The ADL matrix was developed and named after the consulting firm Arthur D. Little, Inc. (ADL) in the late 1970s. It is one of several portfolio planning matrices representing the various businesses of a company in two-dimensional form. The ADL matrix is a portfolio management technique used to strengthen a product portfolio or strategic business unit.
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Understanding the ADL matrix
The ADL matrix is most often associated with strategic planning at the business unit level. However, it is also effective when applied to product lines or at the individual product level.
Fundamentally, the matrix plots five competitive positions of a business against four maturity levels of the industry in which it operates.
Insights from the matrix are then used by managers to guide general product strategy to attain a dominant market position.
In the following section, we will discuss each parameter in the matrix in more depth.
Plotting the ADL matrix
Competitive position
The competitive position of a company is determined by assessing the following categories and criteria:
Dominant
A rare position where a company has a monopoly or protected leadership within its market.
Profits are consistently strong and market share is maintained.
Strong
Describing a company with a strong market position with a few competitors.
The market is typically divided, allowing each player to make money.
Favorable
Or a company operating in a fragmented market with no dominant player.
However, one player may still enjoy a competitive advantage in one segment of the market.
Tenable
Most commonly describing a company occupying a niche market or in a limited geographical area.
Weak
Companies in a weak competitive position are small players in an aggressive market.
Their small size makes it difficult to maintain profitability.
Industry life cycle
In the ADL matrix, there are four stages of the industry life cycle:
Embryonic
A new or emerging industry characterized by rapid growth, little competition, new technology, and high investment and prices.
Growth
A slightly stronger market with few competitors and strong sales.
First movers enjoy significant benefits for bringing products to market.
Mature
Or stable markets with a stable customer base and market share.
High competitive pressure means businesses focus more effort on differentiation.
Aging
In aging industries, product demand decreases, and the cost of differentiation becomes prohibitively expensive.
This causes some companies to abandon the market.
Interpreting the ADL matrix
With each combination of competitive position and industry life cycle stage, the matrix guides future strategy in twenty different scenarios.
Some of the more pertinent combination scenarios are provided below:
Dominant position/embryonic industry
Maintain position by preventing the establishment of new businesses. Efforts should be focused on securing as much market share as possible.
Find a niche within the market that facilitates growth while protecting the current position.
Weak position/embryonic industry
Get out of the market if profitability cannot be assured.
Weak position/aging industry
Abandon the market.
Key takeaways
The ADL matrix is a portfolio management technique and may be used to strengthen a strategic business unit (SBU), product portfolio, or individual product.
The ADL matrix plots the competitive position of a business against the maturity of the industry it operates in, with the latter based on a four-stage life cycle.
Each combination of competitive position and industry maturity on the ADL matrix yields twenty different scenarios that influence future strategy decisions.
Key Highlights
Introduction to the ADL Matrix:
The ADL Matrix was developed by the consulting firm Arthur D. Little, Inc. in the late 1970s.
It’s a portfolio management technique used to analyze and strengthen a company’s product portfolio or strategic business unit.
Scope of Application:
The ADL Matrix is commonly used for strategic planning at the business unit level, but it can also be applied to product lines or individual products.
Matrix Parameters: Competitive Position and Industry Life Cycle:
The matrix plots a company’s competitive position against the maturity levels of the industry it operates in.
Competitive Position is categorized into: Dominant, Strong, Favorable, Tenable, and Weak.
Industry Life Cycle is categorized into: Embryonic, Growth, Mature, and Aging.
Interpreting the Matrix: Strategy Scenarios:
The matrix helps guide strategy decisions based on the combination of competitive position and industry life cycle stage.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
