Using an ADL Matrix to Determine Business Strategy

Using an ADL Matrix to Determine Business Strategy
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The ADL matrix, developed by Arthur D. Little, shows how a business should plan its strategy keeping in mind its competitive position and the stage of the industry’s life cycle. The matrix is plotted with the industry life cycle stages on one axis and the competitive positions on the other. Before you read more about this matrix, you can download a free template of it from here.

How is an ADL Matrix Used?

This matrix which is more popular for developing business strategies, can be used equally well for strategizing marketing plans for a particular product line or even for a single product. To find the right strategy, you just need to do two things:

  1. Identify your competitive position – dominant, strong, favorable, tenable or weak, and
  2. Identify the current stage in the life cycle of the industry – embryonic, growth, mature, ageing.

Here’s a screenshot of what an ADL matrix looks like. You can refer to it, as we discuss the categories/stages of the above two aspects. The intersection points on the matrix will guide you on the best business strategy, depending on what your competitive position is and what is the current life cycle stage of the industry.

Competitive Positions

Dominant: A dominant competitive position would mean that you’re the market leader with hardly any competitors. For most businesses this level of dominance is either rare or too short-lived. If you’ve launched a brand new product, you will be able to enjoy the dominance till there are no other players in the market. On the other hand for remaining dominant player over a longer term, you will need to build a strong market reputation that is unbeatable.

Strong: This position would mean having a strong hold on your market position, regardless of the presence of competitors. These are usually the market leaders and their stable position does not get affected by what ever their competitors do.

Favorable: A business with a favorable competitive position enjoys a competitive edge in some segments of the market. The business has to continuously safeguard its competitive edge as there are a lot of other equally strong competitors in the market.

Tenable: A tenable market position would mean that the business has a very small market share and stronger competitors are overtaking its market share.

Weak: When a business is continuously losing out on its market share and its shrinking market share makes it difficult for it to stay profitable, its market position will be regarded as weak.

Industry Life Cycle

The industry life cycle has four stages:

Embryonic: As the name indicates, it is the initial introductory stage. This stage is usually characterized by quick growth and low levels of competition. The prices of the products are generally high during this stage.

Growth: In this next stage the growth continues and the increasing sales pull in more players into the competition.

Mature: This stage is marked by stagnancy in terms of overall industry’s sales. While the industry enjoys a well-established customer base, it does not see any further growth. There are lots of competitors and the competition is fierce.

Ageing: The ageing stage is characterized by a major fall in the demand. Consolidating or quitting are the only options left for businesses as the industry begins to die out.

Strategic Choices for Businesses

Once you’ve ascertained the life cycle stage of the industry and your business’s competitive position, the appropriate business strategy can be found at the intersection of these two variables, on the ADL matrix.

The strategic options for each intersection are:

Strategy-1 (Dominant, Embryonic): At this stage your business is either the only or the chief player in the market, so your business should aim to increase and strengthen its consumer base. The more control you have over your customer base, the easier it will be for you to prevent the competitors from entering into the game.

Strategy-2 (Dominant, Growth): The business should focus its strategies towards maintaining its market share as well as its market position.

Strategy-3 (Dominant, Mature): The ideal course at this juncture would be to hold on to your market positions and grow your market share.

Strategy-4 (Dominant, Ageing): Here a business should focus on holding onto its market position, and as for the market share it’s bound to fall and nothing much can be done about it.

Strategy-5 (Strong, Embryonic): This combination requires an aggressive effort to improve competitive position as well as to increase the market share.

Strategy-6 (Strong, Growth): Here, the strategy remains quite the same as above, except that the focus should be slightly more on improving the competitive position.

Strategy-7 (Strong, Mature): Since the industry is maturing at this point, you need to safeguard your market position. At the same time try to grow your market share, keeping it proportionate to the growing market share of the industry.

Strategy-8 (Strong, Ageing): Here you’re left with two options either to tightly hold on to your market position, or to cut down on the expenses so as to harvest more profits.

Strategy-9 (Favorable, Embryonic): The business should find ways to improve its market position and it should keep pushing to increase its market share.

Strategy-10 (Favorable, Growth): In this situation the business should make investments to boost its market position, and thus increase its market share.

Strategy-11 (Favorable, Mature): At this point, the strategy should aim at identifying a niche market, to protect the business’s market position and to grow its market share.

Strategy-12 (Favorable, Ageing): With the exit point approaching, the ideal strategy here is to cut out expenses, start harvesting profits and develop a phased withdrawal plan.

Strategy-13 (Tenable, Embryonic): The one and only thing that should remain in focus is the market position, and all efforts should be directed towards improving the market position.

Strategy 14 (Tenable, Growth): The business with such odds cannot survive until it finds a niche for itself or can add in a strong differentiating factor to entice the consumers and increase its market share.

Strategy-15 (Tenable, Mature): As with the above strategy, here too you need to find a niche and guard it closely. And if that’s not possible, quitting the industry is advisable.

Strategy-16 (Tenable, Ageing): This situation is not likely to bring in any substantial profits, thus the business should think along the lines of planning a phased withdrawal or abandoning the industry.

Strategy-17 (Weak, Embryonic): This is a bad situation, and the business needs to measure the rewards of staying in the industry against the costs. If it’s not a profitable proposition, it’s best to get out of the market.

Strategy 18 (Weak, Growth): Either you can work on ways to improve both the market share and the market position, or you can call it quits.

Strategy-19 (Weak, Mature): Again, either you work on ways to turnaround your competitive position and market share, or simply plan a phased out withdrawal.

Strategy-20 (Weak, Ageing): The only choice a business has in this extreme situation is to abandon.

While an ADL matrix does prove to be of exceptional assistance in developing a business strategy, it still has its share of shortcomings. The absence of a standard life cycle length, problems in correctly identifying the current stage of the industry and a bunch of factors affecting the industry’s life cycle are some of the hurdles that limit the extensive use of this business strategy tool.