OCR A Level Business: Ansoff's matrix and Conflicts in business decision making (H431) – Revision Notes

Quick recall notes for Ansoff’s matrix and Conflicts in business decision making in OCR A Level Business (H431), following the Version 2.1 (January 2026) specification. For full explanations and worked examples, read the study guide. Test yourself with the practice questions, tick off topics on the checklist, find the course hub at OCR A Level Business, and find weak spots with the free diagnostics. The wider unit is in the Objectives and Strategic Decisions revision notes.

Ansoff’s matrix in one page

Nature and purpose. A model that classifies growth strategies by whether the product and the market are new or existing, so that managers can compare the options and the risk of each.

	Existing products	New products
Existing markets	Market penetration	Product development
New markets	Market development	Diversification

Distinguish the quadrants by changing one thing at a time.

Quadrant	What is new	Typical strategies	Usual risk
Market penetration	Nothing	Promotion, price cuts, loyalty schemes, buying a rival	Lowest
Market development	The market	New region, new customer segment, new use, export	Medium
Product development	The product	New model, improved quality, new service for current customers	Medium
Diversification	Both	New products in new markets; related or unrelated	Highest

Why risk rises. Each step away from current products and customers adds uncertainty and usually more cost. Diversification combines both uncertainties.

Risk for stakeholders (use them in evaluation).

Stakeholder	If the strategy works	If it fails
Owners and shareholders	Higher profit and share value	Lost investment, lower dividends
Employees	Jobs, promotion, training	Redundancy, pay freezes
Lenders	Repayment secure	Default risk
Suppliers	Larger orders	Late or unpaid bills
Customers	New products or better service	Weaker quality, higher prices
Local community	Jobs, spending	Closures, traffic, unemployment

Method: recommend and justify a strategy

1. Identify the objective (growth, profit, market share, survival).
2. Place each option in its quadrant.
3. Judge risk and cost for the business and its stakeholders.
4. Check resources, skills, market conditions and timing.
5. Choose one, give the reason, and say why the others are weaker.
6. State what would change your mind.

Usefulness of the matrix

Strengths	Limitations
Simple and clear	No financial figures
Shows every growth option	Ignores the size of reward
Links strategy to risk	Ignores resources and competitors’ reactions
Starts a discussion	Real strategies may mix quadrants

Verdict: useful as a first screen, weak as the only basis for a decision. Pair it with numbers and qualitative judgement.

Conflicts in business decision making

Why one tool’s result can conflict with another’s.

• They measure different things (speed, average profit, value of cash).
• They treat time differently (payback and ARR do not discount; NPV does).
• They depend on estimates that may be wrong or biased.
• Quantitative tools leave out qualitative factors.
• They cover different time horizons.

Standard forms of the investment appraisal tools

These are standard forms. The specification names the methods; check your textbook for the layout your teacher prefers.

Tool	Standard form	Strength	Limitation
Payback period	Time for cumulative net cash inflows to equal the initial cost	Simple; shows risk and liquidity	Ignores cash after payback and timing
ARR	Average annual profit divided by initial cost, as a percentage	Uses the whole project; easy to compare with a target	Ignores timing of cash
NPV	Sum of discounted cash inflows minus the initial cost	Uses time value of money	Needs a discount rate; harder to explain
Expected value (decision tree)	Sum of probability multiplied by outcome, less the cost	Weighs risk	Probabilities are estimates; the average may never happen

Small worked reminder

Elmbright Garden Centres is weighing a plant subscription box. It would cost £60,000 and bring net cash inflows of £20,000, £25,000 and £30,000 in years 1 to 3.

• Payback: £45,000 returns in two years, and £15,000 of year 3’s £30,000 is needed, so 2.5 years.
• ARR: total inflows £75,000, profit £15,000, average £5,000 per year, which is 5,000 divided by 60,000 = 8.3%.

If the target payback is 3 years, the project passes. If the target ARR is 10%, it fails. That is a conflict inside the numbers. A separate decision tree gives a 0.7 chance of a £180,000 payoff and a 0.3 chance of a £40,000 loss, so expected value is 0.7 × 180,000 minus 0.3 × 40,000 = £114,000. Qualitative points then decide: is the brand a fit, can the delivery team cope, and what do gardeners think?

Method: evaluate a conflict

1. State what each tool says.
2. Explain why they differ (different measures, timing, assumptions).
3. Test the reliability of the data and the sensitivity of the result.
4. Add qualitative factors and stakeholders’ views.
5. Judge which course of action is best and what would change it.

Evaluating decisions and likely success

• Is the proposal consistent with the aims and objectives?
• Are the forecasts realistic and who made them (possible bias)?
• Does the business have the money, skills and time?
• How will rivals, customers and the economy respond?
• What is the opportunity cost?
• What do the main stakeholders gain or lose?

Strengths and limitations of the tools (summary)

• Quantitative tools: objective in form, comparable, but depend on estimates and miss qualitative factors.
• Qualitative information: captures reputation, morale and ethics, but is subjective and hard to compare.
• Ansoff: a framework for risk, not for return.
• Decision trees: weigh probability, but the inputs are guesses.

Reasons for success or failure of a business

Success	Failure
Strategy fits market and resources	Over-optimistic forecasts
Sound cash flow	Weak cash flow
Decisions tested with several tools	Reliance on one tool or on intuition alone
Risks managed and plans reviewed	Ignored warnings or poor risk management
Ability to adapt to change	Entering unfamiliar markets unprepared

Model paragraph for a conflict question

Use a chain: point, evidence, reason, consequence, judgement. For example: “Payback favours the accessories project because it returns the cash in two years (evidence). NPV favours the export bike because its later cash flows are larger even after discounting (evidence). The tools conflict because payback ignores what happens after the cost is recovered, while NPV values the whole project (reason). If the business is short of cash, the quicker payback may matter more, but if it can wait, the higher NPV is stronger (consequence). On balance I would back the export bike, provided the demand forecast is tested first (judgement).”

Which tool for which question

If the question asks about	Lead with	Then add
Growth options and their risk	Ansoff’s matrix	Cost, resources, stakeholders
Speed of recovering cash	Payback	NPV for total value
Value of a project over its life	NPV	ARR and qualitative fit
A choice under uncertain outcomes	Decision tree expected value	The reliability of the probabilities
Whether a business is succeeding	Financial and non-financial measures	Stakeholders’ views

Must-know distinctions

• Market development (new market, same product) against product development (new product, same market).
• Related diversification against unrelated diversification.
• Quantitative against qualitative information.
• Quantifiable risk against unquantifiable risk.
• Payback (speed) against NPV (value).

Quick self-test

1. Name the Ansoff quadrant for an existing product in a new market.
2. Which quadrant is usually the riskiest, and why?
3. State two examples of market penetration strategies.
4. Give one stakeholder who loses if a diversification fails, and how.
5. Give two limitations of Ansoff’s matrix.
6. A project costs £80,000 and returns £30,000 a year for four years. Calculate the payback period.
7. For the same project, calculate the ARR.
8. A decision tree option costs £150,000. It has a 0.4 chance of a £500,000 payoff and a 0.6 chance of £100,000. Calculate the net expected value.
9. Give two reasons why payback and NPV may rank projects differently.
10. Why might a project with a positive NPV still be rejected?

Answers

1. Market development.
2. Diversification, because both the product and the market are unfamiliar, so uncertainties combine.
3. For example, a loyalty scheme and more advertising (or price promotions, or buying a rival).
4. For example, employees may lose their jobs, or lenders may not be repaid.
5. For example, it gives no financial figures and ignores the size of the reward, resources and competitors’ reactions.
6. 80,000 divided by 30,000 = 2.67 years, about 2 years 8 months.
7. Total inflows £120,000, profit £40,000, average £10,000 a year; 10,000 divided by 80,000 = 12.5%.
8. Expected value is 0.4 × 500,000 + 0.6 × 100,000 = £260,000; minus the cost of £150,000 gives £110,000.
9. Payback ignores cash after the payback point and does not discount; NPV values all cash flows in today’s money.
10. For example, a poor fit with the mission, damage to reputation, lack of skills, an unreliable forecast, or better uses of the money.

Where marks are usually lost

• Naming the quadrants without applying them to the business in the case.
• Saying diversification is risky with no reason.
• Describing a stakeholder effect with no link to the strategy.
• Giving a recommendation with no reason for rejecting the other options.
• Calculating payback, ARR or NPV but not interpreting the result against a target.
• Treating a conflict between tools as a mistake instead of explaining the cause.
• Ignoring qualitative factors, or treating them as an afterthought.
• Concluding with a list of points and no judgement.

Frequently asked questions

Why is diversification the riskiest Ansoff strategy? Diversification means selling new products in new markets, so the business has no direct experience of either side. Risk rises the further a business moves from the products and markets it knows.

Is a conflict between payback, ARR and NPV a mistake? No. The tools measure different things and treat time differently, so they can rank projects differently. Explain the cause of the conflict rather than treating it as an error.

Should you compare investment appraisal results with a target? Yes. Calculating payback, ARR or NPV without comparing the result with the business’s target, such as a maximum payback period, leaves the figure uninterpreted.

What are the limitations of decision trees? The probabilities are often guesses, and the expected value is an average that may never actually occur.

Official syllabus

OCR, Advanced GCE in Business (H431) specification, Version 2.1 (January 2026), for first assessment in 2017: Business objectives and strategy, content points Ansoff’s matrix and Conflicts in business decision making.