Chapter 6: Corporate Strategy and Diversification
Strategy directions
The process of increasing the diversity of the range of products and/or
markets served by an organisation is known as 'diversification'.
Diversification involves increasing the range of products or markets
served by an organisation. Related diversification involves expanding into
products or services with relationships to
The Ansoff product/market
the existing business.
growth matrix
The Ansoff product/market growth matrix
is a corporate strategy framework for
generating four basic directions for
organisational growth.
Market penetration
Market penetration implies increasing share
of current markets with the current product
range. This strategy builds on established
strategic capabilities and does not require the organisation to venture into
new markets.
::::Two constraints of market penetration:
Retaliation from competitors: Increasing market penetration is likely to
exacerbate industry rivalry as other competitors in the market defend
their share. Increased rivalry might involve price wars or expensive
marketing battles, which may cost more than any market share gains
are actually worth.
Legal constraints: Greater market penetration can raise concerns from
official competition regulators concerning excessive market power.
Most countries have regulators with the powers to restrain powerful
companies or to prevent mergers and acquisitions that would create
such excessive power.
Product development
Product development is where organisations deliver modified or new
products (or services) to existing markets.
::::Product development can be an expensive and high-risk activity for at
least two reasons:
New strategic capabilities: Product development typically involves
mastering new processes or technologies that are unfamiliar to the
organisation. Success is likely to depend on a willingness to acquire
Strategy directions
The process of increasing the diversity of the range of products and/or
markets served by an organisation is known as 'diversification'.
Diversification involves increasing the range of products or markets
served by an organisation. Related diversification involves expanding into
products or services with relationships to
The Ansoff product/market
the existing business.
growth matrix
The Ansoff product/market growth matrix
is a corporate strategy framework for
generating four basic directions for
organisational growth.
Market penetration
Market penetration implies increasing share
of current markets with the current product
range. This strategy builds on established
strategic capabilities and does not require the organisation to venture into
new markets.
::::Two constraints of market penetration:
Retaliation from competitors: Increasing market penetration is likely to
exacerbate industry rivalry as other competitors in the market defend
their share. Increased rivalry might involve price wars or expensive
marketing battles, which may cost more than any market share gains
are actually worth.
Legal constraints: Greater market penetration can raise concerns from
official competition regulators concerning excessive market power.
Most countries have regulators with the powers to restrain powerful
companies or to prevent mergers and acquisitions that would create
such excessive power.
Product development
Product development is where organisations deliver modified or new
products (or services) to existing markets.
::::Product development can be an expensive and high-risk activity for at
least two reasons:
New strategic capabilities: Product development typically involves
mastering new processes or technologies that are unfamiliar to the
organisation. Success is likely to depend on a willingness to acquire
