The Shell Directional Policy Matrix
The Shell Directional Policy Matrix is a strategic management tool developed by the Shell Oil Company in the 1970s. The matrix is used to evaluate and categorize a company's business units or product lines based on their market attractiveness and the company's competitive capabilities. This evaluation helps organizations allocate resources effectively, prioritize investments, and make strategic decisions about the future of their various businesses.
The matrix consists of two axes:
- Market Attractiveness: This axis measures the overall appeal of the market in which a business unit operates. Factors influencing market attractiveness include market size, growth rate, profitability, competitive intensity, and the presence of barriers to entry. A market with high attractiveness is considered more desirable for investment and growth.
- Business Strength/Competitive Position: This axis assesses the strength of a company's position within the market. Factors influencing business strength include market share, brand reputation, cost structure, distribution network, and product/service quality. A strong competitive position is advantageous in securing market share and generating profits.
Based on these two dimensions, the Shell Directional Policy Matrix classifies business units or product lines into three main categories:
- Leader: These are business units with high market attractiveness and strong competitive positions. They typically generate substantial profits and have significant growth potential. Companies should prioritize investment in these units to capitalize on their market position and drive growth.
- Try Harder: Business units in this category either have high market attractiveness but a weak competitive position, or low market attractiveness but a strong competitive position. Companies need to analyze these units carefully and decide whether to invest in improving their competitive position (if the market is attractive) or divest from them (if the market is unattractive).
- Double or Quit: These business units have low market attractiveness and weak competitive positions. Companies should consider divesting from these units, as they typically generate low returns and have limited growth potential. However, in some cases, a company may decide to make a significant investment to turn the business around, hence the term "double or quit."
The purpose of the Shell Directional Policy Matrix is to help organizations allocate resources and prioritize investments based on the market attractiveness and competitive position of their business units. This matrix is particularly useful for organizations with a diverse portfolio of products or services, as it helps them make strategic decisions about where to invest, grow, or divest.
In conclusion, the Shell Directional Policy Matrix is a strategic management tool that helps organizations evaluate their business units or product lines based on market attractiveness and competitive position. By categorizing business units into leaders, try harder, or double or quit, the matrix helps organizations make informed decisions about resource allocation, investment prioritization, and strategic planning.