This model is very similar to the Hofer Schendel model and was developed by the consulting firm Arthur D Little Inc in the late 1970’s.
The 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 categorisation of the corporations SBU’s into one of six possible competitive positions.
One of the most important factors in the approach is to identify strategic business units correctly. The natural business unit is made up of a product or product lines with identifiable independence from other products and product lines.
AD Little grouped the life cycle of an industry into four stages embryonic, growth, mature and ageing.
The assessment of strategic competitive position is subjective and based on certain guidelines. There are five categories – dominant, strong, favourable, tenable and weak
The assessment of industry maturity and competitive position is made on the basis of business market share, investment, and profitability or cash flow.
There are certain steps to follow when using the A D Little life cycle approach.
These are: Identifying the strategic business units, Classifying each SBU in terms of industry maturity, Characterisation of each SBU’s competitive position, Position the SBU’s on the A D Little matrix according to their classifications, Selection of an appropriate strategic thrust, Selection of an appropriate generic strategy, Testing for financial and management feasibility, Analysing the risk involved
A D Little described four types of natural thrusts from the positioning on the matrix.
Natural development – these strategies are appropriate when the SBU is in a mature industry and is competitive. The SBU positioned here deserves strong support
Selective Development – this refers to strategies that concentrate on industries that are attractive or on SBU’s that have competitive competencies.
Proved viability – refers to transitional strategy that cannot be sustained, the situation must be changed.
Out – this is the strategy for withdrawal. The strategy for businesses lying here is to abandon or write off the business in such a way as to maximise the potential tax shelter
Once the natural strategy and strategic thrust of the SBU’s has been determined, a generic strategy must be chosen. The generic strategies are stated in tactical terms and refer to operational planning.
A D Little Inc. incorporates some aspects of risk analysis to cross check the suitability of the strategy that has been chosen.
Use of the AD Little matrix is claimed to aid in the reduction and balancing of overall risk for the portfolio of strategic business units.
The criticisms levelled at the Hofer Schendel product – market evolution matrix can be applied to this matrix as well. These limitations according to Michael Porter are fourfold.
A common analytical framework must be used for all the products or SBU’s and the involvement of all principal functional managers is important.