#42 15 strategic options for your entrepreneurial growth

This blog article deals with a topic that is relevant to anyone who is directly or indirectly involved in strategy - namely strategic options for action.

We are often spoiled for choice and don't even know where to go. But we need a clear direction in front of us so that we can make good strategic decisions for our company.

So today I would like to give you a little insight into the topic of "strategic challenges" - which, incidentally, we address both in our book and in our StrategyFrame®.

It is of great importance that we consider these two concepts together, because the strategic challenges are closely linked to and derived from the strategic options for action - these in turn are based on the situation analysis, in which the current situation is analyzed and defined in order to have a clear view of where a company stands and which realities we need to take into account.

In a nutshell, strategic options for action are various possibilities available to an organization or company to achieve its goals and visions or to grow as a business.

As is so often the case, there is also a corresponding tool here. An absolute classic is Ansoff's product-market matrix (also known as the Ansoff matrix, after its inventor; 1957), which we will discuss in more detail below.

The product-market matrix makes it possible to develop a corporate strategy geared towards growth.

On the one hand, the market is divided into

existing market and new market.

On the other hand, the products are split into

existing products and new products.

The corresponding growth strategies for the company can be derived from the respective product-market combinations, which we will explain in more detail in a moment.

The Ansoff matrix distinguishes between four strategic options: market penetration, market development, product development and diversification.

Based on this model, there was an extension by Kotler and Armstrong from 2012, which expanded the original four fields of the product-market matrix to six fields.

In our eyes, however, there was still a lack of strategic options for action, which is why we took the liberty of expanding the whole thing again.

The result was 15 possible strategic options that are available to you when it comes to further shaping the growth of your company.

And that's exactly where I would like to guide you.

The process deals with the following topics:

Growth or consolidation organic or inorganic growth, for example through acquisitions, geographical concentration or expansion, the development of new existing markets or customer segments, offering new products or services in existing markets and the identification of future markets and customer segments.

This can then be broken down into three main types of strategy:

Consolidation strategies Growth strategies Future and disruptive strategies

The consolidation strategies are, so to speak, three extensions that have not previously appeared in the matrix in this form:

In other words, the reduction of supply with the simultaneous reduction of markets from which one withdraws.

This means that an offer or product remains in place, but markets are reduced or existing offers are withdrawn from specific markets if they are no longer worthwhile. It is the counterpart to "market development", so to speak.

This can happen, for example, through the sale of regional business units or by giving up the entire market presence. Such a market consolidation was also visible in relation to the Ukraine-Russia war, as the Russian market had to be partially reduced for reasons of sanctions - not in all countries, not for all companies, but it was a very important point.

The third area is constant product consolidation, i.e. reducing the product range or offering while remaining in existing markets. This means that loss-makers or resource guzzlers from the product portfolio are reduced, while the company remains in the markets in which it is already active.

These three strategic options should not be forgotten, because our favorite quote in Hope is not a strategy is: "The essence of strategy is choosing what not to do", i.e. knowing and deciding what not to do (Michael Porter).

The reality is that companies are often in markets that are sometimes not profitable at all and, in case of doubt, do not even cover the salesperson's costs - or have products in their portfolio that are perhaps loss-makers or will no longer make sense from a strategic perspective in the future.

The second core block of strategic options for action are the so-called growth strategies.

This aspect is very diverse and offers many options.

The classic first option, also represented in the matrix, is market penetration. This is a product-market strategy in which companies use various measures to drive up market share and exploit the full potential of the existing market (with an existing product).

And how can this be done? Depending on suitability, need and company, various measures can be implemented, such as more and targeted marketing, price reduction, purchase of a competitor, etc.

Another strategy can be product modification, i.e. a modified offer in existing markets. The existing product range is slightly modified, which should then encourage the existing target groups to buy again.

It can also be a product feature, e.g. in terms of material usage, quantity or even just the packaging.

Another possible option is product development. This goes one step further than product modification, as a new offering is introduced into the existing market. In other words, we try to satisfy existing customer needs in existing markets (even better) with new offers.

Here, for example, you can also work with new brands or new product lines to draw attention to the new product modification.

The aim here is to find or create new - but known - markets for existing products. We are talking about known markets here, as the target group is known. This also distinguishes this point from the next option.

Limited diversification describes the modification of existing products for new geographical markets.

In the previous point, we did not change anything in the offering and went into known markets with known target customers. With limited diversification, we have, so to speak, modified the offering to meet regional requirements, such as linguistic, cultural, technical requirements or regulatory issues.

And then we come to the next option - partial diversification.

Partial diversification can take two different forms, depending on the area of the matrix in which the action aimed at growth takes place.

Either

>> new products / offer to geographically new, known markets or

>> modified products / offerings are sold to corresponding new customer segments.

9.1 In the first form, new products are developed and sold for the known target group in new geographical markets. A classic example is the development of innovative offers tailored to specific regional customer needs or the development of completely new brands for an adapted regional approach or differentiation from other markets.

As you can see, it is only a minimal further step from the previously mentioned option of limited diversification.

9.2 The other partial diversification is, as already mentioned, the modified offer to new customers. In other words, the existing offering is modified to meet the requirements of new customer segments.

One example would be modifying insurance policies for a younger target group or adjusting marketing for the new customer segments.

Market development involves opening up new markets or customer segments for existing products.

By entering new market segments or opening up new geographical regions, a company can gain new target groups and customers for its existing products.

This is the riskiest aspect of the product-market matrix.

Diversification requires the development of a new product while at the same time tapping into a new market.

Depending on the company and strategy, this can be further subdivided into horizontal, vertical and lateral diversification.

In this case, there is a factual connection between the existing product range and the new product. In the case of horizontal development, a company expands its product range at the same economic level in order to reach new customers.

One example would be the sausage manufacturer that now also makes vegetarian meat substitutes.

In contrast to horizontal development, diversification does not take place at the same level of the value chain, but at the upstream or downstream level.

A classic example is a car manufacturer that buys up a supplier of tires or accessories and also offers their products for sale. In this way, dependencies can be reduced, market shares secured and the company's own growth further expanded.

With the lateral (or diagonal) diversification strategy, there is no connection between the old and new product-market combination.

One example would be the gas station that becomes a mini-supermarket.

These are topics that I may recognize from the "Blue Ocean" strategy, which refers to the creation of a new market, often innovated from existing markets. In other words, products or markets are developed that do not yet exist.

Offer determination

This refers to the identification of innovative, disruptive offerings for existing or familiar markets. For example, fintech start-ups are in familiar markets, but things are done completely differently to make the service offering in this sector possible.

Market identification

Market identification involves identifying future markets or customer segments for an existing, modified offering.

A classic example of this is Cirque du Soleil, which created a blue ocean of new market opportunities and challenged the conventions of the circus industry. From the perspective of a competitive strategy, the circus industry appeared unattractive, but Cirque du Soleil did not win by taking customers away from an already shrinking circus industry traditionally aimed at children. Instead, it created an uncontested market (blue ocean) that made the competition irrelevant. He appealed to a whole new customer group.

Future diversification

Future diversification is about creating a new, future offering for future markets. It is therefore the creation of a blue ocean with no or very little competition.

One example of this is Amazon Web Services (AWS for short) from Amazon. It is the world's most comprehensive and most frequently used cloud and is now Amazon's main profit driver - and not the book business with which Amazon started or the sales themselves.

Strategic options are an exciting topic with many - as the word suggests - options and often also many discussions, as we know from our own experience from our Strategy Workshop 1.

We hope that this article has given you a good overview of all possible strategic options and a better understanding of how to make good decisions that will help your business grow.