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.

Aspect	Explanation
Concept Name	McKinsey’s Seven Degrees of Freedom for Growth is a strategic framework developed by McKinsey & Company to help businesses identify and explore avenues for sustainable growth. It offers seven distinct pathways that companies can leverage to achieve growth and competitive advantage.
Purpose	The primary purpose of this framework is to provide businesses with a structured approach to growth strategy. It helps organizations assess various dimensions of their operations and identify opportunities for expansion, innovation, and optimization.
Seven Degrees of Freedom	– 1. Customer Insights: Understand and respond to changing customer preferences, needs, and behaviors. – 2. Digital and Analytics: Leverage digital technologies and data analytics for better decision-making, efficiency, and customer engagement. – 3. Core Business Optimization: Improve existing products, services, and processes to enhance competitiveness. – 4. Adjacencies: Explore adjacent markets or industries for expansion opportunities. – 5. M&A and Partnerships: Pursue mergers, acquisitions, or strategic partnerships to strengthen market position. – 6. Global Expansion: Expand into new geographies or international markets. – 7. Innovation: Invest in research and development to create new products, services, or business models.
Implementation	– Implementing McKinsey’s Seven Degrees of Freedom involves a comprehensive analysis of each dimension and identifying which areas hold the most potential for growth. – It requires aligning the organization’s resources, capabilities, and strategies with the chosen growth paths.
Benefits	– This framework provides a holistic view of growth opportunities, enabling organizations to make informed strategic decisions. – It promotes adaptability and innovation by encouraging businesses to explore various growth avenues. – By focusing on customer insights and digital capabilities, companies can stay responsive to evolving market trends.
Challenges	– Identifying the right growth path and effectively executing it can be complex, requiring substantial resources and expertise. – Successfully navigating global expansion and M&A activities can be particularly challenging due to regulatory, cultural, and operational differences.
Relevance Today	– McKinsey’s Seven Degrees of Freedom for Growth remains highly relevant in today’s dynamic business environment. Rapid technological advancements and changing consumer behaviors continue to create new growth opportunities and challenges for organizations. – It encourages a proactive approach to growth, which is essential for staying competitive in evolving markets.
Key Takeaway	McKinsey’s framework serves as a valuable tool for businesses seeking to chart a growth strategy. By systematically exploring these seven dimensions, organizations can develop a holistic growth roadmap that aligns with their vision, capabilities, and market dynamics. It promotes adaptability and innovation, essential for sustained success in today’s business landscape.

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.

Case Studies

Selling Existing Products to Existing Customers:
- Example 1: A coffee shop offers a loyalty program to its regular customers, providing discounts and free items to incentivize repeat visits and increase sales to existing clientele.
- Example 2: A software company offers add-on services and premium support packages to its current customers, increasing revenue from its existing user base.
Acquiring New Customers in Existing Markets:
- Example 1: An established fashion brand identifies a niche within its current market and tailors marketing campaigns to attract younger consumers interested in sustainable fashion.
- Example 2: A local gym targets new customer segments by offering specialized fitness programs, such as yoga classes for seniors or high-intensity interval training for millennials.
Creating New Products and Services:
- Example 1: Apple introduces a new line of wearable technology, such as the Apple Watch, to diversify its product offerings beyond smartphones and computers.
- Example 2: An automobile manufacturer invests in electric vehicle technology to expand its product range and address the growing demand for sustainable transportation.
Developing New Value-Delivery Approaches:
- Example 1: An e-commerce platform invests in an efficient supply chain and logistics system, allowing for faster and more cost-effective product deliveries to customers.
- Example 2: A fast-food chain implements mobile ordering and delivery services to enhance customer convenience and value.
Geographical Expansion:
- Example 1: A successful online marketplace expands into international markets with minimal competition, adapting its platform and services to suit local preferences and regulations.
- Example 2: A boutique clothing brand opens stores in neighboring countries, leveraging its brand reputation and unique designs to attract customers in new geographic regions.
Creating a New Industry Structure:
- Example 1: Two pharmaceutical companies collaborate to share research and development costs for a groundbreaking medication, benefiting from each other’s expertise and resources.
- Example 2: An airline forms an alliance with other carriers to create a global network, allowing passengers to seamlessly connect between flights operated by different member airlines.
Opening New Competitive Arenas:
- Example 1: A technology company with expertise in artificial intelligence enters the healthcare industry, using its AI capabilities to develop diagnostic tools and improve patient care.
- Example 2: A beverage company diversifies into the wellness market by launching a line of health-focused products, capitalizing on its existing distribution channels and brand recognition.

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.

Key Highlights

Strategy Tool for Expansion: McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool developed by McKinsey and Company to help businesses identify opportunities for expansion and prioritize initiatives.
Seven Creative Approaches: The model outlines seven distinct ways that businesses can think creatively about their future growth strategies.
Breaking Away from Belief-Patterns: It assists executives in breaking away from traditional thinking patterns and driving real change within their organizations.
Customization Based on Industry: Not all seven degrees of freedom will be applicable to every industry or organization, and their suitability depends on the specific market and circumstances.
Detailed Look at Each Degree:
1. Selling Existing Products to Existing Customers: Focuses on strengthening existing business-to-consumer relationships by increasing sales through strategies like discount pricing, value addition, or bundling.
2. Acquiring New Customers in Existing Markets: Suggests segmenting existing markets into smaller, niche groups and tailoring marketing efforts to address their unique needs.
3. Creating New Products and Services: Involves developing new products or services, which can be resource-intensive but offer significant rewards.
4. Developing New Value-Delivery Approaches: Emphasizes adding more value to interactions with customers, potentially through low prices, vertical integration, or mass production.
5. Geographical Expansion: Expanding into new countries or regions with limited competition as a rapid growth strategy, with a focus on understanding local rules and regulations.
6. Creating a New Industry Structure: Encourages forming alliances and partnerships with other businesses in the industry to mutually benefit from shared resources or capabilities.
7. Opening New Competitive Arenas: Suggests assessing the feasibility of entering new markets using frameworks like VRIO or Core Competency Analysis, with an emphasis on ensuring realistic chances of success.
Value Creation and Expansion: The model fundamentally emphasizes creating value and expanding in existing markets, new markets, or new geographic regions.
Challenging the Status Quo: McKinsey’s approach encourages companies to challenge the status quo and think creatively when evaluating their expansion options.
Focus on Growth: Each of the seven degrees of freedom is geared toward fostering growth and finding new avenues for expansion within the business.
Customization and Realism: It’s essential for businesses to tailor their growth strategies to their specific circumstances and ensure that they have a realistic chance of success when pursuing new opportunities.
Strategic Thinking: The model encourages strategic thinking and innovative approaches to achieving growth and expanding business operations.