The ADL Matrix, Gap Analysis, and the Directional Policy MatrixUpdated: Nov 15, 2016
Continuation. The beginning can be found here.
Here are three lesser-known strategic planning tools that are primarily used for determining a large-scale competitive strategy for an organization or a strategic business unit. These particular tools are fairly simple environmental analysis methods, and like other better-known tools such as SWOT or PEST analysis, do not suggest actions the business should take to reach its objectives. They are best used as a first step in strategy planning, with other more complex tools such as Balanced Scorecards or Key Performance Indicators used to develop and carry out strategic objectives.
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The Arthur D. Little (ADL) Strategic Condition Matrix
The Arthur D. Little Strategic Condition Matrix was developed by the well-known consulting firm of the same name in the 1970s and is a life cycle-based analysis similar to the Boston Matrix. Unlike the Boston Matrix, which considers a single dimension – product or SBU competitiveness – the ADL has two: competitive position and industry maturity. It was designed mainly for use in assessing SBUs in a large enterprise, but can be easily adapted for use as an analysis covering the entire company or smaller units.
The ADL Matrix
Competitive position is relatively easy to identify accurately if one thinks of it in terms of product and place: What does the company or SBU offer, and how extensive and diversified are the markets in which it can offer it? Product and place together define the business unit to be assessed. This does not, however, necessarily follow the organizational structure. For example, the sales division of an auto manufacturer provides a product in terms of the cars it sells, but also provides a product in terms of the marketing message supporting the sales effort, customer relations, and value-added components such as service warranties; thus, several organizational units, or parts of them, might make up an SBU for the purposes of strategic analysis with the ADL matrix.
- Ansoff, Boston, and the Strategy Clock
- What Is a SWOT Analysis and How Does It Work?
- What Should We Know about PEST and PESTEL Analysis?
Industry maturity is fairly straightforward, and could describe not only an entire industry but a relevant segment of it; for example, our auto manufacturer might consider different vehicle classes such as sports cars, luxury sedans, and light trucks. Once the competitive position and industry maturity are determined, the SBU is assigned the appropriate place in the matrix, from where the company can begin to make strategic decisions.
In some guides to the ADL, the 20 potential positions on the matrix are identified with specific generic strategies. In general, the positive strategies involving holding and growing SBUs increase as one moves from bottom to top and right to left across the matrix; the lower-right position representing a weak SBU in an aging market always suggests abandoning or otherwise divesting from the SBU. It is important, however, not to be too strictly bound by predetermined generic strategies. The actions and choices available to the organization depend on the organization’s circumstances and available resources, and may not match generic strategy prescriptions.
The biggest weakness of the ADL is that it cannot account for uncertainty about the length of industry life cycles. In an organization’s current industry conditions, it can be difficult to foresee when those conditions might change, since the life cycle is not only affected by external forces but by the activities of competitors as well. Because effective planning requires a definite timeframe, a rapid change in the industry life cycle can make a chosen course of action obsolete and harm the company’s competitive position.
Gap analysis is usually associated with marketing strategy planning, but it can be applied to other types of strategic planning. It is one of the simplest planning tools ever devised, which gives it some distinct advantages and disadvantages.
The first step in a gap analysis is to select relevant, measurable indicators that will describe the “gap”. The fewer the indicators chosen, the less complicated the subsequent analysis and plan development will be; examples of indicators might be gross revenues, profit margin, total sales, or production figures. The “gap” is the difference between the objectives and the current situation in terms of the selected indicators. Generally, the gap is visualized as a chart:
The obvious question is, “Why would anyone want to conduct a gap analysis?” because the simplicity of the tool suggests it might not be of much use. As a practical tool, it really isn’t. The steps the company needs to take are entirely dependent on the indicators it uses to measure the gap, and their underlying factors; at best, the gap analysis can only tell the company how far off the mark it is in reaching its objectives, not how to reach them. It does have some value, however, as a way to impose some structure on planning processes and give them a clear direction. For example, if the company decides net profit is the indicator that defines the gap, subsequent planning activity will be more effectively focused on factors that contribute to net profit.
The Shell Directional Policy Matrix
The Shell Directional Policy Matrix is a variation of the Boston Matrix, but is somewhat more detailed and provides clearer generic strategies for SBUs. It relies on two variables, the outlook for sector profitability and the company’s or SBU’s competitive capability, and is arranged in a three-by-three matrix.
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