Thursday, March 16, 2006

McKinsey Growth Pyramid

The McKinsey model argues that businesses should develop their growth strategies based on:

• Operational skills
• Privileged assets
• Growth skills
• Special relationships

Growth can be achieved by looking at business opportunities along several dimensions, summarised in the diagram below:

• Operational skills are the “core competences” that a business has which can provide the foundation for a growth strategy. For example, the business may have strong competencies in customer service; distribution, technology.

• Privileged assets are those assets held by the business that are hard to replicate by competitors. For example, in a direct marketing-based business these assets might include a particularly large customer database, or a well-established brand.

• Growth skills are the skills that businesses need if they are to successfully “manage” a growth strategy. These include the skills of new product development, or negotiating and integrating acquisitions.

• Special relationships are those that can open up new options. For example, the business may have specially string relationships with trade bodies in the industry that can make the process of growing in export markets easier than for the competition.

The model outlines seven ways of achieving growth, which are summarised below:

Existing products to existing customers
The lowest-risk option; try to increase sales to the existing customer base; this is about increasing the frequency of purchase and maintaining customer loyalty

Existing products to new customers
Taking the existing customer base, the objective is to find entirely new products that these customers might buy, or start to provide products that existing customers currently buy from competitors

New products and services
A combination of Ansoff’s market development & diversification strategy – taking a risk by developing and marketing new products. Some of these can be sold to existing customers – who may trust the business (and its brands) to deliver; entirely new customers may need more persuasion

New delivery approaches
This option focuses on the use of distribution channels as a possible source of growth. Are there ways in which existing products and services can be sold via new or emerging channels which might boost sales?

New geographies
With this method, businesses are encouraged to consider new geographic areas into which to sell their products. Geographical expansion is one of the most powerful options for growth – but also one of the most difficult.

New industry structure
This option considers the possibility of acquiring troubled competitors or consolidating the industry through a general acquisition programme

New competitive arenas
This option requires a business to think about opportunities to integrate vertically or consider whether the skills of the business could be used in other industries.

Source:
http://www.tutor2u.net/business/strategy/mckinsey_pyramid.htm

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