ADL Matrix

How industry position influences your strategy?

Part of thinking about strategy involves thinking about the state of your industry; understanding how your organization fits into it; and, from this, figuring out your best way forward.

While there are many tools that help you do this, you can get particularly useful insights with the Arthur D Little (ADL) Matrix. Developed in the late 1970s by the highly respected Arthur D Little consulting company, it helps you think about strategy based on: 

• Competitive Position – How strong is your strategic position?

• Industry Maturity – At what stage of its lifecycle is the industry?

Using the ADL Matrix

If your business unit has a strong market presence and a newly emerging product line, you’ll likely want to aggressively push its position and capture as much market share as you can. But this strategy does not apply so well to business lines with dominant competitive positions in declining markets. In this instance, you’re better off putting your energy into new, growing markets and simply maintaining your current market position in the declining industry.

The ADL Matrix addresses these unique needs by recommending general strategies for different combinations of competitive position and industry maturity.
 

Industry Maturity

There are four categories of industry maturity (also referred to as the industry life cycle):

1. Embryonic – The introduction stage, characterized by rapid market growth, very little competition, new technology, high investment and high prices.
    

2. Growth – The market continues to strengthen, sales increase, few (if any) competitors exist, and company reaps rewards for bringing a new product to market.
    

3. Mature – The market is stable, there’s a well-established customer base, market share is stable, there are lots of competitors, and energy is put toward differentiating from competitors.
    

4. Aging – Demand decreases, companies start abandoning the market, the fight for market share among remaining competitors gets too expensive, and companies begin leaving or consolidating until the market’s demise.

Competitive Position

The five categories for competitive position are as follows:

1. Dominant – This is rare and typically short-lived. There’s little, if any, competition, usually a result of bringing a brand-new product to market or having built an extremely strong reputation in the market (think Microsoft).

2. Strong – Market share is strong and stable, regardless of what your competitors are doing.
    

3. Favorable – Your business line enjoys competitive advantages in certain segments of the market. However, there are many rivals of equal strength, and you have to work to maintain your advantage.
    

4. Tenable – Your position in the overall market is small, and market share is based on a niche, a strong geographic location, or some other product differentiation. Strong competitors are overtaking your market share by building their products and defining clear competitive advantages.
    

5. Weak – There’s continual loss of market share, and your business line, as it exists, is too small to maintain profitability.

The resulting ADL Matrix looks like this, with the various strategies prescribed for each of the 20 combinations:

Using the ADL Matrix

The ADL Matrix provides you with a generic strategy. You’ll need to fine-tune the strategy and tailor it to your current business.

Step #1: Identify your industry maturity category.
Think about the following questions as you decide which stage is most descriptive:

• What are you currently experiencing with market growth?

• How many competitors do you have?

• How large is your market?

• Is your investment increasing or decreasing?

• Are your sales increasing, decreasing or staying the same?

• How is your product differentiated from competitor products?

Deciding on an industry life cycle stage isn’t easy, and competitors’ actions often have a bearing on this, making it hard to determine and predict. Strategy is not an exact science, so do the best you can.

Step #2: Determine your competitive position.
 

Choose the best fit. Be careful not to project what you want your position to be, but what it truly is. Take a long, hard look at where you’re currently operating.

Step #3: Plot your matrix position.
Consider the strategies suggested as a starting point for your strategic planning.

Key points of ADL Matrix:

The ADL Matrix is a great tool for uncovering high level strategies that may be successful for your business.

By focusing on competitive position and industry maturity, the matrix helps you see the role your business plays in the larger marketplace. With this big picture view, complemented by other strategy tools, you will have a great starting place for building your strategic plan.  

ADL Matrix

The ADL matrix from Arthur D. Little is a portfolio management method that is based on product life cycle thinking.

The ADL portfolio management approach uses the dimensions of environmental assessment and business strength assessment. The environmental measure is an identification of the industry's life cycle. The business strengths measure is a categorization of the corporation's SBU's into one of five (6) competitive positions: dominant, strong, favorable, tenable, weak (and non-viable). This yields a 5 (competitive positions) by 4 (life cycle stages) matrix. Positioning in the matrix identifies a general strategy.

In the ADL approach, the line of business or SBU is not especially defined by a product or organizational unit. The strategist must identify discrete businesses by finding commonalties among products and business lines using the following criteria as guidelines:

• Common rivals

• Prices

• Customers

• Quality/Style

• Substitutability

• Divestment or liquidation

This assessment of the industry life cycle stage of each business is made on the basis of:

• Business market share,

• Investment, and

• Profitability and cash flow.

The competitive position of a firm is based on an assessment of the following criteria:

• Dominant: Rare. Often results from a near monopoly or protected leadership.

• Strong: A strong business can usually follow a strategy without too much consideration of moves from rivals.

• Favorable: Industry is fragmented. No clear leader among stronger rivals.

• Tenable: Business has a niche, either geographical or defined by the product.

• Weak: Business is too small to be profitable or survive over the long term. Critical weaknesses.

Known limitations of the ADL matrix include:

• There is no standard length of life cycles,

• Determining the current industry life cycle phase is awkward,

• Competitors may influence the length of the life cycle.

References

http://www.valuebasedmanagement.net/methods_adl_matrix.html

http://www.mindtools.com/pages/article/newSTR_88.htm