The ADL Matrix

How Industry Position Influences Your Strategy

The ADL Matrix - Choosing the Best Strategy for Your Situation

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In mature industries, the best strategy is to differentiate your products.

Part of thinking about strategy involves thinking about the state of your industry; understanding how your organization fits into it; and, from this, figuring out your best way forward.

While there are many tools that help you do this, you can get particularly useful insights with the Arthur D Little (ADL) Matrix. Developed in the late 1970s by the highly respected Arthur D Little consulting company, it helps you think about strategy based on:

  • Competitive Position – How strong is your strategic position?
  • Industry Maturity – At what stage of its lifecycle is the industry?

Why Use the ADL Matrix?

If your business unit has a strong market presence and a newly emerging product line, you’ll likely want to aggressively push its position and capture as much market share as you can. But this strategy does not apply so well to business lines with dominant competitive positions in declining markets. In this instance, you’re better off putting your energy into new, growing markets and simply maintaining your current market position in the declining industry.

The ADL Matrix addresses these unique needs by recommending general strategies for different combinations of competitive position and industry maturity.

Tip:

The ADL Matrix is often associated with strategic planning at business-unit level. However, it works equally well when applied to product lines, or at the level of an individual product.

Industry Maturity

There are four categories of industry maturity (also referred to as the industry life cycle):

  1. Embryonic – The introduction stage, characterized by rapid market growth, very little competition, new technology, high investment and high prices.
  2. Growth – The market continues to strengthen, sales increase, few (if any) competitors exist, and the company reaps rewards for bringing a new product to market.
  3. Mature – The market is stable, there’s a well-established customer base, market share is stable, there are lots of competitors, and energy is put toward differentiating from competitors.
  4. Aging – Demand decreases, companies start abandoning the market, the fight for market share among remaining competitors gets too expensive, and companies begin leaving or consolidating until the market’s demise.

Competitive Position

The five categories for competitive position are as follows:

  1. Dominant – This is rare and typically short-lived. There’s little, if any, competition, usually a result of bringing a brand-new product to market or having built an extremely strong reputation in the market (think Microsoft).
  2. Strong – Market share is strong and stable, regardless of what your competitors are doing.
  3. Favorable – Your business line enjoys competitive advantages in certain segments of the market. However, there are many rivals of equal strength, and you have to work to maintain your advantage.
  4. Tenable – Your position in the overall market is small, and market share is based on a niche, a strong geographic location, or some other product differentiation. Strong competitors are overtaking your market share by building their products and defining clear competitive advantages.
  5. Weak – There’s continual loss of market share, and your business line, as it exists, is too small to maintain profitability.

The resulting ADL Matrix looks like this, with the various strategies prescribed for each of the 20 combinations:

  Industry Maturity
  Embryonic Growth Mature Aging

C
o
m
p
e
t
i
t
i
v
e

P
o
s
i
t
i
o
n

D
o
m
i
n
a
n
t

Aggressive push for market share.

Invest faster than market share dictates.

Maintain industry position and market share.

Invest to sustain growth.

Maintain position, grow market share as the industry grows.

Reinvest as necessary.

Maintain industry position.

Reinvest as necessary.

S
t
r
o
n
g

Aggressive push for market share.

Look for ways to improve competitive advantage.

Invest faster than market share dictates.

Aggressive push for market share.

Look for ways to improve competitive advantage.

Invest to increase growth and position.

Maintain position, grow market share as the industry grows.

Reinvest as necessary.

Maintain industry position or cut expenditures to maximize profit (harvest).

Minimum reinvestment.

F
a
v
o
r
a
b
l
e

Moderate to aggressive push for market share.

Look for ways to improve competitive advantage.

Invest selectively.

Look for ways to improve competitive advantage and market share.

Selectively invest to improve position.

Develop a niche or other strong differentiating factor and maintain it.

Minimum or selective reinvestment.

Cut expenditures to maximize profit (harvest) or plan a phased withdrawal.

Minimum investment or look to get out of current investment.

T
e
n
a
b
l
e

Look for ways to improve industry position.

Invest very selectively.

Develop a niche or other strong differentiating factor and maintain it.

Invest selectively.

Develop a niche or other strong differentiating factor and maintain it or plan a phased withdrawal.

Selective reinvestment.

Phased withdrawal or abandon market.

Get out of investments or divest.

W
e
a
k

Decide if potential benefits outweigh costs, otherwise get out of market.

Invest or divest.

Look for ways to improve share and position, or get out of the market.

Invest or divest.

Look for ways to improve share and position or plan a phased withdrawal.

Selectively invest or divest.

Abandon market.

Divest.

Using the ADL Matrix

The ADL Matrix provides you with a generic strategy. You’ll need to fine-tune the strategy and tailor it to your current business.

Step 1: Identify your industry maturity category

Think about the following questions as you decide which stage is most descriptive:

  • What are you currently experiencing with market growth?
  • How many competitors do you have?
  • How large is your market?
  • Is your investment increasing or decreasing?
  • Are your sales increasing, decreasing or staying the same?
  • How is your product differentiated from competitor products?

Deciding on an industry life cycle stage isn’t easy, and competitors’ actions often have a bearing on this, making it hard to determine and predict. Strategy is not an exact science, so do the best you can.

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Step 2: Determine your competitive position

Choose the best fit. Be careful not to project what you want your position to be, but what it truly is. Take a long, hard look at where you’re currently operating.

Tip:

If you’re having trouble finding the perfect match for maturity level or competitive position, look for the combination that most closely fits your situation.

Step 3: Plot your matrix position

Consider the strategies suggested as a starting point for your strategic planning.

Tip:

Look at the strategy recommended as well as those strategies immediately surrounding it. It can be difficult to pinpoint either of the dimensions, and your business may be on the cusp between two positions. By examining close options, you can choose the general strategic formula with the best fit.

Tip:

It is important to remember that while the ADL Matrix points you in a general strategic direction; you will probably want to perform further, more detailed analysis before making a final strategic plan. So verify you strategic choice using one or more other strategy tools such as USP Analysis, Porter's Five Forces or Bowman's Strategy Clock, and then work out what internal changes you will need to make to implement the strategy effectively. The McKinsey 7S Framework is among the tools that will help you with this.

Key Points

The ADL Matrix is a great tool for uncovering high-level strategies that may be successful for your business.

By focusing on competitive position and industry maturity, the matrix helps you see the role your business plays in the larger marketplace. With this big picture view, complemented by other strategy tools, you will have a great starting place for building your strategic plan.