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.
|Quadrant||Description||Analysis and Strategy||Examples and Real-World Applications|
|Quadrant I||Aggressive Strategies This quadrant represents businesses with a high market share in rapidly growing markets. Strategies in this quadrant focus on expansion, innovation, and market dominance.||– Analysis: Organizations in Quadrant I have a strong competitive position and significant growth opportunities. They should capitalize on their strengths to maintain or enhance market leadership. – Strategy: Pursue aggressive growth through product development, market penetration, and innovation. Invest in research and development (R&D), acquisitions, and marketing. Continuously strive to dominate the market.||– Leading technology companies like Apple and Google continually invest in R&D to introduce new products and dominate fast-growing markets. – Emerging electric vehicle manufacturers like Tesla focus on innovation and rapid market expansion to establish dominance.|
|Quadrant II||Competitive Strategies In this quadrant, businesses have a high market share in slow-growth markets. Strategies here involve maintaining market leadership, cost efficiency, and selective growth.||– Analysis: Organizations in Quadrant II have a dominant position but face slower market growth. They should aim to maintain their competitive advantages and profitability. – Strategy: Emphasize cost leadership, operational efficiency, and maintaining market share. Selectively expand into related markets or diversify product offerings to maximize profitability.||– Established consumer goods companies like Procter & Gamble focus on cost efficiency and market share retention in mature markets. – Leading automobile manufacturers like Toyota prioritize quality and efficiency to maintain dominance in slower-growth markets.|
|Quadrant III||Defensive Strategies This quadrant represents businesses with a low market share in rapidly growing markets. Strategies emphasize niche markets, partnerships, or alliances to defend against larger competitors.||– Analysis: Organizations in Quadrant III may lack market dominance but operate in high-growth industries. They should aim to protect and gradually expand their market presence. – Strategy: Focus on niche markets or underserved customer segments. Form strategic partnerships or alliances to gain access to resources and distribution channels. Gradually expand market share.||– Startups entering highly competitive tech sectors often begin by targeting specific niches or forming alliances to gain traction. – Smaller pharmaceutical companies may partner with larger firms to access distribution networks and compete in rapidly growing markets.|
|Quadrant IV||Regressive Strategies In this quadrant, businesses have a low market share in slow-growth markets. Strategies here may involve retrenchment, divestment, or limited investments.||– Analysis: Organizations in Quadrant IV face challenges in both market share and growth potential. They should carefully assess the viability of their operations in these markets. – Strategy: Evaluate the profitability and sustainability of existing operations. Consider retrenchment, divestment, or limited investments in low-growth areas. Focus on cost reduction and resource optimization.||– Traditional print media companies facing declining readership may consider divesting from certain publications and transitioning to digital platforms. – Legacy retail chains may close underperforming stores in regions with limited growth potential to optimize resources.|
Generate a grand strategy matrix
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.
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.
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.
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.
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:
For Starbucks, forward integration is evident in the company’s expansion into the sale of coffee machines.
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.
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.
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.
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 company also invests heavily in advertisements during major sporting events where it offers discounts and bundled pricing.
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.
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 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.
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.
- 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.
- Origin: The Grand Strategy Matrix was created by Paul Joseph DiMaggio in 1980 as a strategic option tool for managers. It helps organizations develop feasible alternative strategies based on their competitive position and industry growth.
- Applicability: Initially used for businesses operating in early or late phases of the industry life cycle, the matrix is now seen as useful for any business regardless of its industry, size, or life cycle stage.
- Quadrants: The matrix consists of four quadrants, with competitive position on the x-axis and market growth on the y-axis. Depending on their position, businesses fall into one of the four quadrants, each representing different strategic options.
- Quadrant I (Strong Competitive Position/Rapid Market Growth): Companies in this quadrant enjoy an excellent strategic position, and they can focus on market development, market penetration, and product development to maintain their dominant position.
- Quadrant II (Weak Competitive Position/Rapid Market Growth): Businesses in this quadrant need to improve their competitive position to take advantage of the growing market. Strategies like market development, market penetration, horizontal integration, and decentralization may be considered.
- Quadrant III (Weak Competitive Position/Slow Market Growth): Companies facing strong competition in a slow-growth market require major action. Strategies like retrenchment, diversification, or even liquidation may be necessary.
- Quadrant IV (Strong Competitive Position/Slow Market Growth): Businesses in this quadrant can consider diversification into untapped markets, leveraging their existing resources through horizontal, vertical, or conglomerate diversification.
- Examples: The matrix provides examples of companies in each quadrant, such as Amazon in Quadrant I, BMW in Quadrant II, Saab in Quadrant III, and Proctor & Gamble in Quadrant IV.
- Strategies: The matrix suggests various growth strategies, including market penetration, market development, product development, forward, backward, or horizontal integration, and concentric diversification.
- Application to Starbucks: The Grand Strategy Matrix example for Starbucks places it in Quadrant I due to its strong competitiveness and rapid market growth. Starbucks can use market penetration, market development, product development, forward, backward, and horizontal integration, as well as concentric diversification strategies.
- Application to Coca-Cola: The Grand Strategy Matrix example for Coca-Cola also places it in Quadrant I, and the company can use market penetration, market development, product development, backward integration, and concentric diversification strategies to strengthen its position.
Additional Case Studies
Examples of Companies in Different Quadrants of the Grand Strategy Matrix:
- Quadrant I (Strong Competitive Position/Rapid Market Growth)
- Netflix: As the leader in the streaming industry, Netflix consistently invests in original content and expands its global reach, capitalizing on the rapid growth of online streaming.
- Quadrant II (Weak Competitive Position/Rapid Market Growth)
- Nokia: In the early 2000s, Nokia, despite being in a rapidly growing mobile market, began losing its competitive edge due to the rise of smartphones, especially Apple’s iPhone and Android devices.
- Quadrant III (Weak Competitive Position/Slow Market Growth)
- Blockbuster: This movie rental company faced stiff competition from online streaming and failed to adapt, leading to its decline in a market that was transitioning away from physical rentals.
- Quadrant IV (Strong Competitive Position/Slow Market Growth)
- Heinz: A dominant player in the ketchup and condiments market, Heinz has strong brand recognition in a mature market. They have ventured into diversification by introducing new flavors and organic options.
Strategies Employed by Different Companies:
- Market Penetration:
- Spotify: Grows its user base by offering exclusive podcasts, collaborations, and leveraging its algorithm to offer tailored playlists to users.
- Market Development:
- Disney: Expanded its audience base with the launch of Disney+, targeting not just children but also adults with content from Marvel, Star Wars, and National Geographic.
- Product Development:
- Apple: Regularly introduces new features and models for its iPhone, and has expanded its product line to include wearables like Apple Watch and AirPods.
- Forward Integration:
- Zara: Controls most of its supply chain, from design to retail, allowing for rapid response to fashion trends.
- Backward Integration:
- Starbucks: Purchases and operates its own coffee farms to ensure the quality and supply of its beans.
- Horizontal Integration:
- Facebook: Acquired potential competitors like Instagram and WhatsApp to expand its social media dominance.
- Concentric Diversification:
- Google: Ventured beyond its search engine roots to offer products like Google Home, Pixel phones, and cloud services, leveraging its tech expertise.
|Quadrant I||Apple||Apple aggressively introduces new iPhone models with innovative features to dominate the rapidly growing smartphone market.|
|Quadrant II||Toyota||Toyota, with a substantial market share in the automobile industry, focuses on quality, cost efficiency, and maintaining market leadership.|
|Quadrant III||Airbnb||Airbnb started by targeting niche markets, offering unique accommodations and experiences to differentiate itself from larger competitors.|
|Quadrant IV||Sears||Sears faced declining market share and growth in the retail industry. The company chose to close underperforming stores in low-growth areas to optimize resources.|
Types of Business Integrations
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