Shell company directional policy matrix. Strategic planning matrices Construction of shell dpm matrix calculation example

In 1975, the British-Dutch Chemical Company Shell developed and put into practice strategic analysis and planning your own model, called the policy direction matrix (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 others strategic models, the abscissa and ordinate axes reflect, respectively, the strengths of the enterprise (competitive position of the company) and market attractiveness

Rice. 4.9.

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

The Shell/DPM matrix is ​​superficially similar to the McKinsey/GE matrix and develops the ideas of strategic business positioning that are the basis of the BCG model.

However, there are fundamental differences between them. Thus, in comparison with the single-factor BCG model, the Shell/DPM matrix, like the McKinsey matrix, is a multifactor matrix with a 3x3 dimension, based on multiple assessments of both qualitative and quantitative business parameters. The Shell/DPM model places even greater emphasis on the quantitative parameters of the business and suggests that when making strategic decisions, it is necessary to simultaneously take into account the flow assessment Money(an indicator of short-term planning) and an assessment of the 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 return on investment in the future, and guides managers towards the redistribution of financial flows.

Advantages of the Shell/DPM model is that it solves the problems of combining qualitative and quantitative variables into a single parametric system and does not depend on the statistical relationship between market share and profitability. In relation to the petrochemical industry, special methods have been developed, compiled 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 general assessments of the degree of market attractiveness and the competitiveness of the enterprise.

Disadvantages of the Shell/DPM model:

• descriptive-constructive nature;
• the significance of the variables has not been determined, and their determination is very difficult;
• the specific boundaries of the breakdown of axis scales are not indicated (differences between markets according to the degree of their attractiveness and classification of companies according to competitive advantages in three categories);
• variables are highly industry specific.

• Efremov V.S. Decree. Op. P. 82.

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

The position “Leader of a Business Type” is characterized by the high attractiveness of the industry and the competitiveness of the business. There is no obvious competitive pressure.

Position "Growth". In this position, the company has a strong competitive position and the industry is moderately attractive. A firm may be one of the market leaders, characterized by moderate growth, in which there is no other strong competitor.

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

The position “Strengthen competitive advantages” is typical for a company of medium size and efficiency of business operations that operates in an attractive industry. The company's reputation is high, almost like an industry leader, which it can approach if it strengthens its competitive advantages.

The position “Continue business with caution” is typical for firms occupying average business positions in an area with average attractiveness. The market is growing slowly, and the company does not have opportunities for additional growth.

Position "Partially wind down the business." The company doesn't have much strengths and there are generally no development opportunities, since the market is not attractive.

The position “Double production or close down the business” is typical for a company 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 “Curse the business” position is typical for a company that has a weak position in an unattractive industry.

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

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

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

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

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In 1975, the British-Dutch Chemical Shell company developed and introduced into the practice of strategic analysis and planning her own model, called the “directional policy matrix.” Its appearance was directly related to the dynamics economic environment in the context of the energy crisis that was taking place at that time: overcrowding of the world crude oil market, steadily falling crude oil prices, low and constantly declining industry profit margins, high inflation. Traditional methods financial forecasting turned out to be useless when it came to choosing a long-term investment strategy in such conditions. Unlike the BCG and GE/McKinsey models that were already widespread at the time, the Shell/DPM model relied less on assessing the past performance of the company being analyzed and mainly focused on analyzing the development of the current industry situation.

In such vertically integrated corporate structures The structure of Shell, as well as the structure of most other oil companies, requires decisions to be made both regarding the financing of individual refineries and other business units, and regarding the allocation 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 corporations is built around one technological line, on which individual business units share the same thing among themselves production equipment. All of the many products targeted at different market segments are the output of the same refinery, and thus the corresponding volumes and costs of production, as well as profits, are completely interdependent. In addition, it should be added that very often products coming out of one such plant simply compete with each other on the market.

The Shell/DPM matrix is ​​similar in appearance to the GE/McKinsey matrix, and is also a kind of development of the idea of ​​strategic business positioning, which is the basis of the BCG model. However, there are fundamental differences between them. But compared to the single-factor 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 multivariable 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, compared to the GE/McKinsey model, places even greater emphasis on quantitative business parameters. 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 focusing simultaneously on these two indicators when making strategic decisions.

The next most notable feature of the Shell/DPM model is that it can consider businesses at different stages of their life cycle. Therefore, considering changes in the strategic positioning picture of businesses after some time becomes an integral part of Shell/DPM modeling.

But, despite the visible advantages of the Shell/DPM model as a matrix of multi-parameter strategic analysis, its popularity turned out to be limited to a number of very capital-intensive industries, such as chemicals, oil refining, and metallurgy.

Initially, when using the DPM model, Shell was more concerned with ensuring efficient cash flow. In the literature one can find a description of the first use of the DPM model as a criterion for classifying types of businesses when addressing issues of placement of financial, material and highly qualified labor resources. However, later it was noticed that individual cells of the 3x3 strategic positioning matrix are oriented toward the “cash generation” strategy. Consequently, such a model is suitable both for analyzing business dynamics in terms of the prospects for return on initial investment, and for analyzing the financial balance of the company’s entire business portfolio in terms of cash flow. The fundamental idea of ​​the Shell/DPM model is the idea, borrowed from the BCG model, that the overall strategy of the firm should ensure that the balance between cash surpluses and cash deficits is maintained by regularly introducing new promising 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 guides managers to reallocate certain financial flows from business areas that generate money supply to business areas with a high potential for future investment returns.

Like all other classic strategic planning models, the DPM model represents 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 that exist in the relevant business area). The Y-axis is therefore a general measurement of the health and prospects of an industry.

Figure 1.- Shell/DPM model representation

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, market growth rates are high; There are no weaknesses of the enterprise, as well as obvious threats from competitors.

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 from own assets); continue to invest, sacrificing immediate benefits for the sake 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 that is at a mature age in the life cycle of this business. The market is moderately growing or stable with good profit margins and without the presence of any other strong competitor.

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

Position "StrategistsIcash generator"

The company occupies a fairly strong position in an unattractive industry. It is, if not the leader, then one of the leaders here. The market is stable but shrinking, and industry profit margins are declining. There is a certain threat from competitors, although the enterprise's productivity is high and 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 will be required in the future, the strategy is to make minor investments, extracting maximum income.

Position« Strengthening strategy competitive advantages »

The company occupies an average 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), 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 economic effect from capital investments in this industry.

Possible strategies: invest if the business area is worth it, while doing the necessary detailed analysis of the investment; moving into a leadership position will require large investments; a business area is considered highly suitable for investment if it can provide enhanced competitive advantage. The required investment will be greater than the expected return and therefore additional capital expenditure may be required to continue to compete for market share.

Position« Continue business with caution»

The company occupies an average position in the industry with 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 profit is slowly declining.

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

Position« WITHpartial collapse strategy"

The company occupies an average position in an unattractive industry. The enterprise does not have any particularly strong points and, in fact, no opportunities for development; the market is unattractive (low profit margins, potential surpluses production capacity, high capital density in the industry).

Possible strategies: since it is unlikely that, once in this position, the company will continue to earn significant income, do not develop the proposed strategy this type business, but to try to turn physical assets and market position into money supply, and then use their own resources to develop more promising businesses.

Position "Double production volume or close down business»

The company occupies a weak position in an attractive industry.

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

Position "Continue business with caution or partially curtail production»

The company occupies a weak position in a moderately attractive industry.

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

Position"Business exit strategy"

The company occupies a weak position in an unattractive industry.

Possible strategies: Since a company that falls into this box is generally losing money, every effort should 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 an enterprise and the attractiveness of the industry:

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

Relative market share;

Distribution network coverage;

Efficiency of the distribution network;

Technology skills;

Width and depth of the product line;

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 rate;

Relative industry rate of return;

Buyer's price;

Buyer loyalty to the brand;

The importance of competitive preemption;

Relative stability of the industry rate of return;

Technological barriers to entry into the industry;

The importance of contractual discipline in the industry;

Supplier influence in the industry;

Influence of the state in the industry;

Level of industry capacity utilization;

Product replaceability;

The image of the industry in society.

Like many other classic models of strategic analysis and planning, the Shell/DPM model is descriptive and instructional. This means that the manager can use the model both to describe the actual (or expected) position, determined by the relevant variables, and also to determine possible strategies. The strategies identified should, however, be viewed with caution. The model is designed to help take management decisions rather than replacing them.

The Shell/DPM model can also take time into account. Since each area represents a specific point in time, a manager who wants to see changes over a period of time need only use the database for each period and compare the results. It should be noted that this model is particularly effective for visualizing changes and the development of strategic positions over time, since it is not tied to financial indicators, and therefore is not influenced by factors that can cause errors (for example, inflation).

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

In the first case (Figure 1, direction 1), the following trajectory for the development of the company’s position is considered optimal: from Doubling production volume or curtailing 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 Cash Generator Strategy - to the Strategy partial winding down - to the winding down strategy (exit from business).

Let's give brief description stages of such a movement.

Stage of doubling production volume or winding down a business

A new area of ​​business 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 to the enterprise, the company's competitive position in this business is still weak. Strategy - investing.

Stage of strengthening competitive advantages

With investment, the company's position in the business area improves, which causes horizontal movement to the right edge of the matrix. The market continues to grow. The strategy is to continue investing.

Business leader stage

With continued investment, the company's position in the business area continues to improve, causing further horizontal movement to the right. The market continues to grow and investment continues.

Growth stage

Market growth rates are beginning to slow down. This causes the company's position to begin to move vertically downward. The company's business area profitability is growing at the same level as the industry average.

Cash generator stage

Market development stops, causing a further vertical downward movement of the company's position. The strategy is to invest only at the level necessary to maintain the achieved positions and ensure the profitability of the business.

Partial coagulation stage

The market begins to shrink, the industry's profitability declines, and the company's position naturally also begins to weaken.

Further investment in this business may be completely stopped, and then a decision may be made to close it down altogether.

In the case of increased attention to cash flow (Figure 1, directions 2), the optimal trajectory for the development of the company’s positions is considered to be from the lower right cells of the Shell/DPM matrix to the upper left ones. This means that the cash generated by the company during the Cash Generator and Partial Winddown stages is used to invest in business areas that qualify as Doubling Output and Enhancing Competitive Advantage.

Strategic balance involves, first of all, the balance of the company's efforts in each of the business areas, depending on the stage of the life cycle in which they are located. This balancing gives confidence that at the maturity stage of a business area there will always be a sufficient number of financial resources in order to support 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 the growing business.

Most of the basic theoretical assumptions made in the Shell/DPM model are similar to those made in the GE/McKinsey model. Here, as in the GE/McKinsey model, business areas are assumed to be autonomous, unrelated to others either in terms of resources or results. Isolating the competitiveness of a company's business as the X axis assumes that the market is an oligopoly. That is why for companies with weak competitive positions, a strategy of immediate or gradual winding down 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 if a new source of competitive advantage is not found.

The Y axis (attractiveness of the business sector) 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 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 the model very literally. Secondly, it is also common to see attempts to evaluate as many factors as possible, with the assumption that this will lead to a more objective picture. In fact, the opposite effect occurs and enterprises whose positions are assessed in this way, as a rule, always end up in the center of the matrix.

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

The following criticisms can be made:

· the choice of variables for analysis is very arbitrary;

· there is no criterion by which one could determine how many variables are required for analysis;

· it is difficult to assess which variables are most significant;

· assigning specific weights to variables when constructing matrix scales is very difficult;

· It is difficult to compare business areas across different industries because the variables are highly industry specific.

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The workplace presupposes the presence of a set of interrelated factors and conditions that affect a person’s performance.

A model called SHEL (sometimes referred to as SHELL) can be used to represent the relationships between the various components of an aviation system. The abbreviation SHEL is made up of the first letters of the words that form it:

- Procedures(S-Software) - maintenance procedures, maintenance instructions, work cards, etc.

- An object(H- Hardware – production support) - tools, control gear, aircraft design, etc.

- Wednesday(E-Environment- environment) - operating conditions under which the remaining components must operate L-H-S systems. Condition of hangars, linear maintenance conditions, management structure, etc.

- Subject(L- Liveware- personnel) - people at work places..

This model is one of the developments of the “man-machine-environment” system.

Fig 2 Model SHEL

Human factors focus on interactions between people ( L in the central cell) and other elements of the model

SHEL from a security point of view where these elements can cause errors i.e:

S– incorrect interpretation of procedures, poorly written instructions, poorly designed checklists, untested or difficult to use computer software.

N- shortcomings of tools, equipment, aircraft design

E– not convenient workplace, cramped conditions in the hangar, extreme temperatures, high level noise, lack of lighting.

L- relationships with other people, lack work force, insufficient control, lack of support from management.

Staff – “Liveware” - performs different types works Although modern aircraft include advanced computerized self-monitoring and diagnostic tools, one aspect of aviation maintenance has remained unchanged: Maintenance tasks are still performed by humans. However, man has limitations. Since Liveware is at the center of the model, all other aspects (Software, Hardware and Environment) must be designed or adapted for assisting a person in his work and taking into account his limitations

If these two aspects are ignored, the person (in our case the technical staff) will not perform the job to the best of their ability and may make mistakes and reduce safety.

Thanks to aircraft developers and manufacturers, aircraft are becoming more and more reliable. But it is not possible to reverse engineer a human being and we must accept the fact that man is inherent in a certain unreliability. However, it can work with such unreliability if good training, operating procedures, tooling, dual control, etc. are provided.

2. Incidents related to human factors/ Human mistakes.

In 1940, it was estimated that approximately 70% of all aviation accidents were caused by human activity, i.e. with human errors.

International Organization The Aviation Transport Authority (IATA) analyzed this situation 35 years later (in 1975) and found that the quantitative component of human errors in the statistics of aviation incidents had not decreased. (Figure 3).

Figure 3. Dominant role in the causes of incidents in civil aviation accounted for by human activity.

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 context of the energy crisis that was taking place at that time: the overflow of the world market with crude oil, the steady fall in crude oil prices, low and constantly declining industry profit rates, and high inflation. Traditional financial forecasting methods were useless when it came 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 less on assessing the past performance of the organization being analyzed and mainly focused on analyzing the development of the current industry situation.

In vertically integrated corporate structures such as Shell's and those of most other major oil organizations, decisions are required both about the financing of individual refineries and other business units and about the allocation of available crude oil volumes. 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 production line, on which individual business units share the same production equipment. All of the many products targeting different market segments are output from the same refinery, and thus the corresponding production volumes and costs, as well as profits, are completely interdependent. In addition, it should be added that very often products coming out of one such plant simply compete with each other on the market.

The Shell/DPM matrix is ​​superficially similar 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. However, there are fundamental differences between them. But compared to the single-factor 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 the strategic position of a business 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, compared to the GE/McKinsey model, places even greater emphasis on the quantitative parameters of the business. If the criterion for strategic choice in the BCG model was based on an assessment of cash flow (Cash Flow), which, in essence, is 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 planning, the Shell/DPM model suggests focusing simultaneously on these two indicators when making strategic decisions.

The other most notable feature of the Shell/DPM model is that it can consider businesses at different stages of their life cycle. Therefore, considering how the strategic positioning picture of businesses changes over time becomes an integral part of Shell/DPM modeling.

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

Initially, when using the DPM model, Shell was more concerned with ensuring efficient cash flow. In the literature one can find a description of the first use of the DPM model as a criterion for classifying types of businesses when deciding on the placement of financial, material and highly qualified labor resources.

However, later it was noticed that individual cells of the 3x3 strategic positioning matrix are oriented toward the “cash generation” strategy. Consequently, such a model is suitable both for analyzing business dynamics in terms of the prospects for return on initial investment, and for analyzing the financial balance of the entire business portfolio of an organization in terms of cash flow. The fundamental idea of ​​the Shell/DPM model is that borrowed from the BCG model, that the overall strategy of the organization should ensure that the balance between cash surpluses and cash deficits is maintained by developing new promising 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 guides managers to reallocate certain financial flows from business areas that generate money supply to business areas with a high potential for future investment returns.

Structure of the Shell/DPM Model

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

Rice. 11. Presentation 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 position in it, being a leader; the potential market is large, the market growth rate is high; There are no weaknesses of the organization, as well as obvious threats from competitors.

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 from own assets); continue to invest, sacrificing immediate benefits for the sake 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 that is at a mature age in the life cycle of this business. The market is moderately growing or stable, with good profit margins and without the presence of any other strong competitor.

Possible Strategies: try to maintain their positions; the position can provide the necessary financial means to finance itself and also provide additional money that can be invested in other promising areas of the business.

Position “Cash Generator Strategy”

The organization occupies a fairly strong position in an unattractive industry. It is, if not the leader, then one of the leaders here. The market is stable but shrinking, and industry profit margins are declining. There is a certain threat from competitors, although the organization's productivity is high and 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 will be required in the future, the strategy is to make minor investments, extracting maximum income.

Position “Strategy for strengthening competitive advantages”

The organization occupies an average position in an attractive industry. Since the market share, product quality, and reputation of the organization are quite high (almost the same as that of the industry leader), the organization can become a leader if it allocates its resources properly. 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; moving into a leadership position will require large investments; a business area is considered highly suitable for investment if it can provide enhanced competitive advantage. The required investment will be greater than the expected return and therefore additional capital expenditure may be required to continue to compete for market share.

Position “Continue business with caution”

The organization occupies an average position in the industry with average attractiveness. The organization does not have any special strengths or opportunities for additional development; the market is growing slowly; The industry average rate of profit is slowly declining.

Possible Strategies: Invest carefully and in small increments, confident that the returns will be immediate, and constantly conduct a thorough analysis of your economic situation.

Position “Partial collapse strategies”

The organization occupies an average position in an unattractive industry. The organization does not have any particularly strong points 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, once in this position, the organization will continue to earn significant income, the proposed strategy would not be 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 ones business.

Position “Double production volume or close down business”

The organization occupies a weak position in an attractive industry.

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

Position “Continue business with caution or partially curtail production”

The organization occupies a weak position in a moderately attractive industry.

Possible Strategies: no investment; all management should be focused on cash flow balance; try to stay in a given position as long as it brings profit; gradually wind down the business.

Position “Business exit strategy”

The organization occupies a weak position in an unattractive industry.

Possible Strategies: Since an organization that falls into this box generally loses money, 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 other classic models of strategic analysis and planning, the Shell/DPM model is descriptive and instructional. This means that the manager can use the model both to describe the actual (or expected) position, determined by the relevant variables, and also to determine possible strategies. The strategies identified should, however, be viewed with caution. The model is intended to help make management decisions, not replace them.

The Shell/DPM model can also take time into account. Since each area represents a specific point in time, a manager who wants to see changes over a period of time need only use the database for each period and compare the results. It should be noted that this model is particularly effective for visualizing changes and the development of strategic positions over time, since it is not tied to financial indicators and, therefore, is not influenced by factors that can cause errors (for example, inflation).

Strategic decisions made based on the Shell/DPM model depend on whether the 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 of development of the organization’s positions is considered optimal: from Doubling production volume or curtailing the business - to the Strategy for strengthening competitive advantages - to the Strategy of the leader of the business type - to the Growth Strategy - to the Cash Generator Strategy - to Strategies for partial winding down - to the Strategies for winding down (exiting the business).

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

Stage of doubling production volume or winding down a business

A new business area is selected and naturally needs to be developed as part of the overall corporate strategy. The market is attractive, but since the business area is new to the organization, the organization’s competitive position in this business is still weak. Strategy – investing.

Stage of strengthening competitive advantages

With investment, the organization's position in the business area improves, which causes horizontal movement to the right edge of the matrix. The market continues to grow. The strategy is to continue investing.

Business leader stage

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

Growth stage

Market growth rates are beginning to slow down. This causes the organization's position to begin to move vertically downwards. 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 a further vertical downward movement of the organization's position. The strategy is to invest only at the level necessary to maintain the achieved positions and ensure the profitability of the business.

Partial coagulation stage

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

Further investment in this business may be completely stopped, and then a decision may be made to close it down altogether.

In the case of increased attention to cash flow (Fig. 11, direction 2), the optimal trajectory for the development of the organization’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 organization during the Cash Generator and Partial Winddown stages is used to invest in business areas that qualify as Doubling Output and Enhancing Competitive Advantage.

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

Strengths and weaknesses of the Shell/DPM model

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

Isolating the competitiveness of an organization's business as the X axis assumes that the market is an oligopoly. That is why for organizations with weak competitive positions, a strategy of immediate or gradual winding down of such a business is recommended. It is assumed that the existing gap in the competitive positions of organizations by type of business will necessarily increase if a new source of competitive advantage is not found.

The Y axis (attractiveness of the business sector) 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 the model very literally. Secondly, it is also common to see attempts to evaluate as many factors as possible, with the assumption that this will lead to a more objective picture. In fact, the opposite effect occurs and organizations whose positions are assessed in this way tend to always end up in the center of the matrix.

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

The following criticisms can be made:

• the choice of variables for analysis is very arbitrary;
• there is no criterion by which to determine how many variables are required for analysis;
• it is difficult to assess which variables are most significant;
• assigning specific weights to variables when constructing matrix scales is very difficult;
• It is difficult to compare business areas across different industries because 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.

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