Igor Ansoff:Father of Strategic Management Presented By Anush Joseph MPOB, MBA, ASIET Prof. Nimal C Namboodiripad
Biography• Igor Ansoff was born in Vladivostok, Russia, on December 12, 1918.• Graduated from Stuyvesant High School, New York in 1937• Studied General Engineering at Stevens Institute of Technology and also completed MSc from the same institute.• Did doctorate from Brown University• He was an applied mathematician and business manager.• He is known as the father of Strategic management.• He taught for 17 years at the U.S. International University• He died of complications from pneumonia on July 14, 2002.
Ansoff’s contributions• Real-time strategic management• Product-Market Growth Matrix• The concept of Vertical/Horizontal integration• The concept of environmental turbulence
Strategic management• Strategic management function formulates, implements and evaluates cross-functional decisions that will enable an organization to achieve its objectives.• The process specifies the organizations objectives, develops policies and plans to achieve these objectives, and allocates scarce resources to implement the policies and plans to achieve the objectives
Strategic management• Strategic management involves adapting the organization to its business environment.• Strategic management affects the entire organization by providing direction.• Strategic management involves both strategy formation (he called it content) and also strategy implementation (he called it process).
Strategic management• Strategic management is fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses.• Hence, strategic management in many cases is partially planned and partially unplanned.• Strategic management is done at several levels: overall corporate strategy, and individual business strategies.
Environmental Turbulence• By the 1980s change, and pace of change, had become important for managing organisations.• The issue of environmental turbulence underlies Ansoffs work on strategy.• However, if some organisations were faced with conditions of great turbulence, others still operated in relatively stable conditions. Consequently, although strategy formulation had to take turbulence into account, one strategy could not fit every industry.
Environmental Turbulence• There are five levels of environmental turbulence outlined as: – Repetitive--change is slow, and predictable – Expanding--a stable marketplace, growing gradually – Changing--incremental growth, with customer requirements altering fairly quickly – Discontinuous--characterised by some predictable and some complex and sudden changes – Surprising--change which cannot be predicted and which both develops, and develops from, new products or services.
Ansoff Matrix(Grid)Product-Market Strategies Existing New Market Product Penetration DevelopmentExisting (Expansion) Market Development Diversification New (Expansion)
Market-Penetration StrategyIt seeks to increase market share for presentproducts or services in present markets throughgreater marketing efforts.You have to take care of competitive reaction andcost of conversionExample: Airlines use reduced fares & promotion likevarious family travel packages to penetrate market
Product-Development StrategyIs a strategy that seeks increased sales byimproving or modifying present products orservices.For example McDonald’s starting Veg. burgers inIndiaThe following have to be considered when goingfor this strategy– Market size/volume– competitor reaction– effect on existing products– resources to deliver new products
Market-Development Strategy• Involves introducing present products or services into new geographic areas.• It may be also targeting new segments in the same market. Have to be careful of competitive reaction, understand new buyers and adaptability
Diversification• When there is need to grow continually but there is a limit in the present line of business you go for diversification• It means entry into new line of activity other than your traditional business. Hence this is different from the other three strategies and a lot more riskier.• There are three types of diversification – Horizontal – Concentric and – Conglomerate
Concentric diversification• Concentric diversification includes adding new, but related, products or services.• Eg. Masala manufacturers getting into manufacture of ready to eat food items.
Horizontal diversification• Horizontal diversification includes adding new, unrelated products or services for present customers.• For example, a company that was making notebooks earlier may also enter the pen market with a new product.
Conglomerate diversification• Adding new, unrelated products or services is called conglomerate diversification• Eg. Reliance getting into the mobile phone business.
Integration• Diversification can be classified by the direction of the diversification.• Integration can be either – Vertical or – Horizontal• Integration can be done either by – Purchase of competitors or – Starting own business
Vertical integration• The term vertical integration describes the degree to which a firm owns its upstream suppliers and its downstream intermediaries/ buyers.• Vertically integrated companies are united through a hierarchy and share a common owner.• Usually each member of the hierarchy produces a different product or service, and the products combine to satisfy a common need.• Vertical integration is typified by – Backward integration and – Forward integration – Balanced integration
Forward integration• Forward integration involves gaining ownership or increased control over distributors or retailers• Forward Integration is when you are entering into subsequent stage – eg.Harissons Malayalam Plantations getting into packaged tea, Mafatlal getting into readymades
Backward integration• Backward integration is a strategy of seeking ownership or increased control of a firm’s suppliers• Backward Integration is entering preceeding stage of business eg.Brooke Bond getting into plantation business, Reliance into petroleum mining
Balanced integration• In balanced integration, the company sets up subsidiaries that both supply them with inputs and distribute their outputs
Horizontal integration• Horizontal integration refers to a strategy of seeking ownership of or increased control over a firm’s competitors eg. Tata Oil Mill being taken over by HLL or Tata’s taking over Tetley• Horizontal Integration is entering same level of business in same industry• To get market coverage, subsidiary companies are created which markets the product to a different market segment/geographical area.
Written Works• His written works include: – Corporate Strategy published in 1965 – Business Strategy, 1969 – Strategic Management, 1984 – The Firm: Meeting the Legacy Challenge,1986 – The New Corporate Strategy, 1989 – And more than 120 other published papers and articles translated into 8 languages
Honours• Netherlands has established an Igor Ansoff Award in his name for research in Strategic Planning and Management• Vanderbilt University has established an Ansoff MBA Scholarship• The Japanese Strategic Management Society also has established an annual award in his name.