Shell company directional policy matrix. Strategic planning matrices Business type leader stage

In 1975, the British-Dutch chemical organization Shell developed and implemented its own model, called the Direct Policy Matrix, into the practice of strategic analysis and planning. Its appearance was directly related to the peculiarities of the dynamics of the economic environment in the conditions of the energy crisis that took place at that time: the overflow of the world market with crude oil, a steady drop in crude oil prices, a low and constantly decreasing sectoral rate of profit, and high inflation. Traditional financial forecasting methods have proved useless when it comes to choosing a long-term investment strategy in such an environment. Unlike the BCG and GE / McKinsey models that were already widespread at the time, the Shell / DPM model relied least on assessing the past performance of the analyzed organization and mainly focused on analyzing the development of the current industry situation.

In such vertically integrated corporate structures, which include the structure of the Shell organization, as well as in the structures of most other large oil organizations, decisions are required both on the financing of individual refineries and other business units, and on the placement of available volumes of crude oil. This condition makes it difficult to directly use strategic analysis and planning models such as the BCG matrix. Another difficulty is that the entire business in such organizations is built around one technological line, on which separate business units share the same production equipment. The multitude of products targeting different market segments are all output from the same refinery, and thus the respective volumes and costs of production, as well as profits, are completely interdependent. In addition, it should be added that very often products leaving one such plant simply compete with each other in the market.

The Shell / DPM matrix is ​​similar in appearance to the GE / McKinsey matrix and is a kind of development of the idea of ​​strategic business positioning, which is the basis of the BCG model. At the same time, there are fundamental differences between them. But compared to the one-way BCG 2x2 matrix, the Shell / DPM matrix, like the GE / McKinsey matrix, is a two-factor 3x3 matrix, based on multiple assessments of both qualitative and quantitative business parameters. Moreover, the multivariate approach used to assess strategic business positions in the GE / McKinsey and Shell / DPM models has proven to be more realistic in practice than the approach used by the BCG matrix.

The Shell / DPM model places an even greater emphasis on quantitative business dimensions than the GE / McKinsey model. If the strategic choice criterion in the BCG model was based on an assessment of cash flow, which is, in fact, an indicator of short-term planning, and in the GE / McKinsey model, on the contrary, on an assessment of return of investments (Return of Investments), which is an indicator of long-term planning, the Shell / DPM model suggests keeping the focus on these two indicators simultaneously when making strategic decisions.

Another most notable feature of the Shell / DPM model is that it can look at businesses that are at different stages of their life cycle. Therefore, considering changing the picture of the strategic positioning of business types after a while becomes an integral part of modeling on Shell / DPM.

But despite the apparent advantages of the Shell / DPM model as a matrix of multivariate strategic analysis, its popularity turned out to be limited by the framework of a number of very capital-intensive industries, such as chemistry, oil refining, and metallurgy.

Initially, with the DPM, Shell was more concerned with maintaining a sustainable cash flow. In the literature, you can find a description of the first use of the DPM model as a criterion for classifying types of business when solving issues of placing financial, material and highly qualified labor resources.

However, later it was noticed that individual cells of the 3x3 strategic positioning matrix are oriented towards the “cash generation” strategy. Consequently, such a model turns out to be adapted both for analyzing business dynamics from the point of view of the prospects for the return on initial investment, and for analyzing the financial balance of the entire business portfolio of an organization in terms of cash flow. The underlying idea behind the Shell / DPM model is an idea borrowed from the BCG model that the overall strategy of the organization is to maintain a balance between cash surplus and deficit by developing promising new businesses based on the latest scientific and technological developments that will absorb surplus money supply generated by businesses that are in the maturity phase of their life cycle. The Shell / DPM model directs managers to redistribute certain cash flows from business areas that generate money supply in business areas with high potential future return on investment.

Shell / DPM model structure

Like all other classical strategic planning models, the DPM model is a two-dimensional table, where the X and Y axes reflect the strengths of the organization (competitive position) and industry (product-market) attractiveness, respectively (Fig. 11). More precisely, the X-axis reflects the competitiveness of the organization's business sector (or its ability to capitalize on the opportunities available in the relevant business area). The Y-axis is thus a general measurement of the state and prospects of the industry.

Rice. 11. Representation of the Shell / DPM model

The division of the Shell / DPM model into 9 cells (in the form of a 3x3 matrix) was not done by chance. Each of the 9 cells corresponds to a specific strategy.

Position "Business Leader"

The industry is attractive and the organization has a strong leadership position in it; the potential market is large, the market growth rate is high; weaknesses of the organization, as well as obvious threats from competitors are not noted.

Possible strategies: continue to invest in the business while the industry continues to grow in order to protect its leading position; large investments will be required (more than can be provided by own assets); continue to invest, sacrificing momentary benefits in the name of future profits.

Position "Growth strategy"

The industry is moderately attractive, but the organization has a strong position in it. Such an organization is one of the leaders in the mature age of the life cycle of the business. The market is moderately growing or stable, with good profit margins and no other strong competitor.

Possible strategies: try to maintain their positions; position can provide the necessary financial means for self-financing and also provide additional money that can be invested in other promising areas of business.

Position "Strategy of the cash generator"

The organization has a fairly strong position in an unattractive industry. It is, if not a leader, then one of the leaders here. The market is stable but shrinking, and the industry's profit margins are declining. There is a certain threat from competitors, although the productivity of the organization is high and the costs are low.

Possible strategies: The business that falls into this cell is the main source of income for the organization. Since no development of this business in the future will be required, the strategy is to make small investments, extracting maximum income.

Position "Strategy for Strengthening Competitive Advantages"

The organization occupies a middle position in an attractive industry. Since the market share, product quality, and reputation of the organization are high enough (almost the same as that of an industry leader), an organization can become a leader if it allocates its resources appropriately. Before incurring any costs in this case, it is necessary to carefully analyze the dependence of the economic effect on capital investments in this industry.

Possible strategies: invest if the business area is worth it, while doing the necessary detailed analysis of the investment; it will take a lot of investment to move into a leadership position; a business area is considered highly investmentable if it can provide an enhanced competitive advantage. The investment required will be greater than the expected return and therefore additional capital investment may be required to further compete for market share.

Position "Continue Business with Caution"

The organization is in the middle of the industry with average attractiveness. The organization does not have any particular strengths or opportunities for further development; the market is growing slowly; the industry average rate of return is slowly declining.

Possible strategies: Invest carefully and in small portions, confident that the return will be quick, and constantly conduct a careful analysis of your economic situation.

Position "Partial folding strategies"

The organization is in the middle of an unattractive industry. The organization has no particular strengths and virtually no opportunities for development; the market is unattractive (low profit margins, potential overcapacity, high capital density in the industry).

Possible strategies: since it is unlikely that, getting into this position, the organization will continue to earn significant income, insofar as the proposed strategy will not develop this type of business, but try to turn physical assets and market position into money supply, and then use its own resources to develop more promising business.

Position "Doubling the volume of production or winding up the business"

The organization is weak in an attractive industry.

Possible strategies: invest in or leave the business. Since an attempt to improve the competitive position of such an organization by attacking on a broad front would require a very large and risky investment, it can only be undertaken after detailed analysis. If it is established that the organization is capable of competing for leadership in the industry, then the strategic line is “doubling”. Otherwise, the strategic decision should be to leave the business.

Position "Continue the business with caution or partially curtail production"

The organization is weak in a moderately attractive industry.

Possible strategies: no investment; all management should be focused on the balance of cash flow; try to stay in this position as long as it makes a profit; gradually wind up the business.

Position "Business Closure Strategy"

The organization is weak in an unattractive industry.

Possible strategies: Since an organization that falls into this cage loses money as a whole, every effort must be made to get rid of such a business, and the sooner the better.

In the Shell / DPM model, the following variables can be used to characterize the competitiveness of the organization and the attractiveness of the industry (Table 6).

Table 6. Organizational competitiveness and industry attractiveness variables used in the Shell / DPM model

Like many classic strategic analysis and planning models, the Shell / DPM is descriptive-instructive. This means that the manager can use the model both to describe the actual (or expected) position, determined by the corresponding variables, as well as to determine the possible strategies. The strategies identified should, however, be viewed with caution. The model is designed to help make management decisions, not replace them.

The Shell / DPM model can also include time. Since each site represents a specific point in time, a manager who wants to see changes after a certain period only needs to use the database for each period and compare the results. It should be noted that this model turns out to be especially effective for visualizing changes and the development of strategic positions over time, since it is not tied to financial indicators, and therefore does not experience the influence of factors that can cause errors (for example, inflation).

Strategic decisions based on the Shell / DPM model depend on whether a manager's focus is on the life cycle of the business or the cash flow of the organization.

In the first case (Fig. 11, direction 1), the following trajectory for the development of the organization's positions is considered optimal: from Doubling the volume of production or curtailing the business - to the Strategy for enhancing competitive advantages - to the Strategy of the leader of the type of business - to the Growth Strategy - to the Strategy of the cash generator - to Partial Closure Strategies - to the Closing (Business Exit) Strategy.

Let us give a brief description of the stages of such a movement.

The stage of doubling the volume of production or closing the business

A new business area is selected, which naturally needs development as part of the overall corporate strategy. The market is attractive, but since the area of ​​business is new to the organization, the competitive position of the organization in this business is still weak. The strategy is investing.

The stage of strengthening competitive advantages

With the investment, the organization's position in the business area improves, which is the reason for the horizontal movement towards the right edge of the matrix. At the same time, the market continues to grow. The strategy is to keep investing.

The stage of the leader of the type of business

With continued investment, the organization's position in the business area continues to improve, which is the reason for further horizontal movement to the right. The market continues to grow and investment continues.

Growth stage

Market growth rates are starting to slow down. This becomes the reason for the beginning of the vertical movement of the organization's position down. The profitability of the business area for the organization is growing at the same level as the industry average.

Cash Generator Stage

Market development stops, causing further downward movement of the organization's position. Strategy - investing only at the level necessary in order to maintain the achieved positions and ensure the profitability of the business.

Partial clotting stage

The market begins to shrink, the profitability of the industry declines, and the organisation's position naturally begins to weaken as well.

Further investment in this business can be completely discontinued, and then a decision is made to curtail it altogether.

In the case of increased attention to cash flow (Fig. 11, direction 2), the trajectory of development of the organization's positions from the lower right cells of the Shell / DPM matrix to the upper left cells is considered optimal. This means that the cash generated by the organization in the Cash Generator and Partial Collapse stages is used to invest in those business areas that correspond to the Doubling Production and Strengthening Competitive Advantage positions.

Strategic balance presupposes, first of all, the balance of efforts of the organization in each of the areas of the business, depending on the stage of the life cycle in which they are located. This balancing ensures that at the stage of maturity of the business area there will always be sufficient financial resources to support the reproduction cycle of the organization by investing in new promising businesses. Financial balance means that income-generating businesses have enough sales to finance a growing business.

Strengths and weaknesses of the Shell / DPM model

Most of the basic theoretical assumptions in the Shell / DPM model are similar to those in the GE / McKinsey model.

The allocation of the organization's business competitiveness as the X-axis assumes that the market is an oligopoly. That is why, for organizations with a weak competitive position, a strategy is recommended to instantly or gradually curtail such a business. It is assumed that the existing gap in the competitive positions of organizations by type of business will necessarily increase unless a new source of competitive advantage is found.

The Y-axis (attractiveness of a business industry) assumes the existence of long-term development potential for all participants in this business, and not just for the organization in question.

In practice, there are two main mistakes that are common when using the Shell / DPM model, which are essentially the same as for the GE / McKinsey model. First, managers often take the strategies recommended by this model very literally. Second, there are also frequent attempts to assess as many factors as possible, implying that this will lead to a more objective picture. In fact, the opposite effect is obtained and organizations whose positions are assessed in this way, as a rule, always find themselves in the center of the matrix.

One of the main advantages of the Shell / DPM model is that it solves the problem of combining qualitative and quantitative variables into a single parametric system. Unlike the BCG matrix, it does not directly depend on the statistical relationship between market share and business profitability.

As a criticism, the following can be said:

• the choice of variables for analysis is very arbitrary;
• there is no criterion by which it would be possible to determine how many variables are required for the analysis;
• it is difficult to assess which of the variables are most significant;
• the assignment of specific weights to variables in the design of matrix scales is very difficult;
• it is difficult to compare business areas across different industries as the variables are highly industry-specific.

1. Hichens R.E., Robinson S.J.Q. and Wade D.P .. The Directional Policy Matrix: Tool for Strategic Planning. Long Range Planning, Vol. 11 (June 1978), pp. 8-15.

This is the "Directed Policy Matrix" (DPM), which was developed by the British-Dutch company Shell. The Shell / DPM model was created following the Boston Advisory Group (BCG) model. The Directed Policy Matrix has a superficial resemblance to the General Electric-McKinsey matrix, but at the same time is a kind of development of the idea of ​​strategic business positioning inherent in the BCG model. The Shell / PDM Matrix is ​​a 3x3 two-factor matrix. It is based on assessments of both quantitative and qualitative parameters of the business. Along the axes of the Shell / PDM matrix are located the following indicators:

business industry prospects;

business competitiveness.

The Shell / DPM model places more emphasis on quantification. Using the Shell / CDA model, both cash flow (BCG matrix) and return on investment (GE-McKinsey matrix) are estimated at once. As with the General Electric-McKinsey model, businesses that are at different stages of the life cycle can be assessed here.

The X-axis in the Directional Policy Matrix reflects the strengths of the enterprise (competitive position), and the Y-axis shows the industry attractiveness. The Y-axis is a general measurement of the state and prospects of the industry.

Rice. 1. Shell policy matrix.

Each of the nine cells of the matrix corresponds to a specific strategy: Business leader - the company has a strong position in an attractive industry. The development strategy of the enterprise should be aimed at protecting its leading positions and further developing the business.

Growth strategy- the company has a strong position in a moderately attractive industry. The company needs to try to maintain its position.

Cash Generator Strategy- the company has a strong position in an unattractive industry. The main task of the enterprise is to generate maximum income.

Competitive Advantage Strategy- the company occupies a middle position in an attractive industry. You need to invest in order to move into a leadership position. Carrying on business with caution - the company occupies an average position in the industry with an average attractiveness. A careful investment with a quick return on investment.

Partial collapse strategy- the company occupies an average position in an unattractive industry. You should extract the maximum income from what is left, and then invest in promising industries. Doubling the volume of production or winding up the business - the company occupies a weak position in an attractive industry. The enterprise needs to either invest or leave the business. Continuing the business with caution or partially curtailing production - the company occupies a weak position in a moderately attractive industry. Try to stay in this industry while it is profitable.

Business Closure Strategy- the company occupies a weak position in an unattractive industry. The enterprise needs to get rid of such a business. Basically, the Shell Matrix proposes to keep the focus on cash flow and evaluating the return on investment. The main idea of ​​the matrix is ​​that the overall strategy of the organization should ensure that a balance between cash surplus and its deficit is maintained through the regular development of new promising businesses based on the latest scientific and technical developments that will absorb the surplus money supply generated by businesses located in phase of maturity of its life cycle. The Shell Matrix focuses on the redistribution of certain financial flows from business areas that generate money supply to business areas with a high potential for future return on investment. Shell has also added a number of recommendations to its matrix and provides an additional decision table (Table 1).

Table 1. Decision table depending on the prospects for profit and return on investment

As for the BCG and General Electric - McKinsey matrices, for the matrix in the literature, the variables of the company's competitiveness and the attractiveness of the industry are highlighted, which are used to construct the Shell / CDA matrix and the behavior of portfolio analysis (Table 3).

Table 3. Variables of company competitiveness and industry attractiveness.

Another strategic analysis model is the "policy directional matrix", which was developed by the British-Dutch company Shell. The Directional Policy Matrix has a superficial resemblance to the General Electric-McKinsey matrix, but at the same time is a kind of development of the idea of ​​strategic business positioning inherent in the BCG model. The Shell / PDM matrix (Figure 3.4) is a two-factor 3x3 matrix. It is based on assessments of both quantitative and qualitative parameters of the business. The following indicators are located along the axes of the Shell / PDM matrix:

• - prospects for the business sector;
• - business competitiveness.

The X-axis in the Directional Policy Matrix reflects the strengths of the enterprise (competitive position), and the Y-axis shows the industry attractiveness. The Y-axis is a general measurement of the state and prospects of the industry.

Rice. 3.4.

Each of the nine cells of the matrix corresponds to a specific strategy:

• - business leader - the company has a strong position in an attractive industry. The development strategy of the enterprise should be aimed at protecting its leading positions and further developing the business;
• - growth strategy - the company has a strong position in a moderately attractive industry. The company needs to try to maintain its position;
• - cash generator strategy - the company has a strong position in an unattractive industry. The main task of the enterprise is to extract maximum income;
• - strategy of strengthening competitive advantages - the company occupies a middle position in an attractive industry. You need to invest in order to move into a leadership position. Carrying on business with caution - the company occupies an average position in the industry with an average attractiveness. Careful investment with a quick return on investment;
• - strategy of partial curtailment - the company occupies an average position in an unattractive industry. You should extract the maximum income from what is left, and then invest in promising industries.

Doubling the volume of production or winding up the business - the company occupies a weak position in an attractive industry. The enterprise needs to either invest or leave the business. Continuing the business with caution or partially curtailing production - the company occupies a weak position in a moderately attractive industry. Try to stay in this industry while it is profitable;

Business curtailment strategy - the company is weak in an unattractive industry. The enterprise needs to get rid of such a business.

1975 British-Dutch Chemical Company Shell developed and implemented into the practice of strategic analysis and planning its own model, called the matrix of directed policy (Direct Policy Matrix or DPM)(hereinafter referred to as the Shell / DPM model) (Table 4.11, Fig. 4.9 and 4.10).

Table 4.11

Variables used in the Shell / DPM model

In the Shell / DPM model, as in other strategic models, the abscissa and ordinate axes reflect the strengths of the enterprise (the company's competitive position) and market attraction, respectively.

Rice. 4.9.

steadiness. Each of the 9 cells corresponds to a specific strategy.

The Shell / DPM matrix is ​​superficially similar to the McKinsey / GE matrices and develops the strategic business positioning ideas underlying the BCG model.

At the same time, there are fundamental differences between them. Thus, compared to the one-factor BCG model, the Shell / DPM matrix, like the McKinsey matrix, is a 3x3 multivariate matrix based on multiple assessments of both qualitative and quantitative business parameters. The Shell / DPM model puts even greater emphasis on quantitative business parameters, suggests that when making strategic decisions, take into account both an estimate of cash flow (an indicator of short-term planning) and an assessment of return on investment (an indicator of long-term planning).

Rice. 4.10.

The Shell / DPM model identifies business areas that generate money supply, and with a high potential for future return on investment, directs managers to redistribute financial flows.

The Shell / DPM Advantage consists in the fact that it solves the problem of combining qualitative and quantitative variables into a single parametric system and does not depend on the statistical relationship between market share and profitability. With regard to the petrochemical industry, special methods have been developed, drawn up according to the principle of a "tree of goals". This allowed the authors, depending on the mutual combination of values ​​or characteristics of the factors under consideration, to obtain generalized assessments of the degree of market attractiveness and competitiveness of the enterprise.

Disadvantages of the Shell / DPM model:

• descriptive and constructive;
• the significance of the variables is not determined, and their determination is very difficult;
• the specific boundaries of the division of the axes scales are not indicated (delineation of markets by the degree of their attractiveness and the classification of companies by competitive advantages in three categories);
• the variables are highly industry-specific.

• Efremov V.S. Decree. Op. P. 82.

The model, developed by the British-Dutch chemical company Shell, is called Shell / DPM (Direct Policy Matrix) - a matrix of directed policies (Fig.5.3). The Shell / DPM matrix is ​​a 3x3 two-factor matrix, the purpose of which is to assess the quantitative and qualitative parameters of the business, that is, it is intended for multi-parameter strategic analysis. The matrix axes reflect the competitiveness of the business and the industry (product - market) attractiveness. Let us dwell on the characteristics of nine acceptable strategic business positions.

The position "Leader of the type of business" is characterized by the high attractiveness of the industry and the competitiveness of the business. There is no apparent competitive pressure.

Position "Growth". In this position, the firm has a strong competitive position and the industry is moderately attractive. A firm can be one of the leaders in a moderately growing market with no other strong competitor.

Position "Cash generator". This role is usually played by a firm with a strong and well-established business, but operating in an unattractive industry. The firm is one of the leaders in the industry, the market is stable, but it is shrinking, moderate threats from competitors are not dangerous for the firm.

The “Strengthen Competitive Advantage” position is characteristic of a mid-sized and efficient firm operating in an attractive industry. The firm's reputation is high, almost like an industry leader, which it can approach if it strengthens its competitive advantages.

The “Do business with caution” attitude is typical of firms in medium-sized business positions in an area of ​​medium attractiveness. The market is growing slowly and the firm has no additional growth opportunities.

Position "Partially minimize business". The company has no particular strengths and generally lacks development opportunities, since the market is not attractive.

The position “Double production or wind up business” is typical of a firm operating in an attractive industry, but has a weak competitive position.

The position "Continue business with caution or partially curtail production" includes firms with weak competitive positions operating in a moderately attractive industry.

The “wind down business” attitude is typical of a firm that has a weak position in an unattractive industry.

The Shell / DPM model allows you to choose a specific company strategy depending on the life cycle of a particular type of product or cash flow.

The model developed by Charles W. Hofer and Dan Shen-del is called the Hofen / SchendeL model.The authors of this model felt that models such as BCG and GE / McKinsey were not suitable for analyzing new types of possible business activities in new markets. that is, to analyze emerging organizations.

The model is based on the assumption that there can be only two ways to optimize the set of business types of an organization: buying a new (and / or strengthening the existing) type of business; sales (and / or weakening of the existing) type of business. The model offers the following types of ideal business set for the firm: growth set; a set of profits; balanced set. In the structure of the model, the ordinate shows the stages of market development, and the abscissa shows the relative competitive position of a particular type of business (Figure 5.4).

The application of this model allows you to determine the stages of the evolution or life cycle of the market. At the same time, the following variables are used as the studied parameters: the rate of market growth, the rate of technological changes in the product, the rate of technological changes in the process, changes in market growth, market segmentation and functional significance.