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Portfolio Management that is based on the Industry Life Cycle. Explanation of the ADL Matrix.

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ADL Matrix?

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The ADL Matrix from Arthur D. Little is a portfolio management method.


The ADL portfolio management approach uses an industry assessment and a business strength assessment as its dimensions. The industry measurement is an identification of the life cycle of the industry. The business strength measure is a categorization of the corporation's SBU's into one of five (six) competitive positions: dominant, strong, favorable, tenable, weak (and non-viable). This yields a matrix of 5 competitive positions by 4 life cycle stages. Positioning in the matrix identifies a general strategy.


ADL matrix portfolio managementDefining the line of business in the ADL matrix

In the ADL Matrix approach, the strategist must identify discrete businesses by finding commonalities among products and business lines using the following criteria as guidelines:

  • Common rivals

  • Prices

  • Customers

  • Quality/Style

  • Substitutability

  • Divestment or liquidation

Assessing the Industry Life Cycle stage in the ADL Matrix

The assessment of the Industry Life Cycle stage of each company is made on the basis of:

  • Business market share,

  • Investment, and

  • Profitability and cash flow.

Assessing the competitive position in the ADL Matrix

The competitive position of a firm is based on an assessment of the following criteria:

  • Dominant. Rare, often the result from a almost-monopoly or protected leadership.

  • Strong. A strong company can follow a strategy without too much consideration of moves by rival companies.

  • Favorable. Industry is fragmented. No clear leader among stronger rivals.

  • Tenable. The company has a niche, either geographical or defined by the product.

  • Weak. Business is too small to be profitable or survive over the long term. Critical weaknesses.

LIMITATIONS

Some known limitations of the ADL Matrix are:

  • There is no standard life cycle length.

  • Determining the current industry life cycle phase is difficult.

  • Competitors may influence the length of the life cycle.




ADL Matrix Forum (2 topics) Help
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  What are Criteria for Selection of a Portfolio Management Method?
Hi, I have seen many models and matrices for portfolio managment such as Druckerís product classification (1963), BCG Growth-share Matrix followed by McKinsey/GE Market Attractiv...
     
 

ADL Matrix Cases / Examples

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Pitfalls of Applying Portfolio Matrices

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Compare with the ADL Matrix:  BCG Matrix  |  McKinsey Matrix  |  STRATPORT  |  Product Life Cycle  |  Bass Diffusion Model  |  Innovation Adoption Curve  |  Profit Pools  |  Four Trajectories of Industry Change  |  Forget Borrow Learn  |  Product/Market Grid  |  Three Dimensional Business Definition


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