Corporate Objectives, Mission and Ansoff's Matrix
A mission statement is a short, formal expression of a business's overall purpose and values, from which more specific corporate objectives (medium to long-term goals for the whole organisation, such as growth, profit maximisation, market share, or social/environmental targets) are derived; these objectives then cascade into functional objectives for individual departments such as marketing or finance. Corporate objectives should ideally be SMART: Specific, Measurable, Achievable, Relevant and Time-bound. Ansoff's Matrix, developed by Igor Ansoff in 1957, is a strategic tool used to select the growth strategy that will help achieve those objectives, plotting four strategies against whether the product is existing or new and whether the market is existing or new: market penetration (existing product, existing market, the lowest-risk strategy, e.g. increased advertising to sell more to current customers), product development (new product, existing market), market development (existing product, new market, e.g. exporting), and diversification (new product, new market, the highest-risk strategy because the business has no established expertise in either).
Before you start
Make sure you're comfortable with these topics first:
Method
- Identify whether the question is about the product/market position (use Ansoff) or about the wording and purpose of objectives (use SMART and the mission-to-objectives link).
- For Ansoff questions, establish two things about the strategy described: is the product new or existing, and is the market new or existing.
- Plot the answer onto the matrix: existing product/existing market is market penetration; new product/existing market is product development; existing product/new market is market development; new product/new market is diversification.
- Explain the risk level implied by the position: diversification carries the highest risk because the business lacks experience of both the product and the market simultaneously, while market penetration carries the lowest risk because everything about the product and customer base is already known.
- For objective-setting questions, test the given objective against each SMART criterion in turn and identify precisely which one it fails, rather than a vague 'it isn't SMART'.
- For an evaluate question on strategic choice, weigh a strategy's growth potential against its risk and resource requirements, and reach a conclusion linked back to the business's stated corporate objectives.
Worked example
A UK coffee shop chain currently sells coffee and pastries in UK city centres. It is considering four strategies: (1) opening more branches in UK cities it does not yet operate in; (2) launching a new range of bottled iced coffees sold through its existing UK shops; (3) opening a coffee shop selling its existing menu in Dubai, a market it has never entered; (4) launching a subscription meal-kit delivery service in an overseas market it has never entered. Identify which Ansoff strategy applies to each option and rank them from lowest to highest risk.
- Option 1 (more branches in new UK cities, same product): existing product, new (UK) market segment = market development.
- Option 2 (bottled iced coffee, sold through existing UK shops): new product, existing market = product development.
- Option 3 (existing menu, new Dubai market): existing product, new market = market development.
- Option 4 (new meal-kit service, new overseas market): new product, new market = diversification.
- Rank by risk from lowest to highest: Options 1 and 3 (market development) carry moderate risk, since the product is known but the market is not; Option 2 (product development) carries moderate risk from the new-product side but keeps the known UK market; Option 4 (diversification) carries the highest risk of all four, because the business has no established expertise in either meal-kit delivery or the new overseas market.
Practice questions
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Q1What does the acronym SMART stand for when applied to objectives?Show answer
Answer: Specific, Measurable, Achievable, Relevant, Time-bound.
Q2Who developed the Ansoff Matrix, and in what year?Show answer
Answer: Igor Ansoff, in 1957.
Q3Name the four strategies on the Ansoff Matrix.Show answer
Answer: Market penetration, product development, market development, and diversification.
Q4A business sells an existing product into a country it has never sold in before. Which Ansoff strategy is this?Show answer
Answer: Market development.
Q5State which Ansoff strategy is generally considered the highest risk, and explain why.Show answer
Answer: Diversification, because the business has no established expertise in either the new product or the new market, so there is more that can go wrong with less prior experience to draw on.
Q6Explain the relationship between a mission statement and corporate objectives.Show answer
Answer: A mission statement is a broad expression of a business's overall purpose and values, and corporate objectives are the specific, more measurable medium to long-term goals derived from that mission that the whole organisation works towards.
Exam-style questions
Written in the style of a A Level Business exam paper, with a full mark scheme.
Analyse why a business might choose market penetration rather than diversification to grow.
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PeakGear, a UK outdoor clothing retailer with 40 stores, has a corporate objective 'to grow'. Its board is deciding between: Strategy X, opening 10 new PeakGear stores in UK towns it does not currently operate in, forecast to cost 2 million pounds and add 3 million pounds of annual revenue; and Strategy Y, launching a new PeakGear-branded range of camping tents sold in its existing 40 stores, forecast to cost 500,000 pounds and add 1.2 million pounds of annual revenue but requiring PeakGear to design and source tents for the first time. Evaluate which strategy PeakGear should choose to meet its objective of growth.
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