Innovation and the Ansoff growth matrix

Innovation: from an idea to an implemented change

Innovation involves putting a significantly new or improved product or business process into use. A product may be a good or a service. An invention, suggestion or research project may contribute to innovation, but an unimplemented idea is not yet an innovation outcome.

The OECD's Oslo Manual measures novelty relative to the organisation's previous products or processes. Something can therefore be new to a business without being new to the world. Implementation also does not guarantee commercial success: an innovation can reach customers and still fail to achieve its objectives.

Product innovation

Change what customers can obtain, including the performance or usefulness of a good or service.

Business process innovation

Change how the organisation performs an activity, including production, delivery or supporting work.

Combined innovation

Change the offer and the operating arrangements together when one depends on the other.

Concept sources: OECD and Eurostat: Concepts and definitions for measuring business innovation — Concept reference; cards prepared for these notes.

Doblin's Ten Types of Innovation

Doblin's framework broadens innovation beyond product features. Its ten types fall into Configuration, Offering and Experience.

Concept sources: Deloitte Digital: Ten Types of Innovation — Framework reference; table prepared for these notes.

Combine compatible types where useful; there is no requirement to change all ten.

Align innovation with organisational and customer needs

An innovation strategy identifies the result sought and directs resources towards it. Possible aims include improving efficiency, protecting the existing business, entering an opportunity or strengthening the organisation's ability to retain and develop people. Incremental innovation makes smaller improvements; radical innovation involves a more substantial departure. Neither label proves an idea is valuable.

The voice of the customer concerns needs, frustrations and desired outcomes. The voice of the company concerns objectives, capabilities and constraints. Read them together: an attractive customer idea may be unaffordable, while an internally convenient change may solve no customer problem.

Concept sources: Business Queensland: Innovation strategy — Concept reference; decision path prepared for these notes.

SWOT and TOWS analysis can supply inputs to this process. A workshop turns those inputs into possibilities; it does not establish demand. Specify who benefits, what changes and which result would justify continuing.

The eight essentials of innovation

McKinsey's eight essentials address how an organisation supports innovation. They are interacting practices, not eight compulsory sequential stages.

Concept sources: McKinsey: The eight essentials of innovation — Framework reference; questions prepared for these notes.

An organisation with many ideas but no funding decisions has a different problem from one with funding but weak customer evidence. Diagnose the missing practice before launching another brainstorming exercise.

Growth, consolidation and divestment

Growth is a strategic choice, not an end in itself. Revenue growth may be useful, but the organisation must ask whether it improves profitability, resilience or its particular mission. A service organisation might prioritise reliability or access before expanding its range. UK government growth guidance similarly distinguishes increased profit from simply increasing sales.

Consolidation means strengthening the position already held, such as improving coordination after expansion. It need not mean doing nothing. Retrenchment reduces activity or commitments; divestment changes the business portfolio by disposing of a business or asset. Divestment may release resources for a better use, rather than simply admit failure.

Concept sources: GOV.UK: Growing your business — Plan for growth, Emilie R. Feldman: Restructuring and Divestitures — Concept references; comparison prepared for these notes.

Check dependencies before divesting. A unit may share systems, premises, customers or specialist staff with the retained business. A sale price is only part of the decision; separation costs and continuing obligations matter too.

The Ansoff growth matrix

Ansoff's product–market framework distinguishes four directions for growth. Classify an option by whether the offer and the market are existing or new to the organisation. Here, “product” includes a service; define the customer group or need meant by “market” before applying the framework.

Concept sources: H. Igor Ansoff: Strategies for Diversification — Original framework reference; comparison prepared for these notes.

A business can pursue several directions simultaneously. The matrix organises options; it does not select a winner or calculate their returns. Diversification commonly requires unfamiliar capabilities, but a quadrant label is not a complete risk assessment.

Apply the four directions carefully

Market penetration can involve customer retention, increased purchase frequency or winning buyers from competitors within the current market. Cross-selling adds another relevant existing item; upselling encourages a higher-value version. Neither should be confused with creating a new product. Heavy discounts may increase volume while weakening the financial result.

Product development can include an improved generation, a complementary offer or a different solution to an existing customer's problem. Market development may involve a new customer segment, location or application for the current offer. Research, staff capability and funding still matter when one side of the opportunity is familiar.

AQA's Ansoff teaching guide explains the different product, segment and resource uncertainties; GOV.UK's growth guidance also considers the resources needed for expansion.

Be explicit about the boundary used. A new purchaser does not automatically create a new market: another rehearsal studio can belong to the existing segment. A new ordering website may change the channel while leaving the product–market position unchanged. Conversely, a familiar customer can buy a substantially different solution for a different need. Write the reasoning beside the classification rather than treating the name as self-explanatory.

Related and unrelated diversification

Related diversification enters a different business with useful connections to existing activities, such as transferable capabilities or shared distribution. Unrelated diversification has little such operating connection. Sharing an owner is not the same as sharing an advantage.

The Oregon State strategic-management text discusses three tests associated with Porter's corporate-strategy analysis: industry attractiveness, cost of entry and whether the businesses are better off together. These direct attention to the economics of the move, not merely an appealing connection between products.

Concept sources: Oregon State University: Diversification Strategies — Concept reference; assessment questions prepared for these notes.

Counter-seasonal or counter-cyclical demand may help balance activity, but different products can still depend on the same customer budgets or financing conditions. Diversification does not remove management complexity or guarantee lower overall risk.

Financial capacity and a staged commitment

Rapid growth can increase the need for inventory, systems, people and working capital before cash arrives from customers. Forecast the resources required at each stage, not just the eventual annual profit. A temporary demand spike should not automatically justify a permanent increase in capacity.

Concept sources: Business Queensland: Responding to rapid growth — Concept reference; financial decision path prepared for these notes.

The CPA's practical contribution is to make assumptions visible: volumes, prices, costs, capacity, payment timing and the evidence behind them. Management can then compare growing now, testing a smaller version, consolidating first or withdrawing. A strong option connects a customer benefit to capabilities and a viable financial outcome.

Sources and further reading

• OECD and Eurostat — Concepts and definitions for measuring business innovation: implementation, product innovation and business process innovation.
• Deloitte Digital — Ten Types of Innovation: Doblin's recognised innovation categories.
• Business Queensland — Innovation strategy: objectives, resources and innovation choices.
• McKinsey — The eight essentials of innovation: organisational practices supporting innovation.
• GOV.UK — Growing your business: Plan for growth: profitable growth and supporting resources.
• Emilie R. Feldman — Restructuring and Divestitures: corporate scope, separation and strategic divestment.
• H. Igor Ansoff — Strategies for Diversification: the original product–market growth framework.
• AQA — Teaching guide: Ansoff matrix model: application and risk considerations.
• Oregon State University — Diversification Strategies: relatedness and assessment of diversification.
• Business Queensland — Responding to rapid growth: cash, capacity and growth pressures.