Industry attractiveness dimensions: market size and projected growth intensity of competition seasonality/ cyclical effects technology and production skills reqd emerging opportunities and threats capital requirements industry profitability exit and entry barriers social/ environmental/ legislative effects Business strength dimensions: market share profit margins ability to match rivals on service/ product quality knowledge of customers technological capability cost position core competences management calibre
IA – BS MATRIX & AD
LITTLE LIFE CYCLE
The Business Strength-Industry
• To eliminate some of the limitations of the BCG
growth/share matrix, a more complete matrix analysis
was developed by the General Electric planners and
mostly used McKinsey & Co - a management
• The primary improvement of BS/IA matrix is that it
allows for the analysis of multiple variables (rather
than only market share and growth) depending on the
• And, rather than focusing on cash flow , it concerns
potential future return on investment.
Business Strength and Industry
Horizontal axis – market
Vertical axis – business
Customer satisfaction levels
Competition; quantity, types,
Sensitivity to economic trends
Share of segment
Fig. 9-3: Industry Attractiveness-Business Strength
Description of Dimensions
Subjective assessment based
on broadest possible range of
external opportunities &
threats beyond the strict
Subjective assessment of
how strong a competitive
advantage is created by a
broad range of the firm’s
internal strengths &
Weight, Rating, Value?
In BS/IA matrix, each of the key variables used
must be given a weight, rating and value.
• The weight will be based on its importance to the
company, relative to other selected variables. The
total point must equal 10. the weights can be
determined by management or, when possible, by
• A rating (or grade) will be given for each business
strength variable. E.g. a strength would receive a
high score, a weakness would receive a low score.
• The rating for each variable is then multiplied by its
weight to obtain the variable’s value.
• The values are individual summed for total value for
business strength for that particular business.
• For industry attractiveness, influencing variables will
be given a weight based on their importance to the
business, and a rating based on favorable or
unfavorable conditions in the environment
(opportunity or threat?).
• The total value for industry attractiveness is
calculated in the same manner as for business
• The two scores for each business unit are then used to
position the business on the matrix.
to the firm:
must add up
Total value for business strength
Total value for industry attractiveness
invest / grow
invest / grow
invest / grow
The position on the matrix (determined
according to the weight, rating and value) will
indicate the appropriate strategy (as in the
• Green cells define the businesses that will
receive the resources to grow; the so called
“green light” businesses. The market is high or
medium in attractiveness and the organization
has high or enough skills and resources to take
advantage of the market.
• Red cells define the businesses that lack
opportunity in terms of market and or
company capabilities; the so called “red light”
businesses. They are managed to harvest their
resources or are just divested.
• Yellow cells define businesses that are to
receive selective investment, and where
caution (the yellow light) is the operating
Ind. Attractiveness/ Business
Strength Cell Matrix
Takes many strategic variables into account
Allows for weighting & range of rankings
Use to prioritize investments & channel funds
No real guidance on specifics of business strategy
Doesn’t address strategic coordination issues
Doesn’t adequately deal with new business in
Strategy Implications of Attractiveness/Strength
• Businesses in upper left corner
– Accorded top investment priority
– Strategic prescription - grow and build
• Businesses in three diagonal cells
– Given medium investment priority
– Invest to maintain position
• Businesses in lower right corner
– Candidates for harvesting or divestiture
– May, on occasion, be candidates for an overhaul
and reposition strategy
Appeal of the
• Incorporates a wide variety of strategically
• Stresses concentrating corporate resources in
businesses that enjoy
– High degree of industry attractiveness and
– High degree of competitive
• The lesson here is emphasize
businesses that are market
leaders or that can contend
for market leadership
Limitations of BS/IA Matrix
• Although richer and more broadly applicable
than the BCG growth-share matrix, it can be
more subjective in the selection and weighting
of the factors.
• Different business units may involve different
factors which makes the analysis ambiguous.
• As it is the case with the BCG growth-share
matrix, the results are very sensitive to the
definition of the product market. E.g. luxury
cars, all cars?
AD LITTLE LIFE CYCLE
• This model of strategic analysis is
structured like a matrix with five rows and
four columns (5 x 4) resulting from
combining two performance indicators:
industry life-cycle stage and market
• With reference to the specific market
characteristics, the present method, which
considers the life cycle stage of a product, points
out that a market, in a certain period of time, may
be in one of the following four stages:
introduction, growth, maturity and decline. Each
specific stage within the product life cycle can be
identified, assessed, quantified and characterized
by a system of indicators.
Arthur D. Little model focuses on factors that must
be taken into account in order to assess the
competitive position held by a company that
operates in a given market.
• supply factors: long-term contracts, labor costs and
• production factors: production flexibility and capacity,
experience, technical skills, environmental protection,
quality of management, skill or expertise, labor
productivity and production cost;
• commercialization factors: the power and quality
of distribution network, credit conditions the
image of the product, product range, market share,
sales force and price;
• financial factors: profitability, financial stability,
cash flow and technological protection;
• Dominant - this position is very rare and most
often is due to the posture of a monopoly company
or market dominance exerted strong, from a
technological point of view.
Strong - the company has a high level of freedom in
terms of strategic options and can act without its
market position to be threatened by competitors.
Favorable - this position is found in fragmented
markets, where no competitor has a very clear
market position and the most important companies
have a high degree of freedom.
• Tenable - companies within this category are
generally vulnerable to fierce competition exerted
by organizations with proactive and strong market
positions. However, they survive and are able to
justify their existence on the market.
• Poor - the company performance is generally
unsatisfactory, even if market opportunities exist,
through which it can be improved.
The advantages and
disadvantages of the ADL
• Unlike other models of product portfolio analysis the ADL
matrix is based on an enhanced applicability because it fits
to all situations of competition encountered in a
• Also the ADL matrix can be applied to the fragmented
industries, holding a small competitive advantage but with
a large number of ways of obtaining it (provides multiple
ways of differentiation). As such we can say that the ADL
matrix has a high degree of adaptability to situations of a
• A first disadvantage is that the matrix does not
take into account a number of phenomena that can
generate long-term involution in the products life
cycle of a company.
• Another weakness is related to the high level of
difficulty in terms of objective evaluation of the
ADL model variables. This is often the case for
the competitive position indicator. In other words,
the difficulty lies in the fact that some factors are
qualitative in nature and there is a high risk of bias
in their use.
• In conclusion, we can say that the ADL
matrix provides clearer results as a
company is more diversified and enable
synchronization on decisions relating to
• Dess, Gregory G. and Lumpkin, G. T.
Strategic management: creating competitive
advantages. 3rd Edition, Boston: McGrawHill/Irwin Publishing, 2007.
• Wilson, Richard M.S and Gilligan, Colin.
“Strategic Marketing Management –
Planning, Implementation and Control”,
3rd Edition, Elsevier ButterworthHeinemann, 2005, p. 378
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