Growth is not a single decision. An organisation may grow by selling more of its current offer to current customers, taking an existing offer into a new market, developing a new offer for existing customers or entering an unfamiliar product-market space. The Ansoff Matrix provides a simple way to compare those four directions before leaders commit resources.

The practical answer: use the Ansoff Matrix to define the product-market direction of a growth option. Then test whether the organisation has the evidence, capability, resources, risk appetite and implementation capacity to make that option credible.

The model, associated with Igor Ansoff’s work on diversification and strategic growth, uses two dimensions: products and markets. Each can be existing or new. The resulting matrix offers four growth directions: market penetration, market development, product development and diversification (Ansoff, 1957). It does not select a strategy automatically. It creates a disciplined starting point for comparing choices.

The Ansoff Matrix at a glance

	Existing markets	New markets
Existing products or services	Market penetration: increase share, frequency, retention or use within current markets	Market development: take an existing offer to new customer groups, locations, channels or segments
New products or services	Product development: create a new or materially improved offer for current markets	Diversification: enter a new product-market space, either related or unrelated to the current business

The matrix is useful because it makes familiarity visible. A move involving familiar products and familiar markets usually rests on more existing knowledge than a move involving unfamiliar products and markets. That can make it less uncertain, but it does not make it risk-free. A saturated market, intense competitor response, poor execution or constrained capacity can make market penetration difficult. Conversely, a related diversification may be less risky than a poorly researched product-development project. The task is to understand the specific sources of uncertainty, not to apply a simplistic risk ranking.

1. Market penetration: existing products in existing markets

Market penetration focuses on improving performance in markets the organisation already serves with offers it already provides. It may involve increasing purchase frequency, improving customer retention, winning share from competitors, strengthening distribution, improving service quality, adjusting price or increasing awareness among existing segments.

This is often the most familiar growth route because the organisation already knows the product or service, customer need and operating environment. The question is whether there is realistic room to grow. Leaders should examine market maturity, customer behaviour, capacity, competitor reaction, pricing power and the cost of acquisition or retention.

Market-penetration question	Why it matters
Are current customers underusing the offer, or is demand already close to saturation?	Growth may come from retention, cross-selling or increased frequency, but only where genuine customer value exists
What prevents customers from choosing or staying with the organisation?	The issue may be price, service, access, trust, convenience, quality or switching friction
Can the organisation serve more demand without reducing quality?	Growth that overwhelms delivery capability can damage customer experience and reputation
How are competitors likely to respond?	A price-led strategy can trigger margin pressure or imitation

Market penetration should not be reduced to “sell harder”. It can involve operational improvement, customer insight, digital access, service redesign, loyalty, better availability or a more differentiated value proposition. In people terms, it may require stronger customer capability, improved scheduling, incentive design, new account-management skills or better workforce deployment.

2. Market development: existing products in new markets

Market development uses an existing product or service in a new market. “New market” can mean a new geographical area, customer segment, industry, channel, use case or route to market. A business that currently sells directly to consumers might begin selling its existing offer through a business-to-business partner channel. A UK service provider might adapt a proven offer for a new regional segment, subject to demand and regulatory evidence.

The key challenge is the definition of “new”. A different postcode may not be a new market if customer needs, channels and regulation are substantially similar. A new public-sector segment, customer demographic or international setting may require much deeper adaptation. The organisation must test whether its current offer genuinely solves a need in the new context, rather than assuming that past success will transfer.

Market-development consideration	Questions for leaders
Customer need	Does the existing offer solve a meaningful problem for the new segment or location?
Access and channels	How will the organisation reach, sell to, serve and support the new market?
Adaptation	What must change in language, pricing, service design, compliance, accessibility or delivery?
Competition	Who already serves the market, and what advantage would the organisation offer?
Capability	Does the organisation have local knowledge, cultural competence, partnerships and operating capacity?

Market development often has a substantial people impact. It may need local market insight, new sales capability, partner management, language or compliance knowledge, changes to operating hours or different leadership capacity. The growth plan should specify those implications before the launch date, not after customer expectations have been created.

3. Product development: new products in existing markets

Product development introduces a new or materially improved product or service to current customers or markets. It may involve a new service tier, a new digital feature, a complementary product, a redesigned delivery model or an innovation that addresses an unmet customer need.

The advantage is that the organisation has some familiarity with the market and customer relationship. The risk lies in the product or service itself: whether the organisation understands the need correctly, can build or source the capability, can price the offer sustainably and can achieve adoption without undermining existing revenue or trust.

A strong product-development decision is evidence-led. It should combine customer insight, technical feasibility, commercial modelling, pilot evidence, service design, regulatory review and implementation planning. It should also identify what the organisation will stop doing if the new offer requires scarce attention or investment.

Product-development test	Meaningful question
Customer value	What specific job, problem or unmet need will the new offer address?
Strategic fit	Does the offer strengthen the organisation’s purpose, positioning and long-term direction?
Capability	Can the organisation develop, acquire or partner for the technical, operational and commercial capability required?
Economic logic	Are development, launch, delivery and support costs justified by credible value and demand?
Adoption	What will make customers switch, try, learn or trust the new offer?
Portfolio effect	Will the offer complement, replace or cannibalise current products or services?

For people professionals, product development can mean new roles, learning pathways, cross-functional project teams, revised incentives, job redesign and clear communication about why the change matters. A product plan that ignores workforce readiness often creates delivery risk even where customer demand is sound.

4. Diversification: new products in new markets

Diversification involves a new product or service in a new market. It is the most unfamiliar direction on the matrix because the organisation is learning about both the offer and the customer or market context at the same time. Diversification can be related, where the new activity uses relevant capabilities, brand assets, customer relationships or technology. It can also be unrelated, where the connection to the core business is limited.

Diversification may be attractive when a business wants to reduce dependence on a single market, respond to structural decline, use underutilised capability or capture a significant new opportunity. It also carries compounded uncertainty. Leaders need to be clear about why the organisation—not merely any organisation—has a credible right to win.

Diversification question	Why it is critical
What advantage can we transfer from the current business?	A genuine capability, relationship, brand asset or operating strength is more credible than a vague ambition to grow
Is the diversification related or unrelated?	Related options may allow learning transfer, but they still require evidence and investment
What must be learned quickly?	New customer needs, channels, regulation, competitors, delivery requirements and talent needs may all be unfamiliar
What will this displace?	Diversification competes for leadership attention, capital and organisational capacity with the core business
What is the exit or adaptation logic?	Leaders need clear review points if early evidence does not support further investment

The risk of diversification is not simply financial. It can distract leaders, stretch culture, blur the brand, overload managers and reduce attention to core customers. A robust diversification plan therefore includes governance, phased investment, learning milestones and clear decision criteria.

How to select an Ansoff growth strategy

The Ansoff Matrix should be used after the organisation has defined the growth problem. A team that starts with “we need diversification” may be choosing a label before understanding the customer, market or capability challenge. The following process helps convert the matrix into an analytical tool.

1. Define product and market precisely

Start by defining the current product or service and the current market in terms that matter to customers and the organisation. A product is not always a physical item. It may be a service package, channel, experience or problem solved. A market is not simply a country. It may be a segment, industry, customer need, use case or channel.

Poor definitions produce poor choices. A business may think it is pursuing market penetration because it is serving an existing customer base, while in reality it is creating a new service model that requires product-development investment.

2. Generate options across all four directions

Avoid treating the first attractive option as the only option. Generate at least one credible option in each quadrant where possible. This does not mean pursuing all four. It allows leaders to compare a lower-familiarity but higher-potential option with an incremental option that may be easier to implement but strategically insufficient.

3. Test external evidence and internal capability

The Ansoff Matrix does not analyse market attractiveness, competition, regulation or internal resources in detail. Those require additional work. External tools such as PESTLE and Porter’s Five Forces can help assess context and competitive pressure. Internal analysis should test financial capacity, technical capability, customer relationships, workforce skills, operating model, leadership attention and organisational culture.

4. Assess risk as uncertainty that can be managed

Instead of simply marking each quadrant low, medium or high risk, identify the specific uncertainty. Is the risk customer adoption, regulatory approval, supplier dependency, capability gap, price sensitivity, competitor reaction, cash flow, culture or implementation complexity? Different risks need different controls.

5. Select a portfolio and define learning milestones

Growth may involve more than one option. A mature organisation might pursue market penetration to strengthen its core while piloting a related product-development or market-development option. For higher-uncertainty choices, leaders should define staged investment, evidence thresholds, customer pilots, capability milestones and clear review dates.

Decision criterion	What good analysis looks like
Customer value	The option addresses a demonstrated need, not merely an internal desire for growth
Strategic fit	The option strengthens the organisation’s purpose, positioning and long-term direction
Competitive logic	The organisation understands why it can create and capture value relative to alternatives
Capability and workforce readiness	Required skills, leadership, partnerships, technology and operating capacity are identified and resourced
Financial sustainability	Investment, cost, cash-flow implications and plausible returns are transparent
Risk and governance	Key uncertainties, decision owners, review points and exit or adaptation criteria are explicit

An original workplace application

Consider a fictional UK business, Westmere Learning Systems, which provides compliance and operational-training services to small and medium-sized employers. Its current customers value short, face-to-face courses, but demand for flexible digital learning is growing and some competitors are offering lower-cost online alternatives.

The leadership team identifies four options. For market penetration, it could improve retention by introducing annual learning plans and better customer-success support for current clients. For market development, it could offer its existing courses through a regional employer partnership that serves a new industry segment. For product development, it could build a blended digital-learning platform for its existing customers. For diversification, it could create a new consultancy service for workforce capability analytics in a sector it does not currently serve.

Ansoff direction	Possible Westmere option	Main opportunity	Principal risk or capability need
Market penetration	Annual learning plans for current clients	Higher retention and more consistent customer value	Requires account-management capability and evidence that customers value the model
Market development	Existing courses offered through a new industry partnership	Access to a new customer segment using an established offer	Requires segment insight, credible partner governance and adapted examples
Product development	Blended digital-learning platform for current clients	Responds to flexibility and access needs	Requires digital product, learning-design, data and support capability
Diversification	Workforce capability-analytics consultancy in a new sector	Potential new revenue source and broader strategic position	Requires unfamiliar market knowledge, specialist talent and a credible route to win

The most responsible decision may be neither “choose the safest option” nor “choose the highest-growth option”. Westmere might strengthen market penetration to protect current value, run a customer-validated product-development pilot and postpone diversification until it has tested demand and built relevant capability. The matrix has helped the leadership team compare the nature of each choice; it has not replaced the need for evidence, investment discipline or implementation planning.

Limitations of the Ansoff Matrix

The Ansoff Matrix is intentionally simple. Its strength is clarity, but that clarity can conceal important complexity. It does not show industry profitability, competitive force, customer willingness to pay, internal capability, sustainability impact, stakeholder consequences or the detailed economics of implementation. It also assumes that “product” and “market” can be defined cleanly, which may be difficult for platforms, digital services, ecosystems and organisations with multiple business models.

The model should therefore be used as one component of a wider strategy process. Leaders should combine it with external analysis, customer insight, resource and capability assessment, financial evaluation, scenario planning and implementation governance. It is a framework for organising strategic options, not an instruction to pursue growth for its own sake.

Misuse of the model	Better practice
Assuming diversification is always the “highest risk” choice	Identify the particular sources of uncertainty and compare them with evidence; a related option may be more manageable than a weak product-development idea
Treating market penetration as automatically safe	Test saturation, customer value, competitor reaction, price pressure and delivery capacity
Using products and markets as vague labels	Define the customer, need, offer, channel, geography and capability implications precisely
Selecting a quadrant without examining capability	Assess the skills, technology, funding, leadership attention and operating-model changes required
Treating growth as the sole objective	Consider quality, sustainability, customer outcomes, employee impact, risk and long-term value

CMI 704 relevance

The Ansoff Matrix is relevant to CMI 704: Strategic Management and Leadership Practice because it helps leaders generate and compare strategic growth options. The value in a CMI context is not simply naming the four quadrants. It is using the model to interpret an organisational objective, assess strategic fit, consider risk and capability, compare alternatives and propose a justified implementation route.

For a unit-specific illustrative resource, see the CMI 704 Strategic Management and Leadership Practice example. This guide is intentionally different from that example: it explains how managers can use Ansoff to choose between growth directions in professional strategic practice.

Frequently asked questions

What are the four growth strategies in the Ansoff Matrix?

The four strategies are market penetration, market development, product development and diversification. They are based on whether the organisation is working with existing or new products and existing or new markets.

Is market penetration always the least risky strategy?

Not always. It usually involves more familiar products and markets, but it can still be risky where demand is saturated, competition is intense, margins are weak or the organisation lacks delivery capacity. Risk should be assessed through the specific context.

What is the difference between market development and product development?

Market development takes an existing offer to a new market, segment, geography or channel. Product development creates a new or materially improved offer for an existing market.

When should a business use diversification?

Diversification may be considered when the organisation has a credible strategic reason to enter a new product-market space, such as reducing dependence on a declining core market or using transferable capabilities. It requires particularly strong evidence, capability analysis and governance because both the offer and market may be unfamiliar.

References for Ansoff Matrix Explained

Ansoff, H.I. (1957) ‘Strategies for diversification’, Harvard Business Review, 35(5), pp. 113–124.

EBSCO Research Starters (n.d.) Ansoff Matrix. Available at: https://www.ebsco.com/research-starters/business-and-management/ansoff-matrix (Accessed: 18 August 2026).