The ADL Matrix or Arthur D Little Strategic Condition Matrix is a Portfolio Management technique that is based on the Product Life Cycle (PLC). It is developed in the 1980’s by Arthur D. Little, Inc. (ADL), one of the best-known consulting firms, intended to help a company manage its collection of product businesses as a portfolio.
Like other portfolio planning matrices, the ADL matrix represents a company’s various businesses in a 2-dimensional matrix. It is a structured methodology for consideration of strategies which are dependent on the life cycle of the industry. The ADL approach uses the dimensions of environment assessment and business – strength assessment ie. Competitive Position and Industry Maturity.
The environment assessment is an identification of the industry’s life cycle and the business strength assessment is a categorization of the company’s SBU’s into one of five competitive positions, these five competitive positions by four life cycle stages. The combination between the dimensions yields 5 (competitive positions) by 4 (life cycle stages) matrix. The positioning in the matrix identifies a general strategy.
ADL matrix structure
The design of ADL matrix is based on two variables:
- Degree of maturity of the industry (market)
- Degree of competitiveness of a product or company’s competitive position.
Fig.1 ADL matrix
|maturity of sector \ competition||start-up||growth||maturity||decline|
Phases of sector maturity
Maturity size sector is composed of four phases:
Types of competitive position
There are five dimension of competitive position:
- Leading – provides the ability to control the behavior of competitors,
- Strong-enables policy-making in the field of your choice without compromising its position in the long term,
- Favorable – gives a good chance of implementation of the strategy and maintain its position in the long term,
- Unfavorable – justifies the continuation of the activity, if the results are good enough, allows the use of general tolerance of strongest competitors,
- Marginal-gives a chance to improve the situation despite the unsatisfactory results, but improvement must be significant.
ADL matrix comprises from 20 to 30 fields, depending on the number of analyzed phases. In these fields circles are placed that reflect homogeneous products or product groups. This allows managers to make a proper allocation of resources and control of product strategies. This results also in the development of the optimal product portfolio of most profitable products.
ADL matrix is connected with natural strategies and strategic trajectories. In Figure 1 lines divide the area into: strong, questionable and weak sectors.
Trajectories show the process of the strategic development of the company in different sectors depending on the scenario of success and failure.
Fig. 2 Strategic trajectories
he ADL matrix was developed in the late 1970s by the Arthur D Little consulting company. It plots the competitive position of a business against the life stages of that business. This results in a tool that managers can use to work out a strategy for their business depending on whether it is newly formed or ageing and whether it is strong or weak in its market.
There are four stages in the ADL matrix life cycle:
- Embryonic: this is a business unit which is new or youthful in its stage. It will need strong financial support because profits are not yet realised.
- Growth: here the business unit has taken off and is growing rapidly. The focus is on making sure that there is sufficient production to meet the needs of customers.
- Maturity: now growth is slowing. Rationalisation begins and the business unit that previously focused on production has now become more interested in brand positioning and segmentation in order to maximise profits.
- Ageing: sales now begin to fall away. Nevertheless, this can be a period during which profits are harvested. Competitors may exit the market leaving sufficient attractive business for the remainers. Rejuvenation of the product becomes a consideration.
There are five classification is of the strength of the company:
- Dominant: this is a company which is a leader in its market with high market share which brings the ability to maintain high prices and strong profits.
- Strong: here the company shares its strong position with a small number of competitors. There are usually good opportunities to divide the market and make money.
- Favourable: this describes a company that operates in a fragmented market where there is no dominant player. A business could have a competitive advantage in a certain segment of the market.
- Tenable: here a company serves a niche in a limited geographical area or with a certain segment of the market.
- Weak: this reflects a company with a small position in an aggressive market which is likely to result in poor financial performance.
- Market strategies – moving into a new geography or developing different segments. Building brands.
- Product strategies – launching new products, finding ways of differentiating the products, positioning the products against the needs of specific segments.
- Management and system strategies – finding processes that give a competitive advantage such as production at a lower cost, better customer service.
- Technology strategies – investing in research and development to ensure that the product portfolio is full of new products with high market appeal.
- Retrenchment strategies – building on customer loyalty to rebuild the business and obtain a greater share of wallet or higher prices.
- Operations strategies – improving logistics and gaining a competitive advantage through faster deliveries or more efficient operations.
Advantages of ADL matrix
- Flexibility in assessing the attractiveness of the industry,
- Possibility of balancing a portfolio of production,
- Better identification of competition, suppliers, customers, potential substitutes,
- Allows to extract the strengths of the product portfolio.
Disadvantages of ADL matrix
- Limited practicality,
- Excessive empiricism and subjectivity in the application of the criteria for designation of its main dimensions.
What preparation should be done to complete an ADL Matrix?
It is required to have knowledge of:
- Your existing products/services
- Their financial performance and contribution
- Awareness of the markets you operate in and the latest trends
It’ll help if you also have information on:
- Current client relationships
- Example good case studies of sales and service
- Example bad case studies of sales and service
- Latest news in your sector
- Any competitive activity your aware of
- Employee feedback on products/services
If in a group, these can be shared via an email beforehand or presented on the day.
What is the difference between the ADL Matrix and the Strategic Condition Matrix?
Nothing – these are two names for the same matrix!
How often should the ADL Matrix be updated?
It is best practise to review your ADL Matrix on a quarterly basis, as it can be impacted by external forces out of your control. Sales trends, consumer behaviour and competitor activity can alter the placement of products and services within the matrix. A regular review ensures you take into account of your changing landscape.