- [Instructor] For a business to thrive in today's world
of intensified competition,
we need to succeed on two fronts.
On the one hand, we need to continually grow
and optimize our current business, building within its core.
Activities here might include,
taking current products into new markets,
adding new models to refresh existing product lines,
or improving margins on best sellers.
This work attends to the current needs of the company
and its present and near-term performance.
We're in a largely defensive stance and can think
of this as playing not to lose.
But, if we're attending to the present and near-term
of the business, what about its future?
This is where we need to develop entirely new avenues
for growth that are well outside of the current business,
building beyond its core.
So, activities here might include, launching products
or services that are unprecedented in our company
or perhaps even unprecedented in the market.
Alternatively, this might entail reaching a new audience
or pioneering an entirely new market.
This work attends to the future opportunities
and diversification of the business.
We're acting in new ways, in new arenas
where we have no presence, so we are on the offense.
Our success hinges on breakthrough innovation
and we're required to accept the risks that this entails.
We'll call this playing to win.
Again, it's about building within the core
or playing not to lose versus building beyond the core
or playing to win.
Take Amazon as an example,
they continually innovate within their core retail business.
For example, by launching AmazonBasics,
their private labeled line of essential products.
But, at the same time they're also exploring
well beyond their core.
The Amazon Echo is a good example of this.
Taking them into the consumer internet of things
and artificial intelligence arenas,
and pretty far from their original retail business.
These two mindsets and modes of work correlate
to our curve of transient advantage.
Building within the core corresponds to the peak
and back portions of our curve
where we exploit and reconfigure our advantage.
Building beyond the core corresponds to the front end
of our curve where we're tackling the launch
and ramp up of our new venture or potential next advantage.
Now, let's sharpen our definition of what is within
and what is beyond the core so
that we can have a clear sense of when best
to apply a venture design.
For this, we'll start with a classic framework,
the Ansoff matrix, that dates back to the fifties.
It's a strategic planning tool that helps devise
and map growth initiatives.
The vertical axis on the matrix represents our markets
and the horizontal, our products and services.
Each quadrant corresponds
to a different product market strategy.
When we seek to grow using our existing offerings
in our existing markets,
we're pursuing a market penetration strategy.
An example of this would be the introduction
of the Kindle Fire.
It was a new generation of product in a category
where Amazon had already established
the original Kindle line.
When we seek to grow using our existing offerings
in a market that we're not presently in,
we're pursuing a market development strategy.
This is actually how Amazon began,
by developing the market for online book sales.
Others were already doing this, simply not with the scale
or scope envisioned by Bezos.
When we seek to grow using new offerings
in our existing markets,
we're pursuing a product development strategy.
This is where AmazonBasics would fall.
Finally, when we seek to grow by presenting new offerings
in a market that we're not presently in,
we're pursuing a diversification strategy.
This is our highest risk option,
as it requires both product and market development.
Indeed, risk increases as we progress along each
of our axes.
This is where we put Amazon web services.
Others were already providing these services in a variety
of ways, but it was both a new market
and a new service for Amazon to address.
The pace and impacts of technology have grown
tremendously since the Ansoff matrix was first devised.
So we're going to expand it for today's competitive context.
To do this we're going to extend both axes
to differentiate between products and markets
that are new to us and therefore need to be developed
and those that are new to the world
and need to be innovated.
This is a realm we're now entering
with increasing frequency.
Our expanded Ansoff matrix now delineates new growth
strategies that are coming to the fore as a result
of today's dramatic innovations.
We move beyond market development to market innovation.
And beyond product development to product innovation.
It also gives us advanced diversification,
where we're combining both development and innovation,
and out right industry disruption
where we're innovating deeply on both market and offering.
Amazon's original launch of the Kindle ebook
and store qualifies as industry disruption.
Whereas, subsequent incremental Kindle launches do not.
The Echo represents product innovation
in a market that's new to Amazon,
so it'd land in advanced diversification.
I'll go ahead and drop some other initiatives
on here so that you can see examples in each sector.
And I've provided this framework
in the exercise handout for reference as well.
Stepping back, there are three regions
of our expanded Ansoff matrix where we can
recognize shared characteristics
that map the shared approaches to growth.
First, the strategies in the lower left corner
of our matrix correspond to building within the core
of our business.
This type of growth, where we're defending
and extending our core business is often referred
to as horizon one growth.
We're executing a known business model
using existing capabilities
and accordingly have a low level of risk.
Using our earlier terminology,
in horizon one we're playing not to lose.
Moving up and to the right, we get to strategies
where we're moving just beyond the core
to build incremental new businesses.
This is referred to as horizon two growth
and it encompasses looking at merging opportunities,
including ventures that may require
a substantial investment, but have a good chance
of driving meaningful profit in the future.
Finally, in the upper right corner of our matrix,
we have our most entrepreneurial growth opportunities
of all, this is horizon three growth
where we're furthest beyond the core of our business,
we're relying most heavily on our innovation capabilities,
and we're at the highest stakes end
of the risk reward balance.
Horizon three consists of big bets on the future
of the company.
A future which due to the rapidly shifting
technological consumer and competitive landscapes
may very well be discontinuous from today's business.
In horizons two and three we are playing to win.
To succeed when playing to win, we need
to maximize the likelihood of breakthrough innovation.
This type of innovation is a forward looking creative act.
We cannot analyze our past or optimize our present
to arrive at this discontinuous future.
We need to imagine our future state
and then work backwards to chart our course.
To recap then, we have a clear dichotomy.
Playing not to lose versus playing to win.
To describe two very different types
of activities within our business.
Both are vital to its long term success.
We also have a useful tool, the expanded Ansoff matrix,
for mapping our growth strategies and an understanding
of where on the matrix we're playing not to lose
and where we're playing to win.
Finally, we know that the venture design approach
is best suited to when we're playing to win.
If you turn to your exercise handout,
you'll see that I've included the expanded Ansoff matrix.
I've filled out a few examples for you,
as well as provided a blank so
that you can map your own organization's initiatives.