ADL matrix

ADL matrix
See also
Strategic group Strategic position BCG growth-share matrix Benchmarking McKinsey matrix Types of market segmentation Concentration strategy Strategic fit Criteria of market strategy evaluation

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.

Examples of ADL matrix

• The ADL matrix is used by companies to identify and prioritize investments for their portfolios. For example, a company might use the ADL matrix to determine which products should be the focus of its marketing efforts, or which products should be discontinued due to lack of profitability.
• Businesses can also use the ADL matrix to compare the relative profitability of different customer segments. For instance, a business might use the matrix to identify the most profitable customer segment and target their marketing efforts accordingly.
• The ADL matrix can also be used to analyze the competitive landscape. For example, a company can use the matrix to compare the relative strengths of different competitors and determine the best strategies for out-competing them.

Other approaches related to ADL matrix

The ADL matrix is a portfolio analysis technique created in the seventies at consulting firm Arthur D. Little, Inc. Here is a list of other approaches related to the ADL matrix:

• Porter's Five Forces Model: This model is an industry analysis tool developed by Michael Porter in 1979 that outlines the critical forces that shape competition within industries.
• SWOT Analysis: SWOT stands for Strengths, Weaknesses, Opportunities, and Threats and is used to analyze an organization’s internal and external environment.
• Ansoff Matrix: Developed by Igor Ansoff in 1957, the Ansoff Matrix is used to identify a company’s strategic options for growth.
• Value Chain Analysis: Value chain analysis is a tool used to analyze how each activity in a company adds value and affects the overall success of that company.
• Boston Consulting Group (BCG) Matrix: This matrix is a strategic planning tool used to analyze and compare a company’s product portfolio and decide which products to focus on.

In summary, the ADL matrix is one of several portfolio analysis techniques used to analyze and compare a company’s product portfolio. Other related approaches include Porter's Five Forces Model, SWOT Analysis, Ansoff Matrix, Value Chain Analysis, and the Boston Consulting Group (BCG) Matrix.

References

• Florian, G. L. (2009, July). The fuzzy-interpolative ADL matrix. In 2009 3rd International Workshop on Soft Computing Applications.