Horizontal Axis
The x-axis is made up of two segments, which assess the newness of the product-market being investigated. Two choices of newness are possible – either New or Existing and these are graduated from side to side.
Vertical Axis
The y-axis is also made up of two segments representing the core competencies and distinguishes between new and existing core competencies.
The matrix is therefore made up of four quadrants.
Steps to Follow in Constructing the Matrix:
1. Identify the existing core competencies within the organisation
2. Identify the existing product-markets within the company
3. Taking the competencies and product-markets into account ask the following questions:
What new core competencies will we need to build to protect and extend out franchise in current markets? plus What new competencies might replace or make obsolete the competencies that are currently used to satisfy the needs of existing customers? (Quadrant 1)
What is the opportunity to improve our position in existing markets by better leveraging our existing core competencies? (Quadrant 2)
What new products or services could we create by creatively redeploying or recombining our current core competencies? (Quadrant 3)
What new core competencies would we need to build to participate in the most exciting markets of the future? (Quadrant 4)
This will place all existing and future opportunities on the matrix for further analysis and strategy formulation.
The Hamel / Prahalad Matrix