McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.
Understanding McKinsey’s Seven Degrees of Freedom for Growth
As the name suggests, McKinsey’s model outlines seven unique ways that a business can think creatively about its future.
It helps executives who are stifled in their thinking break away from long-held belief-patterns and institute real change.
Not all of the seven degrees of freedom will apply to every industry. Many will not be suitable for some organizations or the market they operate in.
Nevertheless, here is a more detailed look at each:
1. Selling existing products to existing customers
The first and most cost-effective strategy for a business is to double-down on the current business to consumer relationship.
Indeed, studies have repeatedly shown that it is far easier to retain old customers than it is to recruit new ones.
Wherever possible, the business should look to increase sales – either by discount pricing, value-adding, or bundling products with related services.
2. Acquiring new customers in existing markets
While most businesses will argue that they know their target market reasonably well, in most cases there is scope to segment the market further into smaller, niche groups.
By developing a buyer persona for each group, a business can better speak to each group by addressing their unique needs with targeted marketing campaigns.
3. Creating new products and services
The third strategy is rather self-explanatory, involving the creation of new products or services.
In most cases, it will be resource-intensive and incur some degree of risk, but the potential rewards are much higher as a result.
4. Developing new value-delivery approaches
Value is what ultimately drives the business to consumer relationship, and most businesses understand this.
However, they should also be thinking about how they can add even more value to every interaction they have with their loyal following.
Low prices are one form of value that resonates with most consumers.
One way that a business can achieve this is by vertical integration and mass production to produce economies of scale.
5. Geographical expansion
Expansion into new countries or regions with little competition is one of the fastest ways a business can experience growth.
Of course, due diligence must be done concerning the country of interest.
Any rules, regulations, or governmental barriers that may impede success must be clarified.
6. Creating a new industry structure
This strategy involves forming alliances and partnerships with others in an industry.
While the prospect of partnering with another company will not be a popular option for some, there is no reason why this strategy cannot be beneficial for all parties.
Perhaps one business owns important infrastructure that another business is trying to gain access to.
Alternatively, another business may not have the buying power to acquire raw materials at a cost-effective price. In both examples, an alliance may be the best solution.
However, it’s important that the business has a realistic chance of success in the new market to further company growth.
Key takeaways
McKinsey’s Seven Degrees of Freedom for Growth encourages executives to think creatively when assessing their options regarding business expansion.
While not all of McKinsey’s seven strategies apply to every industry, each one will encourage the relevant company to challenge the status quo.
Fundamentally, McKinsey’s model emphasizes creating value and expansion – whether that be in existing markets, new markets, or markets in new geographic regions.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
