This article explains the Grand Strategy Matrix in a practical way. After reading it, you understand the basics of this strategy tool.
What is the Grand Strategy Matrix?
It is good for companies to know which strategies they should or should not develop. There are multiple ways of finding out. Among other things, a kind of SWOT analysis that looks at the business’s internal strengths and weaknesses as well as the external opportunities and threats may be of help.
The Grand Strategy Matrix is a handy tool as well, when it comes to formulating feasible strategies. Grand Strategy Matrix has grown into a powerful tool for coming up with alternative strategies. The model is based on two dimensions plotted along a vertical and a horizontal axis; the vertical axis represents market growth, varying from slow to fast growth. The horizontal axis represents the organisation’s competitive position, which may range from weak to very strong. These data combine to create four quadrants, in which organisations can be positioned so that selecting suitable strategies can be easily researched. Both a company’s current growth and its competitive status count as important factors. The model also allows businesses that are split into multiple divisions to formulate a best strategy for each of those divisions (product groups).
Grand Strategy Matrix: 4 Quadrants
According to the Grand Strategy Matrix, companies and/or divisions may be subdivided into the four quadrants. Using the matrix, a company will gain insight into feasible strategies, which can be mapped out in the quadrants in order of attractiveness. The eventual goal is to choose a fitting strategy that fits the company’s market and its competitive position. The Grand Strategy Matrix helps analyse this clearly. Each of the quadrants is explained in more detail below.
Quadrant 1 – Strong competitive position & Fast market growth
Companies that are located in this first quadrant of the Grand Strategy Matrix usually have an excellent strategic position. Apart from active and fast growth in the market, they also have a strong position relative to the competition.
Compared to Ansoff’s growth matrix, such companies would do very well to proceed to market penetration, market development, and product development. Market penetration is about using expansion to position oneself even better on the market. For example, by opening new subsidiaries with the same assortment. Using market development, these companies will be able to aim at other markets and/or target audiences, increasing their reach. Product development should not be left out either; a new assortment provides more customers and more returns.
In addition, strategies such as forward, backward, or related integration fit into this quadrant. Forward integration involves a company taking over the activities of a customer; backward integration involves taking over the activities of a supplier from the production chain, and related integration is about taking over the activities from a fellow company from the same industry. Even diversification is an option, which involves taking over the activities from a fellow company from a different industry. Think, for example, of a cotton importer taking over the tasks of a coffee importer.
The idea behind all the strategies listed above is that companies will focus more on their own business operations, as well as strengthen their competitive basis. The integration strategies, however, should never come at the expense of the company’s own core business. It’s wise to keep thinking about the current competitive advantage, which is why companies should prevent losing focus of the competitive advantage they have built painstakingly over time.
Quadrant 2 – Weak competitive position & Fast market growth
For companies in this second Grand Strategy Matrix quadrant, it’s a good idea to seriously evaluate the current approach. Although their growth may be strong and large, their competitive position is weakening and they are under threat of being pushed out of the market by other companies. They are not able to compete effectively.
Apart from the market development, market penetration, and product development mentioned in the previous quadrant, horizontal integration is also highly suitable as a useful strategy in the second quadrant. Because the market is growing fast, an intensive horizontal integration strategy helps, in which companies concentrate on attracting activities that form a nice addition to their current core business. In such a case, a service station may consider opening a small supermarket in addition to their petrol business, with which they can offer extra service to their customers.
If horizontal integration is not a possibility, it would be wise to sell off part of the organisation (or divisions). Decentralisation may be another possibility. In that case, the focus no longer lies on the whole organisation, but is divided over smaller segments. If the chance of the competition winning is high, a company may decide to be bought in an acquisition. Otherwise, the only remaining options will be folding or insolvency.
Quadrant 3 – Weak competitive position & Slow market growth
This is the least favourite quadrant of the Grand Strategy Matrix. For companies, after all, it means that are faced with vicious competition on the one hand and with a market growth that’s faltering on the other hand. Only drastic measures, adjustments, and changes will be able to save such companies and prevent further demise or impending liquidation.
First of all, a wise strategy would be to move to wholesale cost reduction, which in most cases will result in enormous austerity measures, reorganisation, discontinuation of product groups, and employees being laid off. Should austerity measures fail to achieve an effect, forms of diversification may offer a last hope. Despite requiring some investment, spreading the product range can lead to increased returns. For example, a chemist may consider generating some additional income by moving into dry cleaning as well. Such cases are referred to as unrelated diversification. If the chemist decides to sell specific medications, in cooperation with the pharmacy next door, we are talking about related diversification.
Should all of the above strategies fail to have an effect, selling or bankruptcy are the only remaining options.
Quadrant 4 – Strong competitive position & Slow market growth
A strong competitive position is very enjoyable to companies. The slow market growth offers options for finding creative solutions and creating a new market for products and services. Diversification, such as mentioned in Ansoff’s growth matrix, is a good option. Offering new products and/or services on a new market leads to an increase in market growth. For example, a supermarket will suffer when many consumers choose to have fresh meal boxes delivered and no longer get their groceries from the shop as a result. To the supermarket, such a product is new. Offering products online also allows them to reach a new target audience. When the supermarket chooses to sell fresh meal boxes online, that would be an example of diversification. Nonetheless, this comes at the cost of a considerable investment. Companies in this Grand Strategy Matrix quadrant usually have the capacity and the means for this.
Engaging in partnerships in the form of a joint venture is another possible strategy that fits this Grand Strategy Matrix quadrant. A characteristic feature of such partnerships is that both companies continue to exist and each of them profits from the other’s strength. The partnership between KLM and North West Airlines is a good example of this. Their joint venture gives them an advantage in the form of sharing landing rights, purchasing catering, and sharing overhead costs.
In the first quadrant of the Grand Strategy Matrix, it’s mostly about stimulating companies to grow fast and maintain their competitive position. In the other three quadrants of the Grand Strategy Matrix, it’s about achieving the best position and increasing their market share. On the one hand, this can be done by researching new markets; on the other hand, by offering new products. It’s up to the board and management to decide on such drastic strategic choices. The Grand Strategy Matrix gives a good and clear image of both the health and the future prospects of a company. Nonetheless, one should always take unforeseen factors and complications in the business world into consideration.
Now it’s your turn
What do you think? Do you recognize the explanation about Grand Strategy Matrix? Do you use the Grand Strategy Matrix to formulate feasible (alternative) strategies? Do you have any tips or additions?
Share your experience and knowledge in the comments box below.
- Betz, F. (2002). Strategic business models. Engineering management journal, 14(1), 21-28.
- David, F. R. (1986). The strategic planning matrix—a quantitative approach. Long Range Planning, 19(5), 102-107.
- Umar, H. (2001). Strategic management in action. Gramedia Pustaka Utama.
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