ADL matrix

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ADL matrix
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ADL matrix is a portfolio analysis technique. It was created in the seventies at consulting firm Arthur D. Little, Inc..

It is ​based on the assumption that the ability of the product to generate profit is consequence of on the one hand, the competitive position of the company, on the other hand the degree of maturity of the sector. This means that the product has a greater ability to generate a surplus if it has a stronger competitive position.

According to many authors, the source of market success of the company are mainly product innovations. They allow for the development of all units within company beyond its competitors and achievement of leading market position. These are mostly products in the mature and declining sectors.


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
leading
strong
favorable
unfavorable
marginal

Source: "The strategic analysis of the company" M. Romanowska, G. Gierszewska

Phases of sector maturity

Maturity size sector is composed of four phases:

  • Start-up,
  • Growth
  • Maturity,
  • Decline.

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.

Strategic trajectories

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

start-up growth maturity decline
leading Success
Strong
favorable
Unfavorable
Marginal Failure

Source: "The strategic analysis of the company" M. Romanowska, G. Gierszewska

Advantages of ADL matrix

  • Transparency,
  • 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.

References