Shell’s Directional Policy Matrix (DPM)
Introduction
• While General Electric and McKinsey were developing the
business screen, Shell – one of the world’s largest petrochemical
companies, developed a matrix, which would be known as the
Shell directional policy matrix.
• The Shell Directional Policy Matrix is another refinement upon
the Boston Matrix. Along the horizontal axis are prospects for
sector profitability, and along the vertical axis is a company’s
competitive capability.
Horizontal Axis: Business sector profitability
• Size of the market,
• Expected growth,
• Lack of competition,
• Profit margins within the market and
• Other favorable political and socio-economic conditions.
VERTICAL AXIS: Company’s competitive capability
• Sales volume,
• Product’s reputation,
• Reliability of service and
• Competitive pricing.
Shell’s Directional Policy Matrix is described as follows:
• Divest: SBU’s running in losses with uncertain cash flows.
They should be divested as the situation is not likely to
improve in the near future. liquidate or move these assets on a
fast as you can.
If the company finds significant elements of the portfolio in
the ‘Divest’ domain it needs to think quickly about what
actions to take,e.g. to what extent should they be ‘milked’ and
how quickly should they be disposed of.
• Despite its potential, anopportunity labelled as a ‘Question
Mark’ product in the Boston Matrix could fall into this
domain if it is notstrategically aligned with the holding
groupDivestment DomainProducts falling in this area will
probably be losing money, not necessarily every year, but
the losses in badyears will outweigh the gains in good
years. It is unlikely that management will be surprised by
specific activitiesfalling into this area since poor
performance should already be known.
• Phased withdrawal: They are SBU’s with weak competitive
position in a low growth market with very little chance of
generating cash flows.
They are products with an average to weak position with
unattractive market prospects or a weak position with average
market prospects & unlikely to be earning any significant
amounts of cash.
They should be phased out gradually. The cash realized should
be invested in more profitable ventures with greater potential.
The indicated strategy is to realize the value of the assets on a
controlled basis to make the resources available for
redeployment elsewhere.
• Double or quit:
Double or Quit box talks about tomorrow's breadwinners among
today’s R&D projects.
Either invests more to use the prospects presented by the market
or else better to quit the business.
Putting the strategy simply, those with the best prospects should
be selected for full backing and development; the rest should be
abandoned.
• Custodial: The corporate has to bear with the situation by
getting help from other SBU’s or get out of the scene so as to
focus more on other attractive business. just like a cash cow,
milk it and do not commit any more resources.
• Proceed with care in this position, some investments may be
justified but major investments should be made with extreme
caution.
• Try harder: These products need additional resources to
strengthen their capabilities. The companies try harder to
exploit the business prospects thoroughly. They could be
vulnerable over a longer period of time, but are fine for now.
• Cash Generator: The product is moving towards the end of its
lifecycle and is being replaced in the market by other products.
As in the case of cash cows, milk here for expansion elsewhere.
SBU’s may continue their operations, at least for generating
strong cash flows and satisfactory profits. No further
investments are to be made. No finance should be allowed for
expansion, and as long as it is profitable, the opportunity should
be used as a source of cash for other areas. Every effort should
be made to maximize profits since this particular activity has no
long-term future.
• Growth: These SBU’s need funds to support product
innovations, R&D activities etc. Hence companies should try to
grow by focusing just enough resources.
Investment should be made to allow the product to grow with
the market.
Generally, the product will generate sufficient cash to be self-
financing and should not be making demands on other
corporate cash resources.
• Market Leadership: In the Directional Policy Matrix the
concentration of business opportunities should be focused
around the ‘Leader’ domain, i.e. the top left hand area of the
matrix. Under such circumstances, one is looking at a strong
portfolio where the company is focusing on markets that are
attractive and where it is acknowledged as being competitive.
Major resources are focused upon the SBU. It must receive top
priority.