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?
Using 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.
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.
There are four categories of industry maturity (also referred to as the industry life cycle):
- Embryonic – The introduction stage, characterized by rapid market growth, very little competition, new technology, high investment and high prices.
- Growth – The market continues to strengthen, sales increase, few (if any) competitors exist, and company reaps rewards for bringing a new product to market.
- 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.
- 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.
The five categories for competitive position are as follows:
- 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).
- Strong – Market share is strong and stable, regardless of what your competitors are doing.
- 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.
- 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.
- Weak – There’s continual loss of market share, and your business line, as it exists, is too small to maintain profitability.