ADL matrix – table of contents:
What is the ADL matrix?
Creating strategies using portfolio analysis methods allows you to gain more control over the development of your business. One of them is the ADL matrix, which focuses on two areas – assessing the competitive position and industry maturity.
Most sectors of the economy are shaped by going through different phases of development, which derive from the organizational life cycle we have already described. This concept is used in this method of analysis to answer two questions:
- What is the company’s strategic position?
- At what stage of the life cycle is my industry?
It refers to the four stages that each company goes through:
- Embryonic – the product is launched into a developing market, there is little competition,
- Growth – sales are up, there are still few rivals in the market, so the market is getting stronger,
- Mature – market share stabilizes, while competition increases, we have regular customers,
- Aging – the offer becomes less popular, your business becomes unprofitable and must be closed.
There are five categories for the competitive position within the ADL matrix:
- Dominant – a new product is launched and there is little competition,
- Strong – it refers to the industry leaders, market share is large and stable,
- Favorable – the company has a competitive advantage in certain areas, but fierce competition requires constant monitoring of the situation and protecting its position,
- Tenable – the market share is quite small, the competition is noticeably stronger,
- Weak – the company loses its market share and becomes unprofitable.
Given the specific stage of the industry life cycle and the company’s competitive position, the ADL matrix provides 20 various feasible strategies.Table 1. The ADL matrix
Pros and cons of the ADL matrix
The benefits of using this method include:
- It’s easy to use,
- It allows you to gain a competitive advantage,
- It lets you comprehensively plan the development of your company.
However, it also has got its limitations:
- Depending on the market situation and what your competitors are doing, the results of the analysis can quickly become obsolete,
- The stage of the industry life cycle depends on a number of factors, and in some sectors, its development is not linear.
The ADL matrix in examples
Define the stage of industry maturity
Ask yourself the following questions:
- Are your sales up, down or steady?
- Is your capital expenditure increasing or decreasing?
- How big is the market you are operating in?
- How many competitors do you have?
- What sets you apart from the competition?
Define your competitive position
When examining your position among your rivals, take into account your financial performance, profits, growth rate, market share, your reputation, products and pricing. These factors will help you identify your position.
Identify the company’s position using the ADL matrix and choose the right strategy
This is the simplest step – having information about the stage of the industry life cycle and the competitive position, you can check which strategy you should choose according to the ADL matrix. For example:
- A mature company with a dominant position should protect its position and market share,
- An aging company with a weak position ought to quit the business,
- A viable, growing business should concentrate on finding a niche market to make it stand out, etc.
The worldwide economic recession, rising commodity prices and fierce competition require the use of proven methods to manage the company’s portfolio. The current market uncertainty forces you to look for ways to make your offer more attractive, reduce costs and survive in the market. The ADL matrix is one of the tools that can facilitate the business decision-making process.
Read also: What is a strategic analysis?