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McKinsey’s Seven Degrees of Freedom for Growth

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.

7. Opening new competitive arenas

A business can effectively assess the viability of entering new markets by using a VRIO Framework or Core Competency Analysis. 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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SWOT Analysis

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A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

BCG Matrix

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Balanced Scorecard

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First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Blue Ocean Strategy 

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A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

GAP Analysis

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A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

Scenario Planning

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Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.

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