Shell’s Directional Policy Matrix
The Shell Directional Policy Matrix (DPM) is a strategic tool used for portfolio
analysis. It helps an organisation evaluate its different businesses or products
based on two key dimensions:
Market Attractiveness (external factors)
Business Strength / Competitive Capability (internal factors)
Unlike the Boston Matrix, the DPM is more advanced because it considers
multiple factors, not just market growth and market share.
👉 The matrix is usually a 3 × 3 grid, giving 9 cells, each suggesting a different
strategic action.
Purpose of DPM
The main purpose of the DPM is to help organisations make strategic
decisions regarding investment, growth, or withdrawal of different business
units.
It evaluates whether a business has the potential to succeed (market
attractiveness) and whether the company has the ability to compete
effectively (business strength).
For example, a company like Reliance Industries may use DPM to decide
whether to invest more in telecom (Jio), retail, or energy. If telecom shows high
attractiveness and strong capability, it will receive maximum investment.
Each of the zones in Shell’s Directional Policy Matrix is described as follows:
1. Divest
Divest strategy is applied to those SBUs that are continuously running in
losses and have uncertain or negative cash flows. In such cases, the future
prospects of improvement are very low, so the organisation should exit
the business by selling or liquidating its assets. This helps in preventing
further losses and reallocating resources to better opportunities. For
example, many companies have divested their loss-making telecom or
airline units when they were unable to compete effectively.
2. Phased Withdrawal
Phased withdrawal is suitable for SBUs that have a weak competitive
position in a low-growth market and very limited chances of generating
profits. Instead of immediate closure, the business is gradually reduced
over time so that maximum value can be recovered. The cash generated
during this process is invested in more profitable areas. For example,
companies slowly phasing out DVD or CD businesses as digital
streaming grows.
3. Double or Quit
The “Double or Quit” strategy involves a critical decision for SBUs with
potential but uncertain outcomes. The firm must either invest heavily to
capture future opportunities or exit the business entirely. It is a high-risk,
high-reward situation. For example, a company entering the electric
vehicle market may either invest aggressively to compete or withdraw if
it cannot match competitors.
4. Custodial
Custodial strategy refers to SBUs that are similar to cash cows but are not
highly attractive for further investment. The organisation continues
operating them mainly to generate steady cash without committing
additional resources. If the situation worsens, the company may exit. For
example, traditional landline services maintained by telecom companies
generate income but receive minimal investment.
5. Try Harder
The “Try Harder” strategy is applied to SBUs that may be weak in the
long run but are currently stable. These units require additional
investment and effort to improve their competitive position. The
organisation must focus on strengthening capabilities such as marketing,
technology, or production. For example, a startup competing with
established brands may need to invest more in advertising and innovation
to survive.
6. Cash Generator
Cash Generator SBUs are strong businesses in less attractive markets that
generate consistent profits and cash flows. These units do not require
heavy investment and are used to fund other growing businesses. This is
similar to the “cash cow” concept in the BCG matrix. For example, a
well-established FMCG product like a popular soap brand can generate
steady income without major new investment.
7. Growth
Growth strategy is used for SBUs operating in attractive markets with
good potential. These businesses require investment to expand, innovate,
and capture market share. Funds are allocated for activities like research
and development, product improvement, and marketing. For example, e-
commerce companies investing heavily in logistics and technology to
expand their market reach.
8. Market Leadership
Market Leadership strategy is applied to SBUs that already have a strong
position in a highly attractive market. The goal is to maintain and protect
this leadership through continuous investment and expansion. These
businesses usually generate strong profits and require maintaining
capacity to meet high demand.
👉Example:
Apple maintains its leadership in the premium smartphone market by
continuously investing in innovation, branding, and product quality.
Similarly, Reliance Jio achieved market leadership in telecom by
investing heavily in infrastructure and offering competitive pricing.
Advantages of Shell DPM
1. Comprehensive Analysis
The Shell DPM provides a more detailed and comprehensive analysis
compared to simpler models like the Boston Matrix. It considers multiple
factors such as market conditions, competition, technology, and internal
capabilities. This helps managers make more informed and realistic
decisions.
2. Better Strategic Decision-Making
The matrix helps organisations decide whether to invest, maintain, or
withdraw from a business. By analysing both market attractiveness and
business strength, it provides clear strategic direction. For example, firms
can avoid investing in weak and unattractive markets.
3. Flexible and Adaptable
Unlike rigid models, the DPM allows companies to choose their own
factors for evaluating market attractiveness and business strength. This
flexibility makes it suitable for different industries and types of
businesses.
4. Helps in Resource Allocation
The DPM helps in allocating resources efficiently among different SBUs.
Strong and attractive businesses receive more investment, while weak
ones are reduced or eliminated. This ensures optimal use of limited
resources.
5. Considers Multiple Factors
It includes a wide range of internal and external factors such as economic
conditions, government policies, technology, and competition. This
makes the analysis more practical and closer to real-world situations.
6. Useful for Portfolio Analysis
The DPM is very useful for analysing a company’s business portfolio. It
helps maintain a balance between high-growth, stable, and declining
businesses, ensuring long-term sustainability.
7. Dynamic in Nature
The matrix allows tracking of changes over time. Businesses can move
from one position to another, helping managers plan future strategies and
growth paths effectively.
🔻 Limitations of Shell DPM
1. Complex and Time-Consuming
The DPM is more complicated than simpler models like the Boston
Matrix. It requires detailed data collection and analysis, making it time-
consuming and difficult to implement.
2. Subjectivity in Evaluation
The selection and weighting of factors for market attractiveness and
business strength can be subjective. Different managers may interpret
factors differently, leading to inconsistent results.
3. Difficulty in Measurement
Some factors such as brand image, customer loyalty, or managerial
capability are difficult to measure accurately. This can reduce the
reliability of the analysis.
4. Requires Large Amount of Data
The DPM needs extensive data about markets, competitors, and internal
capabilities. Small firms may not have access to such detailed
information, limiting its usefulness.
5. Does Not Provide Exact Solutions
The matrix only suggests general strategic directions (like growth or
withdrawal). It does not provide specific action plans, so managers still
need to make final decisions.
6. Risk of Oversimplification
Even though it is more advanced, it still simplifies complex business
situations into a matrix. Real-world conditions may not always fit neatly
into the categories.
7. Costly to Implement
Due to the need for research, data collection, and analysis, using the DPM
can be expensive, especially for smaller organisations.
🔷 Conclusion
Shell’s Directional Policy Matrix is a powerful and flexible tool for
strategic analysis and portfolio management. While it offers detailed
insights and better decision-making, its complexity, subjectivity, and data
requirements can limit its practical application.