Application of ADL matrix in developed industrial companies.

Zic, Samir ; Mikac, Tonci ; Dobovicek, Sandro 等

1. INTRODUCTION

Past decades showed that competition increases with the increase of the number and location of customers and suppliers, diversification of production patterns and with technology advance. Business success depends significantly on the formulation and implementation of sustainable strategies. Most significant problem today in developed industrial companies is global recession and loss of customers.

Business strategy, in its broadest meaning, provides the answer to the question of determining proper long-term goals of the company. Strategic planning, from the basic concept analyzes current and expected future situation, determine directions and resources that will achieve the global future, which may be called the vision of the company (Weihrich, 1998).

Strategic planning is an extremely complex process, which requires a systematic approach to identifying factors outside and inside the organization, and their comparison with the possibilities of a company in the market. The aim of the strategy is to reduce the level of surprise, to improve predictions and thus improve the ability of those who are at the top of the organization and control its long-term development (Buble, 1997).

The aim of this paper is to explore possibilities to improve market position of developed industrial systems by implementation of ADL Matrix method in decision making process especially in times of rapid product changes, reduced product development time, high industrial competition.

2. ADL MATRIX

Arthur D. Little, Inc. (ADL), one of the best-known consulting firms, has developed in the late 1970s a structured methodology for consideration of strategies which are dependent on the life cycle of the industry. The model of the industry life cycle, shown in Fig. 1., represents an industry with stages of birth, growth, maturity and decline. Life cycle of different industries has different length. In modern, highly technological industries it is possible to analyze, shape and control strategy by use of industrial life time cycle.

The ADL portfolio management approach uses the dimensions of environmental assessment and business strength assessment. Its application is particularly suited to smaller industrial companies and for strategic business units of large corporations (Arthur D. Little Inc., 1980).

[FIGURE 1 OMITTED]

ADL Matrix analysis helps to better understand the company's portfolio, particularly if used along with other matrices. The ADL Matrix has two main dimensions--competitive position and industry maturity.

2.1 Competitive position

Company's competitive position is determined by strategic actions and competitor's strategies. Quality and strength of competitive position are indicators of company's strength. ADL Matrix categorizes every segment of company (Strategic Business Unit, SBU) according to its position which can be dominant, strong, favorable, tenable or weak.

2.2 Industry maturity

Industry maturity could almost be renamed into 'industry life cycle'. Of course not only industries should be considered here but also segments. There are four categories of industry maturity: embryonic, growth, mature and aging. Positioning into one of four categories is very sophisticated procedure and depends on many factors.

Creation of ADL Matrix is done step by step strictly following defined and consistent methodology. Four steps have to be followed (Patel/Younger, 1978):

1. Determining the SBUs of the company (strategic segmentation done by clearly defined procedures)

2. Identifying phases of industrial maturity for each SBU (this should be done for each business in all SBUs)

3. Determine SBUs competitive position (company's competiveness in specific, narrow defined industry)

4. Plotting sizes and positions of SBUs on ADL Matrix

2.3 Plotting ADL Matrix

The position of SBU is represented by circle size proportionate to the size of the industry where they belong. On the matrix can be seen relatively relations between the size of all the industries in which the company is active. Company's market share is shown with slices. ADL Matrix with business sizes is shown in Fig. 2.

Analyst and experts must constantly review phases determination in the life cycle of the industry for each strategic center company is part of. In ADL Matrix competitive industries should be analyzed and compared in specific industry by use of Porter's industrial model structures (Porter, 1980).

[FIGURE 2 OMITTED]

Comparisons should be very narrow and must include both comparison of business units and comparable products. Strategies for each Industry Maturity and Competitive position are shown in Tab. 1 (Hax, 1991). Company's analytics and management personnel should be very careful but also intuitive when choosing right strategic movement.

Developed industrial companies with strong profit portfolio have ADL Matrix similar to one showed in Fig. 3. It can be seen that most products / industries with biggest shares are in area of growth or in mature stage meaning that these companies can make significant profit and revenues.

3. ADVANTAGES AND DISADVANTAGES OF ADL MATRIX

ADL Matrix displays the distribution of sector enterprises through various phases of industry life cycle. Concept of industry life cycle stage, as an important category is partially included in the other two known matrices BCG matrix and the GE matrix. However, the ADL Matrix pointed out the central place as a key variable in the process of strategic management. During the designing process, analyst and company managers should take into consideration all possible strategies.

[FIGURE 3 OMITTED]

ADL Matrix provides access and possibility to shape the process of designing future portfolio for taking strategic actions to achieve the target portfolio and / or balance existing one.

Main disadvantage of ADL portfolio matrix can be noticed in its incompleteness. Industrial evolution isn't sufficient factor that can determine uncontrolled influences on decision-making companies. Many authors find questionable concept of industry life cycle as strategic dimension.

ADL portfolio matrix is a good diagnostic instrument of strategic analysis. Its creation process is matched with a comprehensive and structured analytical process that helps in making strategic decisions in the company.

4. CONCLUSION

As a result of latest development in global market such as constantly increasing number of competitors, increasing prices of raw materials and labor and particularly global economic recession, proven portfolio management methods are becoming more important than ever.

With uncertain future many companies are looking for a possibility to reduce costs, be more competitive and essentially --to survive. ADL Matrix as a powerful technique increases business decision creativity and reduces uncertainty in decision making process.

5. ACKNOWLEDGEMENT

This paper derive from the scientific research project (Modeling of Advanced Production Structures of the Intelligent Manufacturing, No.069-0692979-1740) supported by the Croatian Ministry of Science, education and sport.

6. REFERENCES

Arthur D. Little, Inc. (1980), A management System for 1980's, San Francisco, CA

Buble, M. et al. (1997), Strategic management, Ekonomski fakultet Sveucilista u Splitu, Split

Hax, A., Majluf, N. S. (1991), The strategy Concept and Process: A Pragmatic Aproach, Prentice-Hall, New Jersey

Patel, P., Younger, M. (1978), A frame of Reference for Strategy Development, Long Range Planning, Vol. 11

Porter, M. E. (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, New York

Weihrich, W., Koontz, H.: Management, MATE, Zagreb, 1998., p. 168

Tab 1. ADL Matrix with the strategies for each combination

 INDUSTRY MATURITY
COMPETITIVE
POSITION EMBRYONIC GROWTH

DOMINANT * Aggressive push * Maintain position
 for market share and market share
 * Invest faster than * Invest to sustain
 market share growth
 dictates

STRONG * Aggressive push * Aggressive push
 for market share for market share
 * Improve * Improve
 competitive competitive
 advantage advantage
 * Invest faster than * Invest
 market share
 dictates

FAVORABLE * Moderate to * Improve
 aggressive push for competitive
 market share advantage and
 * Improve market share
 competitive * Selectively invest
 advantage
 * Invest selectively

TENABLE * Look for ways to * Develop a niche
 improve industry and maintain it
 position * Invest selectively
 * Invest very
 selectively

WEAK * If benefits doesn't * Improve position,
 outweigh costs get or get out of the
 out of market market
 * Invest or divest * Invest or divest

 INDUSTRY MATURITY
COMPETITIVE
POSITION MATURE AGING

DOMINANT * Maintain * Maintain
 position, grow position
 market share * Reinvest as
 * Reinvest as necessary
 necessary

STRONG * Maintain * Maintain
 position, grow position
 market share as the * Cut expenses
 industry grows to maximize
 * Reinvest as profit
 necessary * Minimum
 reinvestment

FAVORABLE * Develop a niche * Cut expenses
 * Minimum or to maximize
 selective profit or
 reinvestment withdraw
 * Get out of
 current
 investment

TENABLE * Develop a niche * Phased
 or plan a withdrawal or
 withdrawal abandon
 * Selective market
 reinvestment * Divest

WEAK * Improve position * Abandon
 or plan withdrawal market
 * Selectively invest * Divest
 or divest