In advance of OMTEC 2016, BONEZONE is looking back at some timeless articles and past presentations that energized audiences and equipped attendees with actionable solutions. As you read this article, consider that the most effective business strategies are proprietary in nature and involve every division within your company. The OMTEC 2016 Keynote by A.T. Kearney Partner Bill Tribe, Ph.D. will expand upon the framework that was outlined below by Mark Siders, Ph.D.
Many firms seek growth opportunities to either shore up already solid performance or to bolster sagging revenues. I offer the following insight into some of the primary motivations that would lead a firm to consider new opportunities, as well as some criteria that may be useful in evaluating opportunities on a macro scale.
Obviously, a big part of a firm’s motivation to develop new business opportunities lies in the area of growth. Firms are obligated to grow their business either in terms of increased overall sales, increased market share or increased profitability. The first researcher to articulate these motivations was Igor Ansoff, who proposed a two-by-two matrix, such as the one shown in Exhibit 1—in which opportunities were placed into growth vectors based upon a typology of products and markets.
|Old||Market Penetration||Product Development|
Ansoff postulated that each cell or growth vector could be addressed by some pointed questions. The answers to these questions may well provide valuable insight into the formulation of strategic alternatives.
Market penetration strategies answer questions like, “How can we get our existing customers to increase their volume (buy more products)?” or, “How can we get our existing customers to pay more for the products they are purchasing (increase profitability)?”
Product development strategies answer the question, “What else can I sell our current customers?” Firms adopting this strategy naturally consider line extensions of current products. A better strategy here might be to avoid products that will simply cannibalize or replace sales of existing products and, instead, provide incremental sales. Complementary products might well be the best way to provide incremental sales and, in addition, leverage current customer relationships.
Market development strategies answer the questions, “To whom else can we sell our current products?” or “Where else can we sell our products?” or even better, “What else can our products be used for?” The whom-else might be combined with the what-else question to develop a whole new set of customers without giving up core competencies in manufacturing. (At least one medical device manufacturer also sells products to the veterinary supply industry.)
A diversification strategy answers the question, “What other business can we be in?” While this strategy may yield purely incremental growth, the risks to the firm are also maximized as they pursue opportunities outside of their expertise. A number of medical device firms have assumed diversification strategies over the years, including such ventures as land speculation, office automation and even becoming sub-contractors for high-tech aircraft manufacturers, taking advantage of idle capacity in some machining centers.