Shell Directional Policy
Matrix
Submitted and Presented by
Kavuru Hemasri
19L31E0116
STRATEGIC MANAGEMENT
• The Shell Oil Company developed the Directional Policy Matrix
in the nineteen seventies following the widespread
implementation of the Boston Matrix. General Electric and the
McKinsey Company also contributed to the development of this
technique, which resulted in what is now known as the GE-
McKinsey, or Directional Policy Matrix.
• In the Directional Policy Matrix, the vertical axis is defined as
‘Market Attractiveness’ and the horizontal axes as ‘Competitive
Strength’. The individual factors that comprise market
attractiveness may be referred to as external variables, i.e.
factors outside the control of the company.
• The individual factors that comprise ‘Competitive Strength’ may be
referred to as internal variables, i.e. factors within the control of the
company. Selecting the factors is not a trivial matter and should
involve collective effort from key managers and senior executives.
• As the process is largely unscientific it is important that as many
parties are involved as possible. When done properly the result will
be a consensus view that reflects organizational values. Unlike the
Boston Matrix in which one is looking for a balance of business
opportunities spread amongst growth and maturing markets, in the
Directional Policy Matrix the concentration of business
opportunities should be focused around the ‘Leader’ domain, i.e.
the top left hand area of the matrix.
• The company will need to make a strategic decision on whether or not
to keep the segment in the portfolio, the amount to invest in it, whether
it can ever hope to achieve market leadership, the extent to which it
should generate cash and so on.
• Generally speaking the further towards the top and right, the more
likely one is to invest, as one is approaching markets that the company
would deem as attractive, despite the fact that the company is not yet
competitive. Conversely those opportunities towards the bottom and
left are in areas that the company would find less attractive, and
should be managed diligently for cash.
Leader Domain:
• The strategy should be to maintain this position. At certain stages this may imply
a need for resources which cannot be met entirely from funds generated by the
product, (e.g. resources to expand capacity), although earnings should be above
average.
Try Harder Domain:
• The implication is that the product can be moved towards the leadership box by
judicious application of resource. In these circumstances the company should
certainly consider making available resources in excess of what the product can
generate.
Growth Domain:
• Investment should be made to allow the product to grow with the market.
Generally, the product will generate sufficient cash to be self-financing and should
not be making demands on other corporate cash resources.
Double or Quit Domain:
• Tomorrow’s breadwinners among today’s R and D projects may come from
this area. Putting the strategy simply, those with the best prospects should be
selected for full backing and development; the rest should be abandoned.
Proceed with Care Domain:
• In this position, some investments may be justified but major investments
should be made with extreme caution.
Cash Generator Domain:
• A typical situation in this matrix area is when the company has a product
that is moving towards the end of its life cycle and is being replaced in the
market by other products. No finance should be allowed for expansion, and
so long as it is profitable, the opportunity should be used as a source of cash
for other areas. Every effort should be made to maximize profits since this
particular activity has no long-term future.
Phased Withdrawal Domain:
• A product with an average to weak position with unattractive market
prospects or a weak position with average market prospects is unlikely to
be earning any significant amounts of cash. The indicated strategy is to
realize the value of the assets on a controlled basis to make the resources
available for redeployment elsewhere.
Divestment Domain:
• Products falling in this area will probably be losing money, not
necessarily every year, but the losses in bad years will outweigh the gains
in good years. It is unlikely that management will be surprised by specific
activities falling into this area since poor performance should already be
known.
THANKYOU
