How to manage a product portfolio using dimensions of environment and business strengths ?
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The ADL portfolio management approach uses the dimensions of environmental assessment and business strength assessment. The environmental measure is an identification of the industry’s life cycle. The business strengths measure is a categorization of the corporation’s SBU’s into one of five (6) competitive positions: dominant, strong, favorable, tenable, weak (and non-viable). This yields a 5 (competitive positions) by 4 (life cycle stages) matrix. Positioning in the matrix identifies a general strategy.
In the ADL approach, the line of business or SBU is not especially defined by a product or organizational unit. The strategist must identify discrete businesses by finding commonalities among products and business lines using the following criteria as guidelines:
- Common rivals
- Divestment or liquidation
This assessment of the industry life cycle stage of each business is made on the basis of:
- Business market share
- Profitability and cash flow
The competitive position of a firm is based on an assessment of the following criteria:
- Dominant: Rare. Often results from a near monopoly or protected leadership.
- Strong: A strong business can usually follow a strategy without too much consideration of moves from rivals.
- Favorable: Industry is fragmented. No clear leader among stronger rivals.
- Tenable: Business 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.
Known limitations of the ADL framework include:
- There is no standard length of life cycles
- Determining the current industry life cycle phase is awkward,
- Competitors may influence the length of the life cycle.