30 Minute Business Analysis ANSOFF Matrix

We all know that sound business planning is vital, and that monitoring your business regularly is really important too. Instead of wading through tomes of theoretical texts, this is the third of three help sheets which aim to explain the rudiments of 3 fundamental business models. Using them will make it easier to pull your thoughts together. At the end of each article, there is a template to help you work through that model.

The models presented are:

1) STEEP (general awareness of the industry or service area you operate in)

2) SWOT (specific analysis of your own business)

3) The ANSOFF Matrix (exploring the possibilities for business development)

STEEP and SWOT are tools you should use at the business planning stage, and as part of your annual business review. It will take you about 30 minutes to complete each one.

The ANSOFF matrix will help once your business is established, and you’re deciding which direction to follow in the future. Once your mind is focused, it takes about 30 minutes to think through.

If it’s the first time you have come across these tools, and don’t find it easy to envisage the outcome, have a look at completed examples of all three models, focusing on an interior design business: STEEP, SWOT and ANSOFF.

The ANSOFF MATRIX

Igor Ansoff produced this model to explore the different directions for strategic growth that a company might take. It is used by established businesses that have the financial security to develop further, not failing businesses clutching at straws in order to survive.

The level of risk associated with each option is graded. Obviously, the newer the territory, the higher the risk.

Even more obviously, once a decision to develop the business has been taken, a full market research exercise should be conducted to determine its feasibility before any further investment takes place.

	Existing Product or Service	New Product or Service
Existing Market	Market Penetration (small risk) Increase sales to the existing market, or penetrate it more deeply Improve quality of product or service	Product or Service Development (moderate risk) New product or service developed for existing market
New Market	Market development (moderate risk) Existing product or service sold to new market	Diversification (high risk) New product or service sold in new market Backward diversification (or integration) branches into supplier’s business area Forward diversification (or integration) branches into client’s business area

Diversification Explained

Whilst most of the other options are easily understood, the ‘Diversification’ cell needs a little more explanation.

• Full diversification refers to a totally new product or service to a totally new market, for example a photographer in Liverpool selling clothes in London.
• Backward diversification, or integration, relates to the preceding stage of a product or service, for example our photographer begins to produce camera lenses, or photographic paper, thereby encroaching on the role of the supplier.
• Forward diversification, or integration, relates to the later stage of the process, where the photographer offers a picture framing service, or sets up an exhibition, thus taking the role of another craftsperson, or events facilitator.

To consider all your possibilities and complete such a matrix takes longer than the STEEP and SWOT analyses, and requires more background knowledge, market awareness and business experience. However, by the time your business is established and ready to develop, you will already have acquired the knowledge and experience needed, and understand how to budget for the changes you want to introduce.




ANSOFF Matrix Template

	Existing Product or Service	New Product or Service
Existing Market	Market Penetration (small risk)	Product or Service Development (moderate risk)
New Market	Market development (moderate risk)	Diversification (high risk)