality rate and 30-day readmission rates lower than other hospitals (Thomson Reuters, 2010).

The main conclusion of the study is that the healthcare industry in the U.S.A. did not significantly improve performance across the balanced scorecard of measures. The single outstanding achievement in performance improvement by hospitals is the decrease in mortality rates over the years studied, since 2004 through 2008, more than half of the hospitals studied improving their survival rates.

References:

Thomson Reuters 2010, 2009 Thomson Reuters 100 Top Hospitals®: National Benchmarks Study, available at: http://www.100tophospitals.com/assets/TOP-7769%20100TopHospAbstract_0310HiRes.pdf (accessed 01 October 2010)

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Social audits for MicroFinance Institutions (MFIs)

Wednesday, October 20th, 2010

In a recent report, CERISE (Comité d’Echanges, de Réflexion et d’Information sur les Systemes d’Epargne-crédit) presents the progress of social performance assessment during the past few years, being influenced by social audits, social ratings and reporting standards. The analysis is based on the results of 287 Social Performance Indicators (SPI) audits from 223 institutions in 53 countries, therefore the database gathered presents a highly important potential for taking stock of the social dimension of microfinance practices worldwide.

Source: Bédécarrats, Lapenu & Tchala (2010)

The report indicates that:

  • MFIs score highest on targeting and outreach (63%), this being the main objective of MFI. The lowest score is registered by the economic and  social benefits MFIs provide to their clients (49%).
  • The quality of service is highly rated, meaning that MFIs pay a close attention to their clients’ needs. However, it is hard to establish objective indicators that are also standardized and verifiable.
  • From a geographic point of view,  rural MFIs tend to overcome difficulties from their operating areas by developing participatory governance models and strong adaptation of services, generating efforts towards social responsibility.
  • NGOs have strong targeting strategies, while banks appear to focus on diverse product mix and solid social responsibility policies. For the NGOs, the measures in favor of consumer protection are linked with lower portfolio at risk (Bédécarrats, Lapenu & Tchala, 2010).

Social performance auditing has become very important for microfinance industry as donors and social investors require a higher degree of accountability from their MFI partners. According to the report, social performance becomes more important every year, being included in the MFI strategy, along with financial and environmental aspects.

References:

Bédécarrats,F, Lapenu, C &  Tchala, R, Z 2010, Social audits in microfinance: what have we learned about social performance?, available at: http://www.cerise-microfinance.org/IMG/pdf/Analysis-DB-SPI_mis_en_forme.pdf (accessed 10 October 2010)

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Gender diversity policy – an Australian banking industry perspective

Monday, October 18th, 2010

Source: ANZ, 2008

According with a recent article published in several high rated Australian newspapers, „ the days of the bank boardrooms being the domain solely of suits and ties could soon be at an end” (Johnston and Bibby, 2010).

This comes as a result of several banks such as Westpac and Commonwealth Bank who announced new policies to dramatically boost the number of women in management roles.

According to Westpac management, the bank had put in place a gender target to double the number of women in management positions to 40% in the next 4 years. The KPI used to monitor the results of this initiative is % Managers who are women. It can be found in the KPIs examples from the Human Resources Functional Area section of www.smartkpis.com.

The new targets come mostly as a response to the new ASX guidelines which are about to come in force in January, though as several studies and reports already proved, gender diversity can boost a company’s performance (Smith et al, 2005; Manpower, 2008), and thus should be a standard strategy to be adopted and followed by most of the companies.

Several companies like the ANZ Bank, already recognized this necessity of promoting more women in management positions. Currently, they are well on their way, running programs to boost the corporate gender diversity. According with the ANZ (2010) corporate responsibility policy:

• Organizations who are employers of choice for women have access to a larger talent pool;

• Are better positioned to represent the needs of customers and communities;

• Understand the link between a higher proportion of women in top management and increased profitability;

• „Gender diversity is an important characteristic of companies with excellent financial performance and developing women managers and leveraging that talent by giving them a seat at the decision making table is smart business.” (ANZ, 2008)

Though, a number of governmental official voices, among which Marie Steel, the acting director of the federal government’s Equal Opportunity for Women in Workplace Agency, already questioned how the 40% target will be achieved in such a short period of time, the initiatives seems to be an achievable one.

A recent survey among the Australian corporations shows that the banking sector is the best positioned to boost their gender diversity, with 13% of women employed in management position compared with just 8% for the country general.

Though the initiative is laudable, as Johnston and Bibby (2010) in their article acknowledge, there is a lot of terrain to cover, especially when comparing with high achievers like Sweden or Norway.

References

ANZ (2008), ANZ’z approach to advancing women in the workplace, Corporate Responsability – Gender, available at http://anz.com/resources/5/8/58755080402e27ca8188ab68c54970db/EOWA-booklet.pdf?CACHEID=5a9ac900402e2750b0bef72c5b851de3, (accessed 12 October, 2010)

ANZ (2010), Corporate responsability – Gender, available at http://anz.com/about-us/corporate-responsibility/employees/diversity-culture/diversity/gender/, (accessed 12 October 2010)

Jonston, E. and Bibby, P. (2010), Westpac adopts gender target, available at http://www.theage.com.au/business/westpac-adopts-gender-target-20101011-16g41.html (accessed 12 October, 2010)

Manpower (2008), 2008 Women in Management Survey, available at http://www.manpower.com.tw/pdf/2008_Women_in_Management_Survey_en.pdf , (accessed 12 October, 2010)

Smith, N.; Smith, V. And Verner, M. (2005), Do women in Top Management affect firm performance? A panel study of 2500 Danish Firms, available at http://ftp.iza.org/dp1708.pdf , (accessed 12 October 2010)

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Gender diversity – global trends and the influence on organizational performance

Friday, October 15th, 2010

Over the last decade or so, there has been an increased focus and debate on gender diversity of top executives and managers of corporations. This was caused mainly by the low proportion of women reaching top positions (Grant Thornton, 2009), despite the proved positive effect of gender diversity on organizational performance (Smith et al, 2005).

Gender diversity effect on corporate performance

Many studies explored this issue. One of them, conducted by researchers from Aarhus School of Business, Denmark and involving a panel of 2500 largest Danish companies revealed that the proportion of women in top management positions tend to have positive effects on firm performance. More than that, the results showed correlations between the positive effects of women in top management and their professional qualifications (Smith et al, 2005).

Driven by the perception of positive effects brought by managerial gender diversity on firm performance, but more predominantly, by the new governmental regulations and policies, large corporations throughout the world started in the last few years to increase their focus on corporate governance trying to boost the gender diversity of their top managerial positions.

A good example of such an initiative, is that of the Australian ANZ Bank. Currently, they are well on their way, running programs to increase the corporate  gender diversity. According with the ANZ (2010) corporate responsibility policy:

  • Organizations who are employers of choice for women have access to a larger talent pool;
  • Are better positioned to represent the needs of customers and communities;
  • Understand the link between a higher proportion of women in top management and increased profitability;
  • Gender diversity is an important characteristic of companies with excellent financial performance and developing women managers and leveraging that talent by giving them a seat at the decision making table is smart business (ANZ, 2008)

Recently two other Australian banks, Westpac and Commonwealth Bank announced policies directed towards increasing the number of women in management roles.

According with the Westpac executives, the bank had put in place a gender target, to double the number of women in management positions to 40% in the next 4 years. (Jonston and Bibby, 2010)

Contrary with the ANZ approach towards management gender diversification, which comes apparently as an internal corporate responsibility action, stated already in 2008, the new announcements made by Westpac and Commonwealth Bank seem to be mostly driven by the new governmental guidelines on gender diversification which are about to take effect, starting with January 2010.

This is, however, not surprising, as several governments throughout the world have imposed similar policies. Such examples, of countries who have introduced regulations on the gender compositions of the managerial teams and boards of directors of private corporations, in order to improve equal opportunities, are Sweden and Norway (Smith et al, 2005).

According with the Danish scholars, the Norwegian government introduced a 40% mandatory target for the share of managerial positions occupied by women, already from 2005.

Women holding management positions.  A Global Survey.

Despite the increased efforts for boosting the top management gender diversity a recent global research performed by Grant Thornton International (2009) reveals that women still hold less than a quarter, more exactly 24%, of senior management positions in privately held businesses. This is a slightly improved figure from the previous data collected in 2007, when only 19% of senior management positions were found to be held by women.

What it is striking, however, is the fact that a little more than 34% of the currently privately held businesses around the world do not have any woman in a senior management position.

According with the same study, the greatest percentage of women in managerial positions is in the Philippines, where women held surprisingly 47% of senior positions. They are followed by Russia with 42%, Thailand 38%, Poland 32% and Mainland China 31%.

Source: Grant Thornton, 2010

Survey methodology

The survey was launched in 1992 in nine European countries and currently covers the views of senior executives in privately held businesses all over the world, covering 7,200 private companies in 36 countries, providing territory, regional and global trend data.

References

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Marketing performance – a review on instruments and models (III)

Monday, October 11th, 2010

Continuing the incursion into the most popular and used marketing models and tools, which can add value to managing and increasing marketing performance, we explore in this post the Ansoff Matrix.

Also called the product / market grid, the Ansoff Matrix, is a visual representation in the shape of a matrix that maps the growth strategies based on the type of product and the type of market. As a result, four strategies have been suggested, as it follows:

Source: AnsoffMatrix.com (2009)

  1. The suggested strategy for entering with an existing product in an existing market, is market penetration. This mostly happens by “stealing” market share from competitors, firms that already sell the product to that market. However, it can also be done by finding new customer, but either way, the purpose is that of gaining market share as soon as possible.
  2. When the company already sells to an existing market and launches a new product onto that market, the strategy is called product development. This can happen when the company benefits from a good reputation and uses this to develop new products for that market.
  3. The company can also target its existing product to new markets, so as to increase business. This is called market development and involves an expansion of the company’s overall market presence, being preferred when the company finds new suitable market segments or can expand its operations in new areas.
  4. In a more mature stage, the company can resort to the strategy of diversification, launching new products onto new markets, this requiring greater efforts most of the times.

Mapping the four strategies must be completed with an analysis of the risks associated with each of them. It is considered that market penetration carries the lowest risk, whereas market development and product development are more risky as they involve some more investment, be it in a new product or in a new market. Diversification is the most risky, as it includes both the investment in a new product (research, development etc.)  and in a new market (advertising, logistics etc.). (Khan 2009)

Thus, the Ansoff Matrix is a useful marketing tool, being both a mapping of the marketing options in terms of growth opportunities that a firm has and a tool for managing a product over its life cycle.

References

AnsoffMatrix.com 2009, Ansoff Matrix Guide, available at: http://www.ansoffmatrix.com/ (accessed 10th October 2010).

Khan, V 2009, The Ansoff Growth Market and Risk Management, available at: http://www.brighthub.com/office/project-management/articles/52974.aspx (accessed 10th October 2010).

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