grand-strategy-matrix

What Is The Grand Strategy Matrix? The Grand Strategy Matrix In A Nutshell

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

Later, the approach became popular with business strategists who believed it was useful for any business operating during very early or very late phases of the industry life cycle.

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.

Quadrant I

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.

Quadrant II

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.

Quadrant III

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.

Quadrant IV

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

Starbucks falls in the first quadrant of the grand strategy matrix that is characterized by strong competitiveness and rapid market growth.

For companies in this dominant and enviable position, several strategies can be employed. These are explained in the context of Starbucks below.

Market penetration

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

Market development is more of 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.

Product development

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 Integration

forward-integration
Forward integration is a form of vertical integration that occurs when a company secures more control over the distribution of its products or services.

For Starbucks, forward integration is evident in the company’s expansion into the sale of coffee machines.

Backward Integration

backward-chaining
Backward chaining, also called backward integration, describes a process where a company expands to fulfill roles previously held by other businesses further up the supply chain. It is a form of vertical integration where a company owns or controls its suppliers, distributors, or retail locations.

Starbucks is well-known for its backwardly (vertically) integrated supply chain.

The company purchases coffee beans directly from producers worldwide and owns roasting facilities, warehouses, and distribution hubs.

Horizontal Integration

horizontal-integration
Horizontal integration refers to the process of increasing market shares or expanding by integrating at the same level of the supply chain, and within the same industry. Perhaps, a manufacturer who buys or merges with another manufacturer, in the same industry, is an example of horizontal integration.

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.

Concentric diversification

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.

Grand strategy matrix of Coca-Cola

The Coca-Cola Company invariably falls in the first quadrant of the matrix along with other companies that experience rapid market growth and possess strong competitiveness.

Let’s take a look at some of the strategies Coca-Cola has used to bolster its position.

Market penetration

It would be almost impossible to find another company with more market penetration than Coca-Cola. Officially, its beverages are available in more than 200 countries and territories around the world.

Unofficially, it is likely that at least one of Coca-Cola’s more than 500 brands is available anywhere.

The company is also well-versed in acquiring other brands that are selling in the same market.

Some notable brands include Smartwater and Vitaminwater (purchased as part of a $4.1 billion deal to acquire Glaceau), Minute Maid, Odwalla, and tea maker Honest Tea.

The Coca-Cola brand is also frequently associated with cultural events, with the brand’s shade of red synonymous with Christmas cheer and celebration.

The company also invests heavily in advertisements during major sporting events where it offers discounts and bundled pricing.

Market development

Market development strategies entail finding new groups of buyers for existing products. 

When Coke Zero was launched in 2005, it offered the same zero sugar, low-calorie experience as Diet Coke.

However, Diet Coke was particularly popular among female consumers and as a result, men perceived it as a feminine drink and tended to avoid it. 

To increase its attractiveness among the male consumer segment, Coke Zero featured a more masculine black and red color scheme and the company marketed it as such.

Product development

Cherry Coke is a prime example of a new product that was developed to beat the competition in an existing market.

Marking the first instance where Coca-Cola altered its original recipe, the product was launched in 1985 in response to smaller companies that were adding cherry-flavored syrup to traditional Coca-Cola and reselling it.

Backward integration

Backward integration is a form of vertical integration where a company purchases the suppliers of products or services in its supply chain.

The Coca-Cola Company, like its main competitors PepsiCo and Dr Pepper Snapple Group, produces the concentrates, bases, and syrups required for its soda drinks. 

The company has also purchased many of the bottling plants that manufacture, package, merchandise, and distribute its beverages to vendors and consumers.

However, Coca-Cola does not own or control all of its bottling operations with around 275 independent businesses operating 900 facilities around the world.

Concentric diversification

Coca-Cola’s aforementioned acquisitions have helped the company expand its product range to attract new customers.

This concentric diversification has been driven by the consumer shift away from carbonated soft drinks, with soda consumption reaching a 30-year-low in the United States in 2016.

To boost long-term revenue and profit, the company is focusing on healthier alternatives such as bottled water, ready-to-drink coffee, and a range of soy-based beverages, among other drinks.

In 2017, Coca-Cola also relaunched Coke Zero in 20 markets with a new recipe and improved marketing and packaging.

Key takeaways

  • 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.

Types of Business Integrations

Vertical Integration

vertical-integration
In business, vertical integration means a whole supply chain of the company is controlled and owned by the organization. Thus, making it possible to control each step through customers. in the digital world, vertical integration happens when a company can control the primary access points to acquire data from consumers.

Backward Chaining

backward-chaining
Backward chaining, also called backward integration, describes a process where a company expands to fulfill roles previously held by other businesses further up the supply chain. It is a form of vertical integration where a company owns or controls its suppliers, distributors, or retail locations.

Supply Chain

supply-chain
The supply chain is the set of steps between the sourcing, manufacturing, distribution of a product up to the steps it takes to reach the final customer. It’s the set of step it takes to bring a product from raw material (for physical products) to final customers and how companies manage those processes.

Data Supply Chains

data-supply-chain
A classic supply chain moves from upstream to downstream, where the raw material is transformed into products, moved through logistics and distribution to final customers. A data supply chain moves in the opposite direction. The raw data is “sourced” from the customer/user. As it moves downstream, it gets processed and refined by proprietary algorithms and stored in data centers.

Horizontal vs. Vertical Integration

horizontal-vs-vertical-integration
Horizontal integration refers to the process of increasing market shares or expanding by integrating at the same level of the supply chain, and within the same industry. Vertical integration happens when a company takes control of more parts of the supply chain, thus covering more parts of it.

Decoupling

decoupling
According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the third wave (2006-still ongoing) where companies break apart the customer value chain to deliver part of the value, without bearing the costs to sustain the whole value chain.

Entry Strategies

entry-strategies-startups
When entering the market, as a startup you can use different approaches. Some of them can be based on the product, distribution, or value. A product approach takes existing alternatives and it offers only the most valuable part of that product. A distribution approach cuts out intermediaries from the market. A value approach offers only the most valuable part of the experience.

Disintermediation

disintermediation
Disintermediation is the process in which intermediaries are removed from the supply chain, so that the middlemen who get cut out, make the market overall more accessible and transparent to the final customers. Therefore, in theory, the supply chain gets more efficient and, all in all, can produce products that customers want.

Reintermediation

reintermediation
Reintermediation consists in the process of introducing again an intermediary that had previously been cut out from the supply chain. Or perhaps by creating a new intermediary that once didn’t exist. Usually, as a market is redefined, old players get cut out, and new players within the supply chain are born as a result.

Other Business Matrices

SFA Matrix

sfa-matrix
The SFA matrix is a framework that helps businesses evaluate strategic options. Gerry Johnson and Kevan Scholes created the SFA matrix to help businesses evaluate their strategic options before committing. Evaluation of strategic opportunities is performed by considering three criteria that make up the SFA acronym: suitability, feasibility, and acceptability.

Hoshin Kanri X-Matrix

hoshin-kanri-x-matrix
The Hoshin Kanri X-Matrix is a strategy deployment tool that helps businesses achieve goals over the short and long term. Hoshin Kanri is a method that seeks to bridge the gap between strategy and execution. Strategic objectives are clearly defined and the goals of every level of the organization are aligned. With everyone moving in the same direction, process coordination and decision-making ability are strengthened.

Kepner-Tregoe Matrix

kepner-tregoe-matrix
The Kepner-Tregoe matrix was created by management consultants Charles H. Kepner and Benjamin B. Tregoe in the 1960s, developed to help businesses navigate the decisions they make daily, the Kepner-Tregoe matrix is a root cause analysis used in organizational decision making.

Eisenhower Matrix

eisenhower-matrix
The Eisenhower Matrix is a tool that helps businesses prioritize tasks based on their urgency and importance, named after Dwight D. Eisenhower, President of the United States from 1953 to 1961, the matrix helps businesses and individuals differentiate between the urgent and important to prevent urgent things (seemingly useful in the short-term) cannibalize important things (critical for long-term success).

Decision Matrix

decision-matrix
A decision matrix is a decision-making tool that evaluates and prioritizes a list of options. Decision matrices are useful when: A list of options must be trimmed to a single choice. A decision must be made based on several criteria. A list of criteria has been made manageable through the process of elimination.

Action Priority Matrix

action-priority-matrix
An action priority matrix is a productivity tool that helps businesses prioritize certain tasks and objectives over others. The matrix itself is represented by four quadrants on a typical cartesian graph. These quadrants are plotted against the effort required to complete a task (x-axis) and the impact (benefit) that each task brings once completed (y-axis). This matrix helps assess what projects need to be undertaken and the potential impact for each.

TOWS Matrix

tows-matrix
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.

GE McKinsey Matrix

ge-mckinsey-matrix
The GE McKinsey Matrix was developed in the 1970s after General Electric asked its consultant McKinsey to develop a portfolio management model. This matrix is a strategy tool that provides guidance on how a corporation should prioritize its investments among its business units, leading to three possible scenarios: invest, protect, harvest, and divest.

BCG Matrix

bcg-matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Growth Matrix

growth-strategies
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

Ansoff Matrix

ansoff-matrix
You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived by whether the market is new or existing, and the product is new or existing.

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