Strategic Marketing Tools
Malcolm McDonald calls it the Directional Policy Matrix; Kotler calls it the GE Portfolio Matrix; we call it the Directional Strategy Matrix (DS Matrix) because of its impact on strategic direction. Whatever you call it, this matrix is a very powerful tool. It's probably the tool we use most, in helping companies develop their strategies. Using a scoring and weighting system, takes out the subjectivity which can often get in the way when developing a strategy. So, it's not just some manager's gut feeling, which makes it easier to get past the Board.
The DS Matrix has two axes: Market Attractiveness, which looks at exactly that - how attractive a market is to you; Competitive Strengths, which looks at how good you are in that market compared with your competitors. Market attractiveness could include things like, the size of the market (so there is plenty of work) and perhaps a high cost of entry (which will keep others out).
Competitive strengths would include knowledge of the sector (so you understand the dynamics) and perhaps your reputation in the sector (because you have worked there before and have contacts).
The second of these is the most challenging, because it takes into account information that may not be available within the company - like the market shares of competitors, or their costs.
One mistake companies may make is not considering competitors when scoring. They forget they are not working in a vacuum. They score their competency in a market as high because they are good in it, but they forget that actually others are better.
Another mistake is to be so cautious that all markets end up being scored so alike that it is difficult to get a definitive result. The trick is to use your own situation to define the best and worst. By giving the market that you are best in a top score and the market that you are worst in the bottom score, this will tease apart the scorings to give a clearer result.
Once the sectors have been scored and weighted and the sector size has been taken into account, the results will look something like the diagram below. The size of each sector is indicated by the size of the circle, while the slice represents your market share.
The higher up the centre of the circle the more attractive it is to you. However, you cannot change the scores on this axis since these factors are out of your control. They form the basis of your opportunities and threats though, so you should analyse them.
The further over to the left the better you are in that market. Now you need to decide what you can do, to move even further over to that left-hand border. Analysing these factors will show you your strengths and weaknesses.
The benefit in using such a visual tool is that you can see where your strategy should take you. For example you could move away from the commodity market, where you are in a very competitive situation, and into a niche market, that you can dominate and charge higher prices.
But this process isn't easy. At Leading Edge we run workshops to help you do this better by making sure you are being objective. The best ones are company specific and work by getting the whole team to work together to achieve a strategy that you can all buy in to.
Case Study - Using the DS Matrix in practice to re-define a company strategy
A PLC group had two main operating divisions and a small manufacturing company. It was market leader in the first division and number two in the other. It operated in 18 service sectors throughout the UK and had a varying presence in all of them. It had achieved its position through acquisition and had also developed new services. In some cases these had not been adequately researched or fully supported by marketing activity. The Group wanted to undertake a major review of its strategy and examine options for improving its profitability and to drive it forward in the market.
Leading Edge Management Consultancy was appointed by the Group MD to chair its steering group reviewing its strategy. The structure for this review was provided by Leading Edge and consisted of a number of workshop sessions with the senior management. It provided a fundamental review of the group's position in each of the 18 markets in which it operated.
The Directional Strategy Matrix was used successfully to identify the most attractive markets, and those in which the group had a strong position. This led to some fierce internal debate about which markets it should be involved in. Eventually managers reached a broad agreement about which sectors it should withdraw from. This would enable it to concentrate on its strongest areas.
An outline strategy and plan was drawn up for these key areas. During the course of the study the company was taken over and the findings were of considerable help to its new owners. The company is now developing the sector marketing plans in-house, supplementing gaps in their market knowledge with ad hoc research. The strategy has provided much more focus on identifying profitable business, and given the managers more time to develop it properly.
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