Hofer

HOFERs LIFE-CYCLE MARKET EVOLUTION MATRIX
STAGE OF INDUSTRY EVOLUTION

Early Development
Rapid Growth/Takeoff
Shake-Out
Maturity/Saturation
Decline
COMPETITIVE POSITION

The product/market evolution matrix was formulated to allow
the analyst to focus corporate- and business-level strategy
decisions on the stage of product/market
evolution and its relationship with market position
Products are plotted in terms of their product/market evolution
and the competitive position
Circles vary in size according to their respective industry size that
represent business units
Each circle contains a pie wedge that corresponds in size to its
Market Share

A product in the Development or Growth stage has a potential to be a Star. If the
market share is:
large in these growth-oriented stages, more resources must be invested to
develop competitive position.
If market share is low, a strategy to improve the same must be developed.
If the industry is relatively small and market share is low despite high growth
stage, Management must consider divesting and redeploying resources in other
more competitive business.
A business in the Shakeout or Maturity stage has a potential to be Cash Cow.
Investments could be made to maintain high market share
A business in Decline stage with a low market share would be a Dog business.
Though in the short run it may generate cash, in the long run, however, it should be
considered for divestment or liquidation

STRATEGIES FOR DIFFERENT PRODUCTS

A product in the Development or Growth stage has a potential to be a
Star. If the market share is:

large in these growth-oriented stages, more resources must be
invested to develop competitive position.

If market share is low, a strategy to improve the same must be
developed.

If the industry is relatively small and market share is low despite high
growth stage, Management must consider divesting and redeploying
resources in other more competitive business
.
A business in the Shakeout or Maturity stage has a potential to be Cash
Cow. Investments could be made to maintain high market share
A business in Decline stage with a low market share would be a Dog
business. Though in the short run it may generate cash, in the long run,
however, it should be considered for divestment or liquidation

6
Hofer-Schendel Portfolio Matrix
Business unit A
Developing winner.
Its relatively large share of the market combined with its
being at the development stage of product- market
evolution and its potential for being in a strong competitive
position make it a good candidate for receiving more
corporate resources.

Business unit B
It has a relatively small share of the market given its strong
competitive position.
A strategy would have to be developed to overcome this
low market share in order to justify more investments.

Business unit C
Potential loser.
A strategy must be developed to overcome the low market
share and weak competitive position in order to justify
future investments.

Business unit D
Shakeout period,
has a relatively large share of the market, and is in a relatively strong
position.
Investment should be made to maintain current market position.
On the long run, it will become a Cash Cow

Business units E and F are cash cows and should be used
for cash generation.
Business unit G appears to be a dog.
It should be managed to generate cash in the short run,
The long-run strategy will more the likely be divestment
or liquidation

Advantages
Used to identify developing winners
Illustrates how businesses are distributed
across the stages of industry evolution

The Royal Dutch Shell Group developed the directional policy
matrix as a portfolio planning tool.
Health of the market (business sector prospects) & the organization
strength (companys competitive capabilities) .
Business sector profitability-
a) Market growth rate b) Environmental considerations
c) Industry situation
Companys competitive capability
a) Market position b) Product research and development c)
Production capability d) Porter Model
Shell Directional Policy Matrix
SHELLS DIRECTIONAL POLICY MATRIX
S
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COMPANYS COMPETITIVE POSITION
Weak
Average
Strong
Divest
Phased
withdrawal*2
Double or
quit
Custodial
Try harder
Cash
Generator
Growth
Leader
SHELLS DIRECTIONAL POLICY MATRIX
Leader
Try Harder Double or quit
Growth
custodial Phased
Withdrawal
Cash
Generation
Phased
Withdrawal
Disinvest
S
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P
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COMPANYS COMPETITIVE POSITION
Weak
Average
Strong

Divest: SBUs running in losses with uncertain cash flows. They should be divested
as the situation is not likely to improve in the near future. These liquidate or move
the assets.
Phased withdrawal: SBUs with weak competitive position in a low growth
market with very little chance of generating cash flows. They should be phased out
gradually. The cash realized should be invested in more profitable ventures.
Double or quit: Gamble on potential major SBUs for the future. Either invests
more to use the prospects presented by the market or else better to quit the business.
Custodial: SBUs are just like a cash cow, milk it and do not commit any more
resources. The corporate has to bear with the situation by getting help from other
SBUs or get out of the scene so as to focus more on other attractive business.
Try harder: SBUs could be vulnerable over a longer period of time, but fine for
now. They need additional resources to strength their capabilities. The corporate try
harder to exploit the business prospects thoroughly.
Cash Generator: Even more like a cash cow, milk here for expansion elsewhere.
SBUs May continue their operations, at least for generating strong cash flows and
satisfactory profits. No further investments are made.
Growth: Grow the market by focusing just enough resources here. These SBUs
need funds to support product innovations, R&D activities etc.

Shell Directional Policy Matrix

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HOFERs LIFE-CYCLE MARKET EVOLUTION MATRIX

STAGE OF INDUSTRY EVOLUTION

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