Innovation classifications final v1.2 r mc donnell

ANSOFF MATRIX
APPLIED TO
DISRUPTIVE INNOVATION
FINAL
v 1.2

ANSOFF MATRIX & INNOVATION
Market Development
In which quadrant does
incremental and non-
incremental innovation
happen?
New
Increasing Risk
The conventional ANSOFF Matrix
Figure: 1.0
Existing
PRODUCTS
MARKETS
Ne
w
EXISTIN
G
Market Penetration Product Development
Diversification
Increasing
Risk
Innovation Classifications +1.269.364.1070 richmcdon129@gmail.com

BACKGROUND INFORMATION – ANSOFF MATRIX
Within the scope of Ansoff Matrix, depending on where a company is in its lifecycle and its ‘risk
tolerance’ a company my apply several growth strategies in an integrated manner:
1. Market penetration. Market penetration refers to selling existing products to existing markets.
Existing market for a MCN (e.g., Multinational Corp) consists of its global operations divided into five
operating segments: Americas, Europe, Greater China, Japan and Rest of Asian Pacific. They may
also operate retail stores in multiple countries and regions
A MCN engages in market penetration strategy via effective application of marketing strategy.
The market penetration strategy can be executed in a number of ways:
1) Decreasing prices to attract new customers
2) Increasing promotion and distribution efforts
3) Acquiring a competitor in the same marketplace
Page 3

2. Product development. This involves developing new products to sell to existing markets. New
product development in a regular manner is one of the core growth strategies pursued by every
company. Wherein, a company strives to introduce new product/s or services that fits and
complements its ecosystem and serves to further strengthen the company’s overarching ecosystem.
Moreover, the multinational technology company regularly introduces updated versions of its existing
products and services and introduces totally new products. A company’s investments on research and
development for new products can vary greatly. Most leading companies allocate more that 7% of
sales (turnover) to R&D.
This strategy can be implemented in a number of ways:
1) Invest in R&D to develop new products to cater to EXISTING MARKET/S.
2) Acquiring a competitor’s product and merging resources to create a new product that better meets
the need of existing market/s
3) Form strategic partnerships with other firms to gain access to each partner’s distribution channels /
brand
Page 4

3. Market development. Market development strategy is associated with finding new markets for
existing products. This strategy is widely adapted as the main growth strategy by a MNC. Specifically,
focusing on emerging economies in Asia as attractive markets from a long-term perspective. The
multinational technology company appeals to local culture and sentiment when developing marketing
strategies for new markets.
Despite intensive pursuit of market development business strategy, America’s segment comprising
South and North America remains the biggest source of revenue for US corporations, generating more
than 40% of revenues in America’s segment for many MNCs.
This strategy can be implemented in a number of ways:
1) Catering to a different customer segment
2) Entering into a new domestic market (expanding regionally)
3) Entering into a foreign market (expanding internationally)
Page 5

4. Diversification. Diversification involves developing new products to sell to new markets and this is
considered to be the riskiest strategy because it requires both MARKET and PRODUCT
DEVELOPMENT. Most often companies with pursue ‘related diversification’ where many of the
company’s capabilities and know-how, and synergies can be leveraged in an adjacent market space.
The vast majority of MCNs engaged in diversification business strategy on a limited basis. Not all
diversification attempts by market leaders prove to be successful for many reasons. Including, but not
limited to: weak business models, poor product execution, or poor pre & post launch support. An
example of RELATED DIVERSIFICATION: A producer of leather shoes – starts a line of leather wallet
and accessories. Whereas, UNRELATED DIVERISICATION is the most problematic and highest risk.
An example: A producer of leather shoes enters the electronic gaming space.
In conclusion, most companies spend their time and efforts in the Market Penetration, Product
Development or Market Development quadrants. With the least amount of emphasis on the
Diversification quadrant because of its inherent risks.
Page 6

Market Development
In which quadrant/s
does incremental
and non-
incremental
innovation happen?
New
Increasing Risk
The conventional ANSOFF Matrix
Figure: 1.1
Existing
PRODUCTS
MARKETS
Ne
w
EXISTIN
G
Diversification
Increasing
Risk
Saturated / declining
markets; apply
competencies in new
areas
Exploit R&D and
customer needs
Current markets saturated New
opportunities for geographic
spread, entering new segments or
new uses.
Gain market share for
advantage

THE ANSOFF MATRIX – IN USE
Market Development
New
Increasing Risk
Strategic Planning
Point A) The starting point of the Ansoff
Matrix as a Product - Market Strategy
Tool.
Points B), C) and D) are also
strategic options for addressing corporate
growth goals.
For example: a company identifies an
under-served need in an adjacent market
they serve.
(Ex. Espresso sees a market opportunity for
a new in-home combination coffee / latte
machine. In order to enter the market –
Espresso will need to allocate resources to
a New Product Development
(NPD) project in (Quadrant B).
During product development Espresso may
also need to pursue market development
activities targeting the new consumer.
Figure: 1.2
Existing Products
MARKETS
Ne
w
EXISTIN
G
Diversification
Increasing
Risk
B
C
A
D

Market Development
New
Increasing Risk
Strategic Planning
Staying with the Espresso example.
The NPD team at Espresso has an
idea for a new business.
The NPD team suggests that the
company enter the tableware
business.
Targeting the Work-From-Home
(WFH) consumer.
The new tableware industry is an
entirely new market space, that does
not leverage Espresso’s core
competencies.
Figure: 1.3
Existing Products
MARKETS
Ne
w
EXISTIN
G
Diversification
Increasing
Risk
Market Insights & Customer Feedback
B
C
A
D
An Example of Unrelated
Diversification

DISRUPTIVE INNOVATION MODEL
Customer
Distribution
Curve
Figure: 1.4
Disruptive
Innovations
Range of
Performance
That
Customers
Can Utilize
Diversification
Technology
that is
Good
Enough
Customers’ ability to utilize
improvement as a single line.
In reality, there is a distribution
of customers around the
median e.g., distribution curve.
Indicating multiple tiers in a
market.
The dotted line represents a
technology that is “good
enough”.
The more steeply sloping solid
lines depict technological
progress that outstrips the
customers ability to use.

DISRUPTIVE INNOVATION MODEL
Customers’ ability to utilize
improvement as a single line.
In reality, there is a distribution
of customers around the
median e.g., distribution curve.
Indicating multiple tiers in a
market. That range is depicted
in greater detail at the bottom
of the Figure. The dotted line
represents a technology that is
“good enough”. The more
steeply sloping solid lines
depict technological progress
that outstrips the customers
ability to use.
Disruptive innovations don’t
attempt to bring better
products to established
customers in existing markets.
Rather they disrupt by
introducing products that
appeal to new or less-
demanding customers.
Once the disruptive product
gains a foothold in the low –
end markets the improvement
cycle begins.
Customer
Distribution
Curve
Figure: 1.5
Disruptive
Innovations
Range of
Performance
That
Customers
Can Utilize
Technology
that is
Good
Enough
Mainstream
Customers
Low End Ultra Critical
Down / Up Market

HOW TO WIN
INNOVATION TYPES
This implies that the best way for upstarts to attack established competitors is to disrupt
them.
Figure: 1.6
NEW ENTRANT STRATEGY
SUSTAINING
DISTRUPTIVE
MARKET INCUMBENTS NEW ENTRANTS
WIN
WIN
LOSE
LOSE
- The race entails making better
products that can be sold for more
money to attractive customers
- When the challenge is to
commercialize a simpler more
convenient product that sells for less
money and appeals to a new or
unattractive customer set – the
entrants are likely to beat the
incumbents
Circumstances
Incremental
Non-incremental
Breakthrough / Radical

MCDONNELL DISRUPTIVE INNOVATION MODEL
Market Development
New
Increasing Risk
Disruptive Innovations, in contrast
don’t attempt to bring better
products
to existing customers in existing
markets.
Rather, they disrupt by introducing
products (services) that are NOT as
good as currently available products.
Disruptive products offer other
benefits: they are simpler, more
convenient, and less expensive
that appeal to less demanding
customers.
Figure: 1.7
Existing
Customers
MARKETS
Ne
w
EXISTIN
G
Diversification
Increasing
Risk
Better
Products
Disruptive
Innovations
Disruptive innovations
are products (services)
that are NOT as good as
currently available
products.
Disruptive products are:
1) Simpler
2) More convenient
3) And less expensive
Targeting existing
customers in existing
markets.
But – they can also
address new
underserved customer
groups of non-
consumers.
Non-consumption occurs
when people are trying
to get a job done but are
unable to because
available products are
too expensive or too
complicated.

MCDONNELL DISRUPTIVE INNOVATION MODEL
Market Development
New
Increasing Risk
Figure: 1.8
Existing
Customers
MARKETS
Ne
w
EXISTIN
G
Diversification
Increasing
Risk
Better
Products
Disruptive
Innovations
Down / Up Market
Mainstream
Customers
Ultra Critical
Low End
Disruptive Innovations, in contrast
don’t attempt to bring better products
to existing customers in existing markets.
Rather, they disrupt by introducing
products (services) that are NOT as
good as currently available products.
Disruptive products offer other
benefits: they are simpler, more
convenient, and less expensive
that appeal to less demanding
customers.
Disruption has a paralyzing effect on
Industry leaders – they almost always
move up market – rarely ever protecting
the new or low-end market spaces.
Questions industry leaders ask themselves:
a) Do we protect the least profitable end
of our business?
b) Or invest to strengthen our position in
The most profitable tiers of the business?
Industry Leaders – are
motivated to go up
market; not defend new
or low-end markets.
Strategic options
available to industry
leaders being attacked:
1) Do nothing
2) Move up market
defending their
highest margin tiers
of business.
3) Develop/launch a
‘FIGHTER BRAND’ to
attack the new
entrant in the low-
end of the market.
4) Offer lower prices
(reduced margins) to
the least profitable
customers.

Market Development
New
Increasing Risk
Figure: 1.9
Existing Products
MARKETS
Ne
w
EXISTIN
G
Diversification
Increasing
Risk
Parker Hannifin
Corporation
Meggitt
Aerospac
e plc Exoctic
Metals
Parker
Aerospac
e
An Example of Related
Diversification
LORD
Incremental Innovation

Market Development
New
Increasing Risk
Figure: 1.10
Existing Products
MARKETS
Ne
w
EXISTIN
G
Diversification
Increasing
Risk
TESLA
Space
X
SolarCity
The
Boring
Company
An Example of Unrelated
Diversification

THANK YOU!!!
RICH MCDONNELL
E:
RICHMCDON129@GMAIL.COM
T: +1.269.364.1070

Innovation classifications final v1.2 r mc donnell

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