Summarized by Warren.pak
From www.mindtools.com, ADL.co.kr
How industry position influences your strategy
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.
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.
The resulting ADL Matrix looks like this, with the various strategies prescribed for each of the 20 combinations:
|Industry Maturity (industry Life Cycle Stage)|
|Dominant||-Aggressive push for market share||- Maintain industry position and market share||- Maintain position, grow market share as the industry grows||- Maintain industry position|
|- Invest faster than market share dictates||- Invest to sustain growth||- Reinvest as necessary||- Reinvest as necessary|
|Strong||-Aggressive push for market share||-Aggressive push for market share||- Maintain position, grow market share as the industry grows||- Maintain industry position or cut expenditures to maximize profit (harvest)|
|- Look for ways to improve competitive advantage||- Look for ways to improve competitive advantage||- Reinvest as necessary||- Minimum reinvestment|
|- Invest faster than market share dictates||- Invest to increase growth and position|
|Favorable||- Moderate to Aggressive push for market share||- Look for ways to improve competitive advantage and market share||- Develop a niche or other strong differentiating factor and maintain it.||- Cut expenditures to maximize profit (harvest) or plan a phased withdrawal|
|- Look for ways to improve competitive advantage||- Selectively invest to improve position||- Minimum or selective reinvestment||- Minimum investment or look to get out of current investment|
|- Invest selectively|
|Tenable||- Look for ways to improve industry position||- Develop a niche or other strong differentiating factor and maintain it||- Develop a niche or other strong differentiating factor and maintain it or plan a phased withdrawal.||- Phased withdrawal or abandon market|
|- Invest very selectively||- Invest selectively||- Selective reinvestment||- Get out of investments or divest|
|Weak||- Decide if potential benefits outweigh costs, otherwise get out of market||- Look for ways to improve share and position, or get out of the market||- Look for ways to improve share and position or plan a phased withdrawal||- Abandon market|
|- Invest or divest||- Invest or divest||- Selectively invest or divest||- 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.
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.
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.
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.
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.
Arthur D. Little, Inc.
ADL(Arthur D. Little)은 세계 최초 컨설팅 회사로서 1886년 창립된 이래 축적된 산업지식과 다양한 분야에서 얻은 기능적 경험 및 전문 기술을 통해 고객의 성장과 성공적인 가치창출에 많은 기여를 해왔습니다.
전세계 30개국에 위치한 ADL 사무소에는 약 2,000명이 넘는 전문컨설턴트들이 활동하고 있습니다. 또한 ADL은 파트너사인 Altran Group과 Cambridge Consultants Ltd.와 함께 18,000명의 전문인력을 보유하고 있으며, 고객에게 최상의 컨설팅 서비스를 제공합니다. 매년 세계 60여 개국에서 3,000여개의 컨설팅 케이스를 담당하고 있으며, 다른 유수 기업과 정부기관은 물론, 포춘지 선정 100대 기업의 75%를 대상으로 컨설팅 서비스를 수행하고 있습니다.
기업들은 재빠른 세계화의 확산과 규제완화, 그리고 기술변화로 인해 기업전략 및 프로세스를 재고하고 재설계 함으로써 비용절감의 효과를 높이고 기업성장을 도모하는 노력을 부단히 기울이고 있습니다. 이에, ADL은 다양한 산업 부문별/기능별로 축적된 경험과 전문성을 바탕으로 고객들의 목표 달성을 위해 차별화된 서비스를 제공하고 있으며 이로 인해 고객들로 부터의 깊은 신뢰를 얻고 있습니다. 또한 ADL은 Side-by-Side원칙에 입각하여 고객의 의견과 경험을 수렴, 긴밀히 협력하고 있으며, 이러한 원칙이 항구적 발전을 가져오는데 전제조건이 된다는 데에 의견을 같이 하고 있습니다.
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