ADL Matrix - Arthur D. Little
The ADL matrix from Arthur D. Little is a portfolio management method that is based on product life cycle thinking. It uses the dimensions of environmental assessment and business strength assessment. The environment assessment is an identification of the industry's life cycle and the business strength assessment is a categorization of the corporation's SBU's into one of five competitive positions, these five competitive positions by four life cycle stages.

In the ADL, the line of business is not especially defined by a product or organizational unit. The strategies must identify discrete businesses by finding commonalties among products and business lines using the following criteria as guidelines:
  • Common rivals
  • Prices
  • Customers
  • Quality/Style
  • Substiutability
  • Divestment or liquidation

The assessment of the life cycle stage of each business is made on the basis of:
  • Business market share
  • Investment
  • Profitability and cash flow


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Fig 1. A figure showing ADL Matrix (derived from Arthur D Little)

The Competitive Position
Dominant: This results from protected leadership and it is a particular extraordinary position. Often this is associate with some form of monopoly position or customer lock-in e.g. Microsoft Windows being the dominant global operating system. This is
rare, often the result from a almost-monopoly or protected leadership

Strong: this strategy does not consider much of the moves made by other rivals, example of companies that have a lot of freedom since position in an industry is comparatively powerful e.g. Apple's iPod products. A strong company can follow a strategy without too much consideration of moves by rival companies.

Favorable:there many be more leaders among the strong rivals as industry is fragmented. Companies with a favourable position tend to have competitive strengths in segments of a fragmented market place. No single global player controls all segments. Here product strengths and geographical advantages come into play. In this the Industry is fragmented and there is no clear leader among stronger rivals.

Tenable: the business has not defined the product.Here companies may face erosion by stronger competitors that have a favourable, strong or competitive position. It is difficult for them to compete since they do not have a sustainable competitive advantage. This imply that the the company has a niche, either geographical or defined by the product.

Weak: may be the business is too small to provide the profit, companies in this undesirable space are in an unenviable position. Of course there are opportunities to change and improve, and therefore to take an organization to a more favourable, strong or even dominant position and in this business is too small to be profitable or survive over the long term

The Life Cycle Stages
Embryonic: introduction stage, everything is new.
Growth:sales increase, many customers start to know the product.
Mature: market is stable, have many customers and a lot of competition.
Aging: Demand decreases, the companies need to use strategy to add something new to attract the customers or abandoning the market.

Industry Positioning and Strategy


Strategy involves the state of the industry and understanding how the organization fits into it, from this, it is easy to figure out the best way tp move forward. Basically the ADL Matrix is for:

  • Competitive Position – How strong is your strategic position?
  • Industry Maturity – At what stage of its lifecycle is the industry?

The Use of ADL Matrix


For business units that has a strong market and new emerging product line, increasing market share is different from the declining markets.. In this case extra effort is needed for new, growing markets as well as competitive positioning in declining markets.

The ADL Matrix is often associated with strategic planning at business unit level. However it works equally well when applied to product lines, or at the level of an individual product.


According to ADL, there are six generic categories of strategy that could be employed by individual SBU's:
  • Market strategies.
  • Product strategies.
  • Management and systems strategies.
  • Technology strategies.
  • Retrenchment strategies.
  • Operations strategies.




DEFINING THE LINE OF BUSINESS IN THE ADL MATRIX

In the ADL Matrix approach, the strategist must identify discrete businesses by finding commonalities among products and business lines using the following criteria as guidelines:
  • Common rivals
  • Prices
  • Customers
  • Quality/Style
  • Substitutability
  • Divestment or liquidation

ASSESSING THE INDUSTRY LIFE CYCLE STAGE IN THE ADL MATRIX

The assessment of the Industry Life Cycle stage of each company is made on the basis of:
  • Business market share,
  • Investment, and
  • Profitability and cash flow.

LIMITATIONS

Some known limitations of the ADL Matrix are:
  • There is no standard life cycle length.
  • Determining the current industry life cycle phase is difficult.
  • Competitors may influence the length of the life cycle.

According to ADL, there are six generic categories of strategy that could be employed by individual SBU's:
  • Market strategies.
  • Product strategies.
  • Management and systems strategies.
  • Technology strategies.
  • Retrenchment strategies.
  • Operations strategies.




Reference
Value Based Management.net, 2011, ADL Matrix, [Online] Available at: http://www.valuebasedmanagement.net, [Accessed 19 May 2011].

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

http://www.marketingteacher.com/lesson-store/lesson-a-d-little.html


http://www.12manage.com/methods_adl_matrix.html