Posts Tagged ‘expansion strategy’

Strategy Analysis: Expand

Monday, August 16th, 2010

by M. Dana Baldwin, Senior Consultant

Strategic Planning Expert

In strategic planning, there are five basic strategies one may pursue: Expand, Maintain, Contract, Milk or Withdraw.  The most aggressive strategy is Expand.  What does an Expand strategy encompass?

First, let’s define the Expand strategy so we have a basis on which to base discussion.  The dictionary defines expand as: to increase the extent, number, volume, or scope of, to enlarge. We further define an expand strategy as one in which we are growing significantly faster than the market or market segment is growing overall.

To follow an expand strategy, a company must decide to provide the resources which will support the targeted growth rate.  It implies that the company’s growth will absorb much of the real growth of the markets in which the company is competing.  It also implies that the company is willing to take on competitors in order to take market share from them, in addition to absorbing the growth in the market place itself.

Before we select the expand strategy, we need to look in depth at each market segment to see whether it will qualify for an expand strategy.  What are the requirements that a market segment should have in order to be eligible for an expand strategy?

First, we need to be able to have sufficient resources, both people and money, to properly support the strategy to expand our sales volume in each affected market segment.  An expansion strategy can be quite expensive, and will likely absorb a lot of time of some key people in your company.

Second, it should be in a relatively attractive market.  We use a 3 x 3 matrix to demonstrate how attractive a market segment is, and also how strong a competitor we are relative to our own competition.

When you look at the matrix above, you can readily see that the market attractiveness for the suggested strategy of expand is high.  Notice too, that the competitive strength (vertical axis) may range from being a weak competitor/new entry to being a strong, dominant competitor.  Our goal over time is to move our competitive position up the axis to the strongest possible competitive position.

Often it won’t make a lot of sense to expand in a less attractive market segment.  The one exception for this is in a moderately attractive market in which you are the dominant player.  If the potential for a good long term reward is present in a moderately attractive segment where you are a strong number one, then expand should certainly be considered.

Many companies simply do not have the depth of resources – usually people resources – to support too many expand strategies.  Companies need to select the few markets where they want to expend the resources to significantly gain market share.  Focusing resources is paramount to any plan’s success – so your team should not try to expand in all markets.  Rather, we suggest pick the 2-3 that, given the effort, will deliver the most bang for your buck.  We find that if you force the team to pick only 2-3 expand strategies immediately, a few “winners” will be chosen.  This selection of only a few “expands” helps ensure that a team will be successful on the chosen markets.

In conclusion, an expand strategy is a strong bet on your company’s ability to grab market share at a rate higher than the market is expanding, with the goal of increasing your return on investment over time.  This means you will aim to increase your top line sales and bottom line profits at a rate higher than the additional costs you will be incurring in your expansion efforts.

For detailed directions for using the expand strategy in your Simplified Strategic Planning process go to Simplified Strategic Planning book.

M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. and can be reached at baldwin@cssp.com.

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