THE MCKINSEY GROWTH MODEL

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1 THE MCKINSEY GROWTH MODEL Ansoff s product/market matrix Product / service New Product development Diversification Present Market penetration Market development Present New Market / segment Diversification is a corporate strategy to increase sales volume from new products and new markets. Diversification can be expanding into a new segment of an industry that the business is already in, or investing in a promising business outside of the scope of the existing business. Diversification is part of the four main growth strategies defined by Igor Ansoff's Product/Market matrix: Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The first three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line, whereas diversification usually requires a company to acquire new skills, new techniques and new facilities. 1

2 GROWTH STRATEGIES BASED ON: The McKinsey model argues that businesses should develop their growth strategies based on: 1. Operational skills are the core competencies that a business has which can provide the foundation for a growth strategy. For example, the business may have strong competencies in customer service; distribution, technology. 2. Privileged assets are those assets held by the business that are hard to replicate by competitors. For example, in a direct marketingbased business these assets might include a particularly large customer database, or a well-established brand. 3. Growth skills are the skills that businesses need if they are to successfully manage a growth strategy. These include the skills of new product development, or negotiating and integrating acquisitions. 4. Special relationships are those that can open up new options. For example, the business may have specially string relationships with trade bodies in the industry that can make the process of growing in export markets easier than for the competition. PAGE 3 DIMENSIONS FOR GROWTH 7 ways of achieving growth to new to existing How? Acquisitions Partnership Buy / Hire Develop internally Increasing risk with increase in controlling interest PAGE 4 2

3 The lowest-risk option! Try to increase sales to the existing customer base; this is about increasing the frequency of purchase and maintaining customer loyalty. to new PAGE 5 DIMENSIONS FOR GROWTH: to new Sell the existing product to new by increasing advertising and promotional activities. This can be done by selling products to the of the competitors or in some new regions. This is a risky option and does not always guarantee success. to new PAGE 6 3

4 " A combination of market development & diversification strategy taking a risk by developing and marketing new products to be sold or entirely new. " Faster growth rate can be achieved by introducing new products or in the existing or new market. In can be done in two ways: 1. New products can be developed based on the demand of the customer base. It also helps to increase the customer base. 2. Some new products can be sold to the new who already trust the existing brand and value the relationship. Companies with high brand value can easily use the second option to increase product sales and achieve faster growth. to new PAGE 7 DIMENSIONS FOR GROWTH: approaches The use of distribution channels as a possible source of growth. Are there ways in which existing products and can be sold via new or emerging channels which might boost sales? The companies can explore and use new distribution channels or new delivery approaches to increase sales volume. Increase in distribution network in already tapped regions helps to boost sales in the same region. to new PAGE 8 4

5 " The companies can consider new geographies to expand their business and boost sales. " Geographical expansion is one of the most powerful options for growth. " But also one of the most difficult due to cultural differences involved in different geographies and added country risk. to new PAGE 9 DIMENSIONS FOR GROWTH: ( Horizontal integration ) " Companies can achieve growth by acquiring troubled competitors or consolidating the industry through merger and acquisitions. " Inorganic growth is a very effective medium to achieve faster growth rate. to new PAGE 10 5

6 ( Vertical integration ) 7. New competitive " Requires a business to think about opportunities to integrate vertically or consider whether the skills of the business could be used in other industries. " Companies can integrate business verticals to exploit the different opportunities available in different sectors. " It can also use the skill of one particular sector to another sector in order to improve the delivery capabilities and quality. " Integrating different business can improve the service quality significantly. to new PAGE 11 6