Ansoff Matrix - Research Paper Example

Prior to the publication of this book, many organisations at that time had little guidance on how to plan and make decisions for the future; many still relied on conventional forms of planning that involved decisions based on an extended budgeting system which in turn is derived on a projected budgetary outcome to some point in the future (Chartered Institute of Management, 2003). Recognizing the needs of business organisations during his time, Ansoff stated that, "a firm needs direction and focus in its search for and creation of new opportunities and the fact that it is to the firm's advantage to see entries with strong synergistic potential" (Ansoff 1965, p.

104 - 105). Furthermore, Levitt (1960) suggested that in order for an organisation to be successful and grow then an organisation would require a "definitive description" of their role within their environment. However, Ansoff have his own share of critics. Ansoff and Henry Mintzberg have differing views on strategy. In particular, Mintzberg's is averse to Ansoff's view on strategy that is built upon planning (Ansoff 1965, p. 1207). Levitt (1960) elaborated that organisations should have some form of "natural extensions" of the firm's products and markets explaining "natural extensions of the firm's product-market position, derived from some core characteristic of the present business.

" explaining that businesses in one particular industry, for example railroads, could in fact class themselves as in the 'transportation business (Ansoff 1965).'Ansoff (1965, p. 105) proposed that, in fact, this idea was "too broad" and didn't take into account stakeholders or the "investment Community" understanding or relationship of organisations' future product-market direction or "common thread. He further expanded on this, stating that "a relationship between present and future product-markets which would enable outsiders to perceive where the firm is heading, and the inside management to give it guidance.

"The common thread in fact was based on three factors according to Ansoff. These are the following:Product-market scope-which identifies the industries to which an organisation limits its product/market position;Growth vector-which is the direction or is an indication of the direction that an organisation is moving towards or with respect to its current product, market position; and Competitive advantage-which is an attempt to understand the properties of individual products markets that will allow an organisation to remain or sustain a competitive advantage.

It was through this explanation of the growth vector which elaborates the common thread and the prospective direction of an organisation that becomes the foundation and led to the creation of the Ansoff Matrix otherwise known as the market/product matrix (Ansoff 1965).The Ansoff's MatrixPresentNewPresentMarketPenetrationProductDevelopmentNewMarketDevelopmentDiversificationSource: Ansoff, 1965 The matrix as proposed by Ansoff attempts to indicate the direction of organisation product/market posture, through four possible product/market combinations: market penetration; product development; market development; and