Hofer matrix

Hofer matrix is one of the tools used to determine the assessment of the Competitive position of the company, as determined by its internal and external factors.

15 squares matrix was created by Ch.W. Hofer. It is a development of the ADL and McKinsey matrices and is especially useful when analysing strategically diversified entity.

Rules of design

Matrix is created on the basis of two criteria: the maturity of the sector, divided into 5 phases and the competitive position of companies in the sector. In this way circles are created, which represent different areas of activity in the company, and the size of the circle is proportional to size of the sector. Sometimes segments could be added to the circle, which reflect the market share of company in the sector.

Below is a sample matrix constructed according to the principles set out by Hofer. In its interpretation attention should be paid to possible strategies for products, their life cycle phases and the markets in different sectors.

Fig.1. Hofer matrix example

Interpretation of fields

In Hofer matrix, we can characterize groups of products:

• Products A - Dilemmas that have chance of success with appropriate marketing strategies and financial aid
• Products B - Winners, require appropriate marketing strategies and financial aid, if company has limited resources for advertising managers must make a choice between products A and B
• Products C - Potential losers, the weak position, the sector in the growth phase - managers should make additional analyses to rule out the possibility of going through the shock phase
• Products D - despite the current difficulties can become market leaders or profitable producers
• Products E and F are profitable, so it is possible to introduce other products in the phase of shock and generate considerable profits
• Products G and H are the losers are in the exit phase of the market, ahead of the full withdrawal managers should use strategies for "gathering the harvest"

Examples of Hofer matrix

1. *Price/Product Matrix: This matrix is used to compare the prices and products of competing companies in a marketplace. It can be used to assess a company's competitive position in terms of cost, quality, and features.
2. *Competitor Analysis Matrix: This matrix is used to compare and evaluate the strengths and weaknesses of a company's competitors in terms of their products, services, and marketing strategies. It can help a company identify areas of improvement and areas of opportunity.
3. *Porter's Five Forces Model: This model is used to evaluate the competitive intensity of a market and the attractiveness of a particular industry. It considers five forces that shape competition: buyer power, supplier power, competitive rivalry, threat of new entrants, and threat of substitute products.
4. *SWOT Analysis: This matrix is used to evaluate a company's internal strengths and weaknesses, as well as external opportunities and threats. It helps a company identify and prioritize the most relevant factors in its competitive position.

Advantages of Hofer matrix

A Hofer matrix is a tool used to evaluate a company's competitive position by assessing its internal and external factors. The following are the advantages of using a Hofer matrix:

• It provides a clear assessment of the company's competitive position in the market by considering both internal and external factors.
• It helps to identify areas of strength and weakness within the company, which can then be addressed and improved.
• It is a relatively simple tool to use and understand, making it suitable for use by all levels of management.
• It can be used to compare multiple companies and their competitive positions, allowing for a more thorough analysis.
• It can provide valuable insight into the competitive environment, which can be used to develop effective strategies for gaining a competitive edge.

Limitations of Hofer matrix

• The Hofer Matrix is a useful tool for assessing a company's competitive position, however, there are several limitations to consider.
• One limitation is that the matrix does not take into account the actual profitability of the company or its competitors, and only measures the potential of the company.
• Another limitation is that the matrix does not account for non-tangible factors such as market sentiment and customer loyalty, which can have a large impact on a company's success.
• The matrix also relies heavily on subjective measures, as it is up to the analyst to quantify factors such as market segmentation, customer loyalty and product differentiation.
• Finally, the matrix does not take into account the changing nature of the competitive landscape, which can mean that the analysis becomes out of date quickly.

Other approaches related to Hofer matrix

A Hofer matrix is a useful tool for assessing a company's competitive position. Other approaches related to this include:

• Porter's five forces: This model looks at the competitive environment of a company, looking at the bargaining powers of suppliers and customers, the threat of new entrants and substitutes, and the intensity of rivalry among existing competitors.
• SWOT Analysis: This approach looks at a company's strengths, weaknesses, opportunities and threats. It is used to evaluate a company's current situation and develop strategies for the future.
• Balanced Scorecard: This approach looks at a company's performance from four perspectives – financial, customer, internal process, and learning and growth. This enables a company to measure its performance in all areas and develop strategies to improve it.
• PEST Analysis: This approach looks at the political, economic, social and technological factors that may affect a company's performance. It can help a company identify potential opportunities and threats.

In conclusion, there are a number of approaches related to a Hofer matrix that can help a company to assess its competitive position and develop appropriate strategies.

Hofer matrix — recommended articles

SPACE method — Evaluation of sector's attractiveness — Key success factors — Technological portfolio — Market attractiveness — ADL matrix — Competitive position — ASTRA analysis — Company situation analysis

References

• Chrisman, J. J., Hofer, C. W., & Boulton, W. B. (1988). Toward a system for classifying business strategies. Academy of Management Review, 13(3), 413-428.
• Hofer, C. W., & Schendel, D. (1980). Strategy formulation: Analytical concepts. West Publishing.
• Hofer, C. W. (1975). Toward a contingency theory of business strategy. Academy of Management journal, 18(4), 784-810.
• McNamee, P. B. (1985). Tools and techniques for strategic management. Oxford: Pergamon Press.
• Pethia, R. F., & Saïas, M. (1978). Metalevel product-portfolio analysis: An enrichment of strategic planning suggested by organization theory. International Studies of Management & Organization, 8(4), 35-66.
• Smith, C. (1971). Portfolio Management. Wiley Encyclopedia of Management.