The grand strategy matrix was created by American business theorist Paul Joseph DiMaggio in 1980. The matrix, which first appeared in the Strategic Management Journal, was initially used as a strategic option tool for managers. The grand strategy matrix helps organizations develop feasible alternative strategies based on their competitive position and the growth of their industry.
- Understanding the grand strategy matrix
- The four quadrants of the grand strategy matrix
- Grand strategy matrix example
- Grand strategy matrix of Starbucks
- Key takeaways:
- Other Business Matrices
Understanding the grand strategy matrix
In truth, the grand strategy matrix reveals feasible strategic options for virtually any business – regardless of its industry, size, or life cycle stage. It is one of several similar tools including the SWOT analysis, SPACE matrix, BCG matrix, and IE matrix.
The four quadrants of the grand strategy matrix
The grand strategy matrix consists of a graph containing four quadrants, with:
- Competitive position represented on the x-axis, with the left side of the matrix indicating weak competitiveness and the right side strong competitiveness.
- Market growth represented on the y-axis, with the top of the matrix indicating rapid growth and the bottom indicating slow growth.
Depending on the degree of competitiveness and market growth, the business will occupy one of four quadrants. Collectively, the quadrants model four broad strategic options that it can use to meet its needs at a particular point in time.
With that said, let’s take a look at each quadrant below:
- Quadrant I (strong competitive position/rapid market growth) – companies located in this quadrant enjoy an excellent strategic position. This enables them to focus resources on market development, market penetration, and product development. Here, maintaining a dominant position should be the priority.
- Quadrant II (weak competitive position/rapid market growth) – companies in the second quadrant need to determine why they are unable to compete in a rapidly growing market. To improve their competitive position, strategies such as market development, market penetration, horizontal integration, and decentralization should be considered.
- Quadrant III (weak competitive position/slow market growth) – in this quadrant, the business is dealing with an unenviable combination of strong competition and lackluster market growth. As a result, major action is required. This may include retrenchment, diversification, or in some cases, liquidation.
- Quadrant IV (strong competitive position/slow market growth) – these organizations should consider diversification into untapped markets by leveraging their existing resources. Diversification may be horizontal, vertical, or conglomerate. The excess of resources may also be channeled into joint ventures.
Grand strategy matrix example
Below are four grand strategy matrix examples according to each of the four quadrants.
Amazon is a company that operates in an industry characterized by a strong competitive position in a rapidly growing market. Maintaining this position in the North American market is less of a concern since the company has a near-monopoly on eCommerce in the region.
Instead, Amazon has been focusing on market expansion with the company having a significant presence in Europe and parts of Australasia. It has also expanded into other verticals such as food delivery, video streaming, and consumer electronics to build a connected ecosystem that better meets consumer needs around convenience and service.
The electric vehicle (EV) market enjoyed a decade of rapid growth between 2010 and 2020. Over 10 million such vehicles were on the road in 2020, representing a 43% increase over the previous year. Estimates vary, but a Bloomberg study suggested EV sales would comprise 28% of all sales by 2030 and 58% by 2040.
Despite these estimates and the general shift away from internal combustion engines, BMW is one manufacturer that currently occupies a weak competitive position in this growing market. Responding to rival Mercedes’ claim to sell only electric vehicles by 2030, BMW sales chief Pieter Nota noted that “It is absolutely unrealistic to expect that every customer in the world will have sufficient access to charging infrastructure in 2030. That’s our conviction and that’s why it’s important to still be able to offer internal combustion engines at that point in time in order to serve these customer needs.”
Irrespective of when this shift occurs, BMW remains unable to take advantage of the market as it stands today and may find that it has given its competitors an insurmountable lead.
Fellow vehicle manufacturer Saab was an example of a company with a low market share in a market with slow or non-existent growth. Saab was ultimately forced to file for bankruptcy in 2011 after failing to secure investment funding in the aftermath of the GFC. The company’s viability was also hindered by competitors in the European market such as Audi and Volvo.
Saab’s story, like the demise of any company, involved many moving parts and was far from simple. However, the primary reasons for the company having to seek a new buyer were its low production volume of just 150,000 units a year and a failure to diversify. Indeed, as competitors branched out into more profitable sectors like SUVs and small cars, Saab stuck with its large sedans which were less popular.
Proctor & Gamble is a company operating in several slow-growing markets but with a strong competitive position. A similar BCG matrix calls products in these markets “cash cows” and argues that the company should exploit them and use the profits to invest in Quadrant I markets.
Returning to the Grand Strategy matrix, we see that a possible initiative for a Quadrant IV company is diversification into untapped markets. Proctor & Gamble has a strong competitive position in multiple markets such as haircare (Pantene), oral care (Oral-B), personal grooming (Gillette), and laundry products (Tide). However, the company has also diversified into other low-growth markets such as toilet paper, deodorant, baby care, and feminine hygiene.
Grand strategy matrix of Starbucks
For companies in this dominant and enviable position, several strategies can be employed. These are explained in the context of Starbucks below.
Market penetration is the primary growth strategy for Starbucks. The company operates more than 32,000 stores in 80 countries and has a mission to nurture the human spirit – one person, one cup, and one neighborhood at a time.
This growth strategy is maximized by the company choosing to operate more company-owned stores than licensed or franchised locations. Starbucks has also found relative success in the Middle Eastern market. There, the company introduced halal menus with local foods such as halloumi and partnered with businesses to offer youth services such as resume writing, interview coaching, and career development.
Market development is more a secondary growth strategy for Starbucks, particularly in areas where it enjoys significant market share. For example, the company owns 40% of all coffee shops in the United States with 15,337 stores and by some accounts is opening three new stores every day.
Market development also encompasses new product lines for new markets and upsell products for existing customers. The company is particularly skilled at upselling, with baristas routinely asking customers if they want food with their coffee. The affogato-style Frappuccino, released in 2016, was an upsell that added espresso shots over an already expensive drink.
The first Starbucks store in Seattle sold fresh-roasted coffee beans, tea, and spices from around the world. Thanks to extensive product development, modern stores sell a greater number of more diverse products.
This growth strategy has been facilitated by acquisitions and innovation and is a response to the saturated café market. In addition to many tea and coffee products, Starbucks now sells pastries, snacks, juices, sodas, sandwiches, water, and even brewing equipment.
Forward, backward, or horizontal integration
Let’s take a look at the three types of integration separately:
- Forward – for Starbucks, forward integration is evident in the company’s expansion into the sale of coffee machines.
- Backward – Starbucks is well-known for its backwardly (vertically) integrated supply chain. The company purchases coffee beans direct from producers around the world and also owns roasting facilities, warehouses, and distribution hubs.
- Horizontal – as we touched on earlier, Starbucks has made several acquisitions as part of its product development strategy. Examples include Teavana, Seattle Coffee, Evolution Fresh, Ethos Water, and La Boulange.
Fundamentally, concentric diversification involves a company investing in slightly different products than the ones they already sell.
Starbucks made a major move toward concentric diversification in 2013 when it introduced new snack bars in over 8,000 cafés and grocery stores. The snack bars, which sold juice brands owned by Pepsi, were replaced by Starbucks brands.
Over the past decade or so, the company’s diversification in the coffee space alone is impressive. Starbucks sells brewed coffee, cappuccinos, espresso shots, flat whites, lattes, macchiatos, mochas, and black coffee in a plethora of flavors and styles.
It also sells blonde roast, medium roast, and dark roast coffee beans from around the world, with ground beans also available in several sizes for different brewing requirements.
- The grand strategy matrix generates feasible business strategies based on competitive position and industry growth. It was released by business theorist Paul Joseph DiMaggio in 1980.
- The grand strategy matrix can be used by any business regardless of size, industry, or life cycle stage.
- The grand strategy matrix is divided into four quadrants, with each based on varying degrees of competitive position and industry growth. The first quadrant favors strategies that maintain competitive advantage, while the remaining three focus on strengthening it with suitable courses of action.
Other Business Matrices
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