Practical application of the shell dpm model. Strategic planning matrices. Business type leader stage

The BCG matrix is \u200b\u200ba convenient way to compare the various SZHs in which a company operates. The BCG matrix actually uses only one indicator to determine the company's prospects in the market - growth in demand. Horizontally, the original version uses the market share of the surveyed company in relation to the competitor's market share.

For each SZH, the future growth rate is estimated, market shares are calculated and the results obtained fit into the corresponding cells.

The BCG diagram offers the following set of decisions about the future activities of the company in the respective economic zones:

To strengthen and protect "stars";
if possible, get rid of "dogs" if there is no compelling reason to keep them;
for "cash cows" it is necessary to tightly control capital investments and transfer surplus cash proceeds under the control of the company's top management;
"Wild cats" are subject to special study to determine whether they can turn into stars with a certain investment.

"Wild cats" under certain circumstances can become "stars", and "stars", in the future, turn into "dogs".

The BCG matrix helps to fulfill two functions: making decisions about the intended positions in the market and the distribution of strategic funds between different areas of management in the future. Among the advantages of the BCG matrix, first of all, it is worth noting its simplicity. The matrix is \u200b\u200bvery useful when choosing between different SBAs, defining strategic positions and when allocating resources for the near future.

Figure: 1. Matrix of the Boston Advisory Group (BCG).

However, due to its simplicity, the BCG matrix has two significant disadvantages:

all SZH, the position in which the company is analyzed using the BCG matrix, must be in the same phase of development of the life cycle;
within SZH competition should proceed in such a way that the indicators used are sufficient to determine the strength of the company's competitive position.

If the first flaw is fatal, i.e. SZH located at different stages of the life cycle cannot be analyzed using this matrix, then the second drawback may well be eliminated. In the process of improving the BCG matrix, the authors proposed completely different indicators. The main ones are presented in table 1.

Table 1. Indicators for assessing the strategic position using the BCG matrix.

№	subject of assessment	index
1	branch	demand growth rate
2		market growth rate
3		assessment of the attractiveness of SZH
4	company	market share of the company in relation to the share of the leading competitor
5		relative market share of the company
6		future competitive position of the company in the market

The indicator of a company's future competitiveness in the market is determined by the ratio of the expected return on capital and the optimal (or basic) return on capital. In fact, this is the projected return on equity of the company or an analysis of the trend in this indicator in recent years.

In general, the attractiveness of SZH can be calculated based on the ratio:

Attractiveness SZH \u003d aG + bP + cO - dT,

where a, b, c and d are the coefficients of the relative contribution of each factor (they total 1.0),

G - market growth prospects,

P - the prospects for profitability in the market,

O - positive impacts from the environment,

T - negative influences from the environment.

General Electric - McKinsey Matrix

The General Electric-McKinsey model is a nine-cell matrix. In this matrix, the analysis is carried out according to the following parameters:

attractiveness of SZH;
position in the competition.

The indicator “attractiveness of SZH” is not controlled by the company, i.e. those that this or that economic entity can only fix and focus on them. The indicator "position in competition", on the contrary, depends on the performance of the business entity itself.

If in the BCG matrix on the abscissa axis a static (fixed) indicator is used, be it market share or profitability, then in the General Electric - McKinsey matrix, a dynamic indicator is used, i.e. not profitability, but its change, etc.

Unlike the BCG matrix, the new matrix is \u200b\u200bapplicable in all phases of demand and technology cycles and under a wide variety of competitive conditions. However, it can only be used after a series of laborious operations.

The General Electric - McKinsey matrix has a dimension of 3x3. On the axes, integral assessments of the attractiveness of the market and the relative advantage of the company in this market or the strengths of the company's business are set. On the X-axis in the General Electric-McKinsey matrix are the parameters that are controlled by the company, respectively, on the Y-axis - the uncontrolled ones.

fig. 2. The structure of the General Electric - McKinsey matrix.

Increasing the matrix dimension to 3x3 allowed not only to give a more detailed classification of the compared types of business, but also to consider broader opportunities for strategic choice.

The analyzed businesses are displayed on the grid as circles or bubbles. Each circle represents the total sales in a given market, and the company's business share is shown by a segment in that circle.

Each of the two axes of the matrix is \u200b\u200bconventionally divided into three parts, so the grid turns out to be composed of nine cells. The strategic position of a business improves as it moves through the matrix from right to left from bottom to top.

The matrix identifies three areas of strategic positions:

Winners area. All types of businesses that fall into the winners' area have better or average values \u200b\u200bin comparison with the rest of the factors of market attractiveness and the company's advantages in the market.
The area of \u200b\u200bthe losers. These are the types of businesses that have at least one of the lowest and do not have any of the highest parameters plotted along the axes.
Middle area or border. These are the types of businesses that, under certain conditions, can either grow and turn into “winners”, or shrink and become “losers”.

The General Electric - McKinsey matrix allows us to consider the dynamics of the second factor - the attractiveness of the strategic economic zone. In addition, the choice of strategic choice has been significantly expanded here.

The main disadvantages of portfolio analysis methods using the General Electric-McKinsey matrix are as follows:

difficulties in accounting for market relations (boundaries and scale of the market), too many criteria. As the number of factors grows, their measurement becomes more difficult;
subjectivity of position assessments;
static nature of the model;
too general nature of recommendations, difficulties in choosing strategies from many options.

Due to the existing shortcomings, the General Electric - McKinsey matrix is \u200b\u200bnot applicable in all cases, and just like the BCG matrix, it is only advisory in nature. The main limitations of the matrix are as follows:

The matrix can be used only by incremental firms, since it only makes it possible to predict the future, but not to build it independently, as entrepreneurial firms do.

The General Electric-McKinsey model, like all strategic analysis models, assumes that the future can be predicted with a reasonable degree of accuracy. However, the latter can be done only if the level of uncertainty is in the range from 1 to 3 points. With an uncertainty above 3 points, along with the most probable one, other alternatives of the future appear, and with an uncertainty level above 4 points, it becomes almost impossible to adequately assess the future.

The human factor, i.e. the result of the GE-McKinsey analysis — again applies to all matrices — depends on the subjective assessment of the manager or group of managers whose opinions are always relative.

The attractiveness of the SBA as calculated in the GE-McKinsey matrix can include many different factors and factors. The number of factors usually depends on the industry in which the company is located, as well as on the required level of depth and direction of analysis. Not the least role in determining the indicators for assessing the attractiveness of SZH is played by the availability of this or that information or the data available.

Table 2 presents general indicators for assessing the attractiveness of SZH, as well as characteristics of the company's strengths.

Table 2. Characteristics of the company's advantages and the attractiveness of the industry.

Characteristics of the company's strengths (X-axis)	Market attractiveness characteristics (Y-axis)
Relative market share Growth of market share Coverage of the distribution network Efficiency of the distribution network Personnel qualifications Customer loyalty to the company's products Technological advantages Patents, know-how Marketing advantages Flexibility	Market growth rates Product differentiation Competitive features Industry profit margins Customer value Customer loyalty to brand

ADL / LS model

The ADL / LS model was developed by Arthur D. Little, a well-known management consulting company.

The main theoretical position of the model is that a particular type of business of any corporation can be at one of the stages of the life cycle, and, therefore, it must be analyzed in accordance with this stage.

Since the analysis using this matrix is \u200b\u200bcarried out according to two indicators: the stage of the product life cycle and the relative position in the market, then, in addition to successive changes in the stages of the industry life cycle, the competitive position of some types of business relative to others may also change. A type of business can occupy one of five competitive positions: dominant, strong, favorable, strong or weak.

Each type of business is analyzed separately in order to determine the stage of development of the relevant industry and its competitive position within it.

The combination of two parameters - four stages of the production life cycle and five competitive positions - make up the so-called ADL / LS matrix, which consists of 20 cells.

Figure: 3. Matrix ADL / LS: 1 - natural development; 2 - selective development; 3 - sustainable development; 4 - exit.

The position of a particular type of business is indicated on the matrix along with other types of business of the corporation. Depending on the position of the type of business on the matrix, an elaborate set of strategic decisions is proposed.

The strategic planning process is carried out in three stages. At the first stage, which is called “simple choice”, the strategy for the type of business is determined solely in accordance with its position on the ADL / LS matrix. The "simple selection" area spans several cells.

At the second stage, within the framework of each “simple choice”, the very point position of the type of business suggests the nature of the “specific choice”. However, “specific choice” is also more of a general strategic direction. At the third stage, the proposal, which in itself was a unique contribution of ADL / LS to the development of strategic planning methodology, is the choice of a refined strategy. ADL / LS offers 24 such strategies.

The ADL / LS approach assumes that most industries fall under a life cycle in a prescribed manner, although the shape of the cycle may differ from industry to industry. According to the ADL / LS concept, mature industries include a small number of concentrated competitors, while emerging industries are fragmented and have a large number of competitors. If you complete all the necessary analytical steps, then the benefits that the analyst will receive is obvious:

A good definition of the function, market, position and contribution of each type of business to the corporate business portfolio.
A complete business portfolio picture that does not overlook any of the specific strategies developed for each type of business.

Since the ADL / LS model takes an approach based on the concept of an industry life cycle from start to finish, it can be universally applied to various types of business. However, if, based on the results of the analysis, the type of business is placed at a certain stage of the life cycle, then the recommendations will be suitable for this particular stage.

However, despite the fact that the advantages of the clarity and completeness of the description of the position of the company in a particular SZH, as well as the prospects for the development of SZH, in comparison with the previous models, are obvious, the ADL / LS matrix rests on the same problem - the boundaries of application. Improvement proceeds along the line of visibility of perception, supplementing the set of recommended strategies (expanding the possibility of strategic choice), but the assessment of market positions here also rests on the level of uncertainty, as well as on the human factor, which cannot be avoided with this approach.

The same profitability or market share can be used as indicators of relative position. Information about the stages of the life cycle follows from the direct specifics of the development of the industry.

Shell / DPM model

Another strategic analysis model is the "policy directional matrix", which was developed by the British-Dutch company Shell. 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 \u200b\u200bstrategic business positioning, embedded in the BCG model. Shell / PDM Matrix is \u200b\u200ba 3x3 two-factor 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:

business industry prospects;
business competitiveness.

The Shell / DPM model places more emphasis on quantification than the GE-McKinsey model. With the help of the Shell / CSA 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.

fig. 4. The Shell / DPM model.

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 an 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 must 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.

Strategy for 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 average attractiveness. A careful investment with a quick return.

Partial roll-up strategy - the company occupies a middle position in an unattractive industry. You should extract the maximum income from what is left, and then invest in promising industries.

To double the volume of production or to close 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 the industry while it is profitable.

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

The variables of company competitiveness and industry attractiveness used by the Shell / PDM matrix are presented in Table 3.

Table 3. Variables of company competitiveness and industry attractiveness.

Variables characterizing the competitiveness of the enterprise (X-axis)

Variables characterizing the attractiveness of the industry (Y-axis)

Relative market share Distribution network coverage Distribution network efficiency Technological skills Product line width and depth Equipment and location Production efficiency Experience curve Production inventory Product quality Research and development capacity Economies of scale After-sales service Human resources

Industry growth rates Relative industry profit margins Buyer price Buyer commitment to brand Significance of competitive proactiveness Relative stability of industry profit margins Technological barriers to entry into the industry Significance of contractual discipline in the industry Influence of suppliers in the industry Influence of the government in the industry Level of utilization of industry capacity Product replaceability Industry image in society Development prospects

Ansoff Matrix

Igor Ansoff's matrix is \u200b\u200bintended to describe the possible strategies of an enterprise in a growing market.

On one axis in the matrix, the type of goods is considered - old or new, on the other axis - the type of market, also old or new.

Table 4. Ansoff's matrix.

Market type	Old market	New market
Old goods	Improvement of activities	Market development strategy
New product	Commodity expansion	diversification

Performance improvement strategy. When choosing this strategy, the company is recommended to pay attention to marketing measures for existing goods in existing markets: to study the target market of the enterprise, to develop measures to promote products and increase the efficiency of activities in the existing market.

Product expansion is a strategy for developing new or improving existing products in order to increase sales. A company can pursue such a strategy in an already known market by finding and filling market niches. In this case, income is provided by maintaining market share in the future. This strategy is the most preferable in terms of minimizing risk, since the company operates in a familiar market.

Market development strategy. This strategy is aimed at finding a new market or a new market segment for already mastered goods. Income is generated by expanding the sales market within and outside the geographic region. This strategy is associated with significant costs and is more risky than the previous two, but more profitable. However, it is difficult to enter new geographic markets directly as they are occupied by other companies.

The diversification strategy involves the development of new types of products simultaneously with the development of new markets. Moreover, the goods may be new for all companies operating in the target market or only for a given economic entity. This strategy ensures profit, stability and stability of the company in the distant future, but it is the most risky and costly.

Abel Matrix

Abel suggested defining the business area in three dimensions:

customer groups served;
customer needs;
technology used in the development and manufacture of a product.

fig. 5. The field of possible strategies (according to D. Abel).

The first most important criterion for evaluating the Abel matrix is \u200b\u200bthe compliance of the industry in question with the general direction of the company in order to use the synergistic effect in technology and marketing. Other selection criteria are the attractiveness of the industry and the "strength" of the business (competitiveness).

The Shell / DPM model was created following the Boston Advisory Group (BCG) model. The Directional Policy Matrix bears superficial similarities with matrix "General Electric - McKinsey", but at the same time it is a kind of development of the idea of \u200b\u200bstrategic positioning of business, embedded in the BCG model. Shell / PDM Matrix is \u200b\u200ba 3x3 two-factor 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:

business industry prospects;
business competitiveness.

The Shell / DPM model places more emphasis on quantification than the GE-McKinsey model. 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 can be assessed here at different stages of the life cycle.
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.

fig. 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 must 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.
Strategy for 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 average attractiveness. A careful investment with a quick return.
Partial roll-up strategy - the company occupies a middle position in an unattractive industry. You should extract the maximum income from what is left, and then invest in promising industries.
To double the volume of production or to close 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 the industry while it is profitable.
Business shutdown strategy - the company is weak 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 on measuring return on investment. The main idea of \u200b\u200bthe matrix is \u200b\u200bthat 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 / CSA matrix and the behavior of portfolio analysis (Table 2).

Table 2. Variables of company competitiveness and industry attractiveness.

Variables characterizing the competitiveness of the enterprise (X axis)

Variables characterizing the attractiveness of the industry (Y-axis)

Relative market share Distribution network coverage Distribution network efficiency Technological skills Product line width and depth Equipment and location Production efficiency Experience curve Manufacturing inventory Product quality Research and development capacity Economies of scale After-sales service Human resources

The Shell DPM (British-Dutch Shell Company, Direct Policy Matrix) was proposed in 1975 during the energy crisis. This situation did not allow effective use of the well-known models of BCG and McKinsey, focused on assessing the achievements of the organization in the past, but required focusing on analyzing the development of the current industry situation. The Shell matrix was intended for vertically integrated entrepreneurial companies around a single business, in which all of its enterprises produce a full range of products, competing with each other.

The Shell model matrix is \u200b\u200bbased primarily on quantitative assessments of business parameters (the duration of the technology lifecycle phases, the rate and prospects of demand growth, profitability, the level of instability, etc.), which in practice is more promising than the BCG approach (Table 8.2).

Table 8.2 - Shell DPM Matrix

Shell's model, like BCG's, is focused on managing financial performance to develop promising new businesses. However, here the emphasis is placed not only on the current cash flow, but also not on the long-term return on investment, which allows us to give a commercial assessment of the attractiveness of businesses in the future. In accordance with the positions in the matrix, the following types of market structures are distinguished.

1. Business leaderwith a strong position in an attractive industry. Its potential market is large enough, growth rates are high, there are practically no weaknesses, there are no obvious threats from competitors. An investment strategy is recommended for him as long as the industry is promising, allowing him to defend his leading positions.

2. Growth - a position held by a strong firm in a moderately attractive industry in the absence of serious competitors. Stable or growing sales provide a high profit margin. The strategy of maintaining the status quo is used, ensuring the receipt of the necessary funds.

3. Cash generator - a firm with a fairly strong and well-established business, but in an unattractive industry, where the market is stable or shrinking, and the profit rate is falling. Investments are recommended to maintain current returns.

4. Strengthen competitive advantage - position of medium-sized and efficient firms operating in attractive industries. For them, it is advisable, if the business is promising, and the market share, product quality and business reputation are high enough, to make investments. In this case, there are chances to become a leader.

5. Continue business with care maybe companies that have no particular prospects. They usually occupy intermediate positions in industries of average attractiveness. Since market growth and declining industry profit margins are slow, it is possible to apply a strategy of sequentially investing in small increments in the hope of a quick return.

6. Partially wind up business and it is recommended to gradually transfer assets to other areas in the event that the firm does not have any strengths and opportunities. This occurs when the market is unattractive, profit margins are low, and there is excess productive capacity.

7. Doubling the volume or winding up the business may be a weakly positioned corporation in an attractive industry. If the situation is favorable, an attack along the entire front is possible (but it requires significant funds). Otherwise, you need to go out of business.

8. Continue with caution or curtail production advisable for companies with a weak position in a moderately attractive industry. New investments are not made here, and non-profitable objects are gradually liquidated.

9. Roll up business and getting rid of companies that bring losses is necessary in a weak position in an unattractive industry.

In general, when focusing on cash flow, the optimal strategy is to invest the profits created in the field of the cash generator and obtained as a result of the partial winding up of the business, in the area of \u200b\u200bdoubling the volume of production and strengthening competitive advantages. In general, strategic decisions based on the Shell DPM model depend on what is in the focus of management - the life cycle of the type of business or the company's cash flow.

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Department of Marketing

abstract

Application of the modelShell/ DPM in strategic marketing

Completed by a student of group E - 063

Panafidin K.A.

Checked by Ph.D., associate professor

Kotikova G.P.

Kemerovo 2010

In 1975, the British-Dutch chemical company Shell developed and implemented its own model of strategic analysis and planning, called the "policy matrix". 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 crude oil market, a steady drop in crude oil prices, a low and constantly decreasing sectoral profit rate, and high inflation. Traditional financial forecasting methods have proven 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 of all on assessing the company's past achievements and mainly focused on analyzing the development of the current industry situation.

In these vertically integrated corporate structures, which include Shell and most other oil companies, decisions are required on both the financing of individual refineries and other business units and 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 complication is that the entire business in such corporations is built around a single production line, on which separate economic 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 the products leaving one such plant simply compete with each other in the market.

The Shell / DPM matrix is \u200b\u200bsimilar in appearance to the GE / McKinsey matrix, and is also a kind of development of the idea of \u200b\u200bstrategic 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 multi-variable approach used to assess strategic business positions in the GE / McKinsey and Shell / DPM models has proven more realistic in practice than the approach used by the BCG matrix.

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

The next 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 changes in the picture of the strategic positioning of business types after a while, it 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 was limited by the framework of a number of very capital-intensive industries, such as chemical, oil refining, metallurgy.

Initially, with the DPM, Shell was more concerned with ensuring 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 strategy of “generating cash”. 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 company's entire business portfolio 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 firm is to maintain a balance between cash surplus and deficit through regular new promising businesses based on the latest scientific and technological developments that will absorb surplus money supply generated by types of business 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.

Like all other classical strategic planning models, the DPM model is a two-dimensional table, where the X and Y axes reflect, respectively, the strengths of the enterprise (competitive position) and industry (product-market) attractiveness (Figure 1). More precisely, the X-axis reflects the competitiveness of a company's business sector (or its ability to take advantage of the opportunities available in the relevant business area). The Y-axis is thus a general measurement of the state and prospects of the industry.

Figure 1.- Shell / DPM model view

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 company has a strong position in it, being a leader; the potential market is large, the market growth rate is high; weaknesses of the enterprise, 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 capital 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 company has a strong position in it. Such an enterprise is one of the leaders in the mature age of the life cycle of this 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 "Strategistsi am cash generator "

The company occupies 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 enterprise is high and the costs are low.

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

Position« Competitive Advantage Strategy»

The company occupies a middle position in an attractive industry. Since the market share, product quality, and reputation of the enterprise are quite high (almost the same as that of the industry leader), then the enterprise 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 investment analysis; it will take a lot of investment to move into a leadership position; a business area is considered highly investment-friendly 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 care»

The company occupies an average position in the industry with an average attractiveness. The company does not have any special strengths or opportunities for additional 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 thorough analysis of your economic situation.

Position« FROMthe strategy of partial closure "

The company occupies an average position in an unattractive industry. The enterprise 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 company will continue to earn significant income, insofar as the proposed strategy is not to develop this type of business, but to try to turn physical assets and market position into money supply, and then use its own resources to develop more promising business.

Position "Double production or shut down a business»

The company occupies a weak position in an attractive industry.

Possible strategies: invest in or leave the business. Since an attempt to improve the competitive position of such an enterprise through a broad front attack would require a very large and risky investment, it can only be undertaken after detailed analysis. If it is established that an enterprise is capable of fighting for a leading position 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 phase out production»

The company occupies a weak position 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.

PositionBusiness Closure Strategy

The company is weak in an unattractive industry.

Possible Strategies: Since a company in this cage is losing money overall, every effort must be made to get rid of such a business, and the sooner the better.

In the DPM / Shell model, the following variables can be used to characterize the competitiveness of the enterprise and the attractiveness of the industry:

1. Variables characterizing the competitiveness of the enterprise (X-axis):

Relative market share;

Distribution network coverage;

Distribution network efficiency;

Technological skills;

Product line width and depth;

Equipment and location;

Production efficiency;

Experience curve;

Productive reserves;

Product quality;

Research potential;

Economy of production scale;

After-sales service.

2. Variables characterizing the attractiveness of the industry (Y-axis):

Industry growth rates;

Industry relative rate of return;

Buyer's price;

Brand loyalty of the buyer;

The importance of competitive lead;

The relative stability of the industry's rate of return;

Technological barriers to entry into the industry;

The importance of contractual discipline in the industry;

The influence of suppliers in the industry;

State influence in the industry;

The level of utilization of industry capacities;

Product replaceability;

Industry image in society.

Like many classical 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 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 the manager is focusing on the life cycle of the business or the company's cash flow.

In the first case (Figure 1, direction 1), the following trajectory of the company's position development is considered optimal: from Doubling the volume of production or winding up the business - to the Strategy of strengthening 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 the Strategy partial collapse - to the strategy of collapse (exit from the business).

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 to be developed as part of the overall corporate strategy. The market is attractive, but since the business area is new for the company, the company's competitive position in this business is still weak. The strategy is investing.

The stage of strengthening competitive advantages

With the investment, the company'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.

Business type leader stage

With continued investment, the company'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 decline. This becomes the reason for the beginning of the vertical movement of the company's position down. The profitability of the business area for the company is growing at the same level as the industry average.

Cash Generator Stage

Market development stops, causing further downward movement of the company'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 starts to shrink, the profitability of the industry declines and the company's position naturally also begins to weaken.

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 (Figure 1, directions 2), the trajectory of development of the company's positions from the lower right cells of the Shell / DPM matrix to the upper left ones is considered optimal. This means that the cash generated by the company in the Cash Generator and Partial Collapse stages is used to invest in those business areas that correspond to the positions of Doubling Production and Strengthening Competitive Advantage.

Strategic balance presupposes, first of all, a balance of the company's efforts in each of the areas of the business, depending on the stage of the life cycle in which they are located. Such balancing gives confidence that at the stage of maturity of the business area there will always be sufficient financial resources in order to maintain the reproduction cycle of the enterprise by investing in new promising types of business. Financial balance means that income generating businesses have enough sales to finance a growing business.

Most of the basic theoretical assumptions in the Shell / DPM model are similar to those in the GE / McKinsey model. Here, as well as in the GE / McKinsey model, business areas are assumed to be autonomous, unrelated to others either in terms of resources or results. The allocation of the company's business competitiveness as the X-axis implies that the market is an oligopoly. That is why, for companies with weak competitive positions, a strategy of instant or gradual winding up of such a business is recommended. It is assumed that the existing gap in the competitive positions of companies 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 company in question.

In practice, there are two major mistakes common when using the Shell / DPM model, which are essentially the same as those 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 enterprises, 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 analysis;

· It is difficult to assess which of the variables are most significant;

· 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.