Ansoff found that some business concepts leave unanswered questions and the definition of the business is vital when putting a strategy together. (For example are long-haul trucking, taxicabs and car rental in the same transportation industry?) This is too broad a description as is “energy business”
A common thread must exist – a relationship between present and future product-markets, which would enable outsiders to see where the firm is heading and to give guidance to inside management. The two key stakeholders are therefore the outsiders who perceive where the firm is heading and the insiders (management) who provide a map of guidance.
Ansoff’s definition of a common thread is based on three factors:
a. The Product – Market Scope which specifies the particular industries to which the firm confines its product – market position
b. The Growth Vector which indicates the direction in which the firm is moving with respect to its current product – market position
c. The Competitive Advantage which seeks to identify particular properties of individual product markets that will give the firm a strong competitive position.
The definition of a Product Line to Ansoff refers both to the physical characteristics of the individual products, (which include size, weight, materials, tolerances etc.) as well as the performance characteristics of the products (e.g. An aeroplanes speed, range, altitude, payload etc.)
In his original writings, Ansoff used the term ‘Product Mission’ instead of the term market. This terminology originates from the military and refers to a description of the job that the product is intended to perform.
According to Ansoff, this terminology helps management to set up the problems in such a way that it can better evaluate the performance of competing products.
A product-market strategy is therefore a joint statement of a product line and corresponding set of product missions or markets, which the products are designed to fulfil. They are distinct paths that a firm can take towards future growth.
Put simply, product-market strategy means the route chosen to achieve company goals through the range of products it offers to its chosen market segments.
Strategy, to Ansoff, is viewed as an operator that is designed to transform the firm from the present position to the position described by the objectives, subject to the constraints of the capabilities and the potential. The components of strategy to Ansoff are
1. The Objectives – attributes, priorities, goals. Objectives should be consistent and usable and which can be related to the current business
2. The Strategy
Product – Market Scope
Growth Vector
Competitive Advantage
Synergy
The product-market matrix or growth vector is therefore seen as part of the strategy process and this expansion grid concept is linked to the objectives and the overall determination of strategy.
A gap analysis is simple and widely used and was conceptualised by Ansoff. It is a technique to help the firm establish to what extent its current strategies and product-market mix will enable it to achieve its goals. The analysis usually looks at sales, profits, ROI etc.
Ansoff’s original work was devised to provide a synoptic overview of the corporations overall position and from this the analyst would assess the positioning of the products on the Product-market matrix and develop strategies, using the matrix, for growth.