competencies with an emerging, albeit adjacent, mar- ket opportunity.
The specification of strategic arenas—what’s “in bounds” and “out of bounds” for product innovation—is funda- mental to spelling out the direction or strategic thrust of the business’s product development effort. It is the result of identifying and assessing product innovation opportunities at the strategic level. Without defined strategic arenas, the search for specific new product ideas or opportunities is unfocused. Over time, the project portfolio for new prod- ucts is likely to accumulate a lot of unrelated projects, in many different markets, technologies, or product types. The result of such a scattershot effort is predicable: a not- so-profitable new product effort.
The first task, then, is identifying possible arenas, areas that offer the business some new and profitable oppor- tunities. Many firms use the product-market matrix (Figure 3) as they try to define new but adjacent areas in which they can operate profitably. Each cell in the matrix represents a potential strategic arena that offers a number of new product opportunities.