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A complicated task in business management is strategically evaluating a service or product portfolio. A pictorial representation to summarize findings can ease the task. ADL Matrix in strategic management is one such option used often as a part of organizational or product strategy. It was developed by Arthur D Little in the 1980s with the intention of helping an organization manage multiple businesses as a portfolio. If business portfolio strategies are implemented in the decision-making process, organizations can improve the possibility of controlling long-term development and strengthen their market position. The ADL Matrix acts as a diagnostic tool for strategic analysis and provides insights into an organization’s competitive position.
Here we’ll discuss ADL Matrix in strategic management and the steps to create one.
The Arthur D Little Matrix
The Arthur D Little Matrix or the Strategic Condition Matrix is a portfolio management technique that allows an organization to make judgments based on their placement in and the lifecycle of the market while managing their portfolio. Although the ADL Matrix is sophisticated enough to help in forming strategies, it can be simply seen as a technique to list all products. The approach for ADL portfolio management functions on the concept of Product Life Cycle and relies on the assessment of the market environment and business strength.
If we study the ADL Matrix with an example, we find a 5 by 4 matrix of competitive positions and product cycle stages that is created to identify general strategies based on the positioning. Environment assessment is the process of identifying the life cycle of an industry and business assessment is a process to categorize an organization’s SBUs. Industry maturity and competitive position are the two dimensions of the Arthur D Little Matrix.
Steps To Create The ADL Matrix
Let’s look at the four steps used for creating ADL Matrix in strategic management:
1. Clearly defined procedures must be used for strategic segmentation and then determine the SBUs of the organization.
2. In a specifically defined industry, determine the SBUs’ competitive position.
3. Competitive Position
Strategic actions and competitors’ strategies determine an organization’s competitive position. Strong competitive position and good quality is a sign of a healthy business. In an ADL Matrix, every segment of an organization is categorized according to these positions:
- Dominant: An organization enjoys a dominant position usually when it has a strong and protected technology leadership or a monopoly in a market. It can be rare and short-lived
- Strong: Arthur D Little Matrix categorizes an organization’s position as strong when it has a strong and stable market share, in spite of competition. Such organizations can act without the fear of jeopardizing their market positions and enjoy considerable freedom when choosing strategies
- Favorable: Organizations can enjoy favorable positions in markets with many rivals and no leader. They can have some freedom to operate and may gain a competitive advantage in certain segments of the industry
- Tenable: Such a position is seen where the market is small or the consumer group is niche and the competition is stronger
- Weak: Organizations are deemed weak when they suffer continuous loss and have a small business line that cannot maintain profitability
While creating one, managers must look at ADL Matrix with examples to know how to assess the competitive position of their organization.
4. For each business in all SBUs, stages of industry maturity must be identified.
5. Industry Maturity
Industry maturity is the life cycle of a product in a market. ADL Matrix in strategic management categorizes it into the following stages:
- Embryonic: This is the introduction stage which shows rapid growth in the market, new technology, high prices, healthy investment and little competition
- Growth: In this stage, a product still holds a strong market share with few or no competitors, sales keep increasing and the organization enjoys huge profits
- Mature: The product is functioning in a stable market at this stage with a well-established consumer base. Although market share is stable, the organization focuses on differentiation due to increasing competition
- Aging: At this stage, demand has declined and the market has turned red with too many competitors fighting for profit
6. To learn the sophisticated procedure of positioning a product into one of these categories a manager has to study the ADL Matrix with example to identify the many factors that influence it.
7. Using a 5 by 4 matrix format plot the positions and sizes of SBUs.
The Arthur D Little Matrix addresses the unique needs of an organization and recommends general strategies. If a business unit has a new product line and a strong market presence, then it’s wise to capture as much industry share as possible by pushing its position aggressively. But in case of a declining market, it’s better to direct the efforts towards blue oceans. If managers study the ADL Matrix with examples, they can correctly develop such strategies.
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