Igor Ansoff: father of Corporate Strategy.

Igor Ansoff (1918-2002) was the originator of the strategic management concept, and was responsible for establishing strategic planning as a management activity in its own right. His landmark book, Corporate Strategy (1965), was the first text to concentrate entirely on strategy, and although the ideas outlined are complex, it remains one of the classics of management literature.

Life and career

H. Igor Ansoff was born in Russia in 1918 and his family emigrated to the United States of America in 1936. His early academic focus was on mathematics, and he obtained a PhD in applied mathematics from Brown University, Rhode Island. He joined the Rand Corporation in 1950, and moved on to Lockheed Aircraft Corporation, where he eventually became Vice-President, Plans and Programmes, and then Vice-President and General Manager of the Industrial Technology Division.

In 1963, Ansoff was appointed Professor of Industrial Administration at the Carnegie Institute of Technology in Pittsburgh. He went on to hold a number of positions in universities in both the United States and Europe. He continued to act as a consultant after retiring from academia in 2000 and, on his retirement, was named Distinguished Professor Emeritus at the United States International University.

Key theories

Until the publication of Corporate Strategy, companies had little guidance on how to plan for, or make decisions about, the future. Traditional methods of planning were based on an extended budgeting system which used the annual budget, projecting it a few years into the future. By its nature, this system paid little or no attention to strategic issues. With the advent of greater competition, higher interest in acquisitions, mergers and diversification, and greater turbulence in the business environment, however, strategic issues could no longer be ignored. Ansoff felt that, in developing strategy, it was essential to systematically anticipate future environmental challenges to an organisation, and draw up appropriate strategic plans for responding to these challenges.

In Corporate Strategy, Ansoff explored these issues, and built up a systematic approach to strategy formulation and strategic decision-making through a framework of theories, techniques and models.

Strategy decisions

Ansoff identified four standard types of organisational decisions as related to strategy, policy, programmes, and standard operating procedures. The last three of these, he argued, are designed to resolve recurring problems or issues and, once formulated, do not require an original decision each time. This means that the decision process can easily be delegated. Strategy decisions are different, however, because they always apply to new situations and so need to be made anew every time.

Ansoff developed a new classification of decision-making, partially based on Alfred Chandler's work, Strategy and Structure (Cambridge, Mass., MIT Press, 1962). This distinguished decisions as either: strategic (focused on the areas of products and markets); administrative (organisational and resource allocating), or operating (budgeting and directly managing). Ansoff's decision classification became known as Strategy-Structure-Systems, or the 3S model. (Sumantra Ghoshal has since proposed a 3Ps model--purpose, process and people--to replace it.)

Components of strategy

Ansoff argued that within a company's activities there should be an element of core capability, an idea later adopted and expanded by Hamel and Prahalad. To establish a link between past and future corporate activities (the first time such an approach was undertaken) Ansoff identified four key strategy components:

* product-market scope--a clear idea of what business or products a company was responsible for (predating the exhortations of Peters and Waterman to "stick to the knitting")

* growth vector--as explained in the section below on the Ansoff matrix, this offers a way of exploring how growth may be attempted

* competitive advantage--those advantages an organisation possesses that will enable it to compete effectively--a concept later championed by Michael Porter 

* synergy--Ansoff explained synergy as "2+2=5", or how the whole is greater than the mere sum of the parts, and it requires an examination of how opportunities fit the core capabilities of the organisation.

Ansoff Matrix

Variously known as the "product-mission matrix" or the "2 x 2 growth vector component matrix", the Ansoff Matrix remains a popular tool for organisations that wish to understand the risk component of various growth strategies, including product versus market development, and diversification. The matrix was first published in a 1957 article called 'Strategies for diversification' and the example below illustrates what such a matrix may look like:

          Present                 New
Present   1. Market penetration   2. Market expansion
New       3. Product expansion    4. Diversification

Of the four strategies given in the matrix, market penetration requires increasing existing product market share in existing markets; market expansion requires the identification of new customers for existing products; product expansion requires developing new products for existing customers; and diversification requires new products to be produced for new markets.

Ansoff's article focused particularly on diversification as a potentially high-growth but also high-risk strategy requiring careful prior planning and analysis before any decision is taken. Diversification was viewed by Ansoff as a particularly important growth strategy, requiring organisations to "... break with past patterns and traditions" as they enter onto new, "... uncharted paths" where, generally, new skills, techniques and resources will be required. His matrix offered a method of carefully analysing and evaluating the profit potential of diversification strategies.

Paralysis by analysis

It has sometimes been suggested that the application of the ideas in Corporate Strategy can lead to an overheavy emphasis on analysis. Ansoff himself recognised this possibility, however, and coined the now famous phrase "paralysis by analysis" to describe the type of procrastination caused by excessive planning.

Turbulence

The issue of turbulence underlies all of Ansoff's work on strategy. One of his key aims in establishing a better framework for strategy formulation was to improve the existing planning processes of the stable, postwar economy of the USA, since he realised these would not be sufficient to cope with pressures that rapid and discontinuous change would place on them.

By the 1980s change, and the pace of change, had become a key issue for management in most organisations. Ansoff recognised, however, that if some organisations were faced with conditions of great turbulence, others still operated in relatively stable conditions. Consequently, although strategy formulation had to take environmental turbulence into account, one strategy could certainly not be made to fit every industry. These ideas are discussed in Implanting Strategic Management, where five levels of environmental turbulence are outlined as:

* Repetitive--change is at a slow pace, and is predictable

* Expanding--a stable marketplace, growing gradually

* Changing--incremental growth, with customer requirements altering fairly quickly

* Discontinuous--characterised by some predictable change and some more complex change

* Surprising--change which cannot be predicted and which both develops, and develops from, new products or services.

In perspective

Although Ansoff's work is frequently referred to by other strategists, it has not become more generally recognised in comparison with that of other theorists. The complexity of his work, and its reliance on the disciplines of analysis and planning, are perhaps among the reasons why Ansoff is not popularly viewed as belonging within the top echelons of management thinkers.

Other theorists were working on similar themes to Ansoff at similar times. In the 1960s Ansoff's notion of competence (which was later developed by Hamel and Prahalad) was not unique, and although Ansoff seems to have been the originator of his 2 x 2 growth vector component matrix, a similar matrix had been published earlier. During the 1980s and 1990s, it is likely that much work by other theorists about strategy formation under conditions of uncertainty or chaos owed something to Ansoff's theory of turbulence, though it is difficult to evaluate the extent of the debt.

A debate between Ansoff and Henry Mintzberg over their differing views of strategy was reflected in print over many years, particularly in the Harvard Business Review. Ansoff has often been criticised by Mintzberg, who disliked the idea of strategy being built from planning which is supported by analytical techniques. This criticism was based on the belief that Ansoff's reliance on planning suffered from three fallacies: that events can be predicted, that strategic thinking can be separated from operational management, and that hard data, analysis and techniques can produce novel strategies.

Ansoff was one of the earliest writers on strategy as a management discipline, and laid strong foundations for several later writers to build upon, including Michael Porter, Gary Hamel and C K Prahalad. He invented the modern approach to strategy and his work pulled together various ideas and disparate strands of thought, giving a new coherence and discipline to the concept he described as strategic planning. During the 1970s and 1980s, this concept shaped more ideas about management as other writers took up Ansoff's ideas, such as core competence or 'sticking to the knitting'.

Key works

Books

Corporate strategy New York: McGraw Hill, 1965

From strategic planning to strategic management (with Roger P DeClerck and Robert L Hayes) New York: John Wiley/Interscience, 1975

Implanting strategic management Englewood Cliffs, NJ: Prentice Hall, 1984

The new corporate strategy New York: Wiley, 1988 (Revised edition of Corporate strategy)

Strategic management London: MacMillan, 1979

Journal articles

Strategies for diversification Harvard Business Review, Sep/Oct, vol 35 no 5, 1957, pp.113-124

Igor Ansoff's continuing contribution to strategic management, David Hussey Strategic Change, Nov, vol 8 no 7, 1999, pp.375-392

The firm of the future Harvard Business Review, Sep/Oct, vol 43 no 5, 1965, pp.162-174

Related thinkers

Alfred D Chandler, Sumantra Ghoshal, C K Prahalad, Gary Hamel, Michael Porter, Tom Peters