A business model to strengthen a product portfolio or a strategic business unit
The 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.
ADL suggests that there are six strategies that could be followed by a business unit, especially one that is in a weak or ageing position:
1. Market strategies – moving into a new geography or developing different segments. Building brands.
2. Product strategies – launching new products, finding ways of differentiating the products, positioning the products against the needs of specific segments.
3. Management and system strategies – finding processes that give a competitive advantage such as production at a lower cost, better customer service.
4. Technology strategies – investing in research and development to ensure that the product portfolio is full of new products with high market appeal.
5. Retrenchment strategies – building on customer loyalty to rebuild the business and obtain a greater share of wallet or higher prices.
6. Operations strategies – improving logistics and gaining a competitive advantage through faster deliveries or more efficient operations.