Hopefully, this is one of the Frequently Asked Questions (“FAQs”) you encounter in your business; a question that is constantly being asked by your key stakeholders – not only investors, Board of Directors and the senior leadership team but also by your employees and clients as well.
The next big question everyone “gathered around the water cooler” should be asking is: How do we go from here?
In my experience, it really pays to have a simple and straight-forward method to enable you to be proactive in marshalling the resources behind a dedicated effort in innovation and growth [1]. In proceeding with such an important initiative, the effort must be based upon a thorough strategy formulation process including a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis (see my note at the end of this post).
Anyway, back in business school we studied a model for growth and diversification developed by H. Igor Ansoff, the father of corporate strategy. In 1957, while he was working for the Lockeed Aircraft Corporation, he published an article called “Strategies for Diversification” that presented a truly ground breaking model which eventually became known as the “Ansoff Matrix”, as shown below:
Source of graphic: http://www.marketingteacher.com
When applying what amounts to a 2×2 Market/Product growth framework above, there needs to be a clear link between the past and the future (aka leveraging core competencies) and 4 strategic components must be considered:
- Product-market scope – a clear definition of what business you are in, the products and services you represent, to which customers.
- Growth vector – a methodology you will follow when approaching growth (i.e the Ansoff Matrix).
- Competitive advantage(s) – those advantages the organization possesses that will enable the firm to compete effectively in their chosen marketplace.
- Synergy – where 2+2 = 5 or, in other words, an explanation of just how the sum of the parts can be greater than the whole.[2]
So, the point here is that, in order to spur innovation and growth of a company (or line of business or strategic business unit for that matter) it does not happen casually or by chance…it must be organized, follow a few simple guidelines and be part and partial of any company’s offensive strategy.
While running a direct marketing division in the Asia-Pacific region, I found an expanded version of Ansoff’s Matrix which is called the “3×3 Growth Vector Framework”. I have used this model with great success ever since. One caveat though – if you choose to use the 3X3 framework, please keep in mind that the term “Products and Services” can encompass products, services, media approaches, distribution channels, alliances, other innovations and productivity enhancements (use of automation, technologies, etc.).
The 3X3 Growth Vector Framework for Managing Product and Services Efforts
(Click on the Image for a closer look)
Where:
- Market Penetration: identifies the direction for the products and services you are currently selling in your chosen market(s).
- Market Extension: making refinements and enhancements to manner in which you position existing products to reach different markets and effectively differentiate from the competition.
- Market Development: opportunities being sought for existing products. In other words, selling existing products and services to new markets.
- Product/Services Extension: making refinements, variants and/or limitations in features, benefits or repositioning existing products that are new to your customers.
- Product/Services Development: looks at replacing existing products and services that have become mature, unproductive or fatigued and need to be replaced by new, better performing products and services.
- Diversification: identifies new products and new market opportunities – related to the clients it currently serves.
The complete Product and Services model is comprised of 9 Quadrants (shown in black and white) or potential areas for innovation and growth:
Quadrant 1: Existing Market/Present Products and Services
Quadrant 2: Existing Market/Improved Products and Services
Quadrant 3: Existing Market/New Products and Services
Quadrant 4: Expanded Market/Present Products and Services
Quadrant 5: Expanded Market/Improved Products and Services
Quadrant 6: Expanded Market/New Products and Services
Quadrant 7: New Market/Present Products and Services
Quadrant 8: New Market/Improved Products and Services
Quadrant 9: New Market/New Products and Services (aka Diversification)
Strategies must be prepared for each of the quadrants that you feel, based upon the opportunities you have uncovered through your SWOT analysis, are the most viable. And finally, along with the 3X3 framework, for each growth strategy you have to articulate the following:
2) Quantitative and qualitative considerations.
3) The Four “S” Factors that have a direct Impact on Return-on-investment:
- Start-up costs.
- Speed (or time to market).
- Scale (or time to volume).
- Support costs – costs to support the ongoing business .[4]
Many companies are entering into their 2011 budgeting and strategic planning season soon. As you move forward with your innovation and growth initiatives, keep in mind what Peter F. Drucker stated:
“The modern organization must be a de-stabilizer; it must be organized for innovation.”[3]
Fluidminds recommends following these 6 steps to business model innovation
I sincerely hope that you can apply some of this information in your planning efforts. Comments, suggestions and additional perspectives on this topic or Strategy and Execution are welcome!
For information regarding SWOT analysis, you can download my Power Point presentation on the subject.
[1] In my view, you innovate to grow so that is why I think the two terms belong together.
[2] Perseus Publishing, Business – The Ultimate Resource, a division of Bloomsbury Publishing plc, Pages 962-963. Cambridge, MA. August 2002.
[3] Peter F. Drucker, The Daily Drucker, Harper Collins, NY, NY. 2004.
[4] James P. Andrew, Harold L. Sirkin, (2007) “Using the cash curve to discuss and discipline innovation investments”, Strategy & Leadership, Vol. 35 Iss: 4, pp.11 – 17.
[5] TOOLS: BUSINESS MODEL CANVAS, 6 STEPS APPROACH TO BUSINESS MODEL INNOVATION from the Business Model Innovation Blog.
The Savvy Strategist (tm) 
Hi Bill. Great article! Hope all is well in sunny California.