Shell Directional Policy Matrix

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The Shell Directional Policy Matrix is another refinement upon the Boston Matrix. Along the horizontal axis are prospects for sector profitability, and along the vertical axis is a company's competitive capability. As with the GE Business Screen the location of a Strategic Business Unit (SBU) in any cell of the matrix implies different strategic decisions. However decisions often span options and in practice the zones are an irregular shape and do not tend to be accommodated by box shapes. Instead they blend into each other.

Each of the zones is described as follows:
* Leader - major resources are focused upon the SBU.
* Try harder - could be vulnerable over a longer period of time, but fine for now. * Double or quit - gamble on potential major SBU's for the future. * Growth - grow the market by focusing just enough resources here. * Custodial - just like a cash cow, milk it and do not commit any more resources. * Cash Generator - Even more like a cash cow, milk here for expansion elsewhere. * Phased withdrawal - move cash to SBU's with greater potential. * Divest - liquidate or move these assets on a fast as you can.

The Shell Directional Policy Matrix

Brief History
While General Electric and McKinsey were developing the business screen, Shell – one of the world’s largest petrochemical companies, developed a matrix, which would come to be known as the Shell directional policy matrix. The Shell DPM was a technique originated for systematically analysing the qualitative factors present in the organisation, which had an impact on corporate planning. It was also developed to compare business sectors and company positions in a way that was independent of financial forecasts. Brief History

While General Electric and McKinsey were developing the business screen, Shell – one of the world’s largest petrochemical companies, developed a matrix, which would come to be known as the Shell directional policy matrix. The Shell DPM was a technique originated for systematically analysing the qualitative factors present in the organisation, which had an impact on corporate planning. It was also developed to compare business sectors and company positions in a way that was independent of financial forecasts. Strategic Emphasis

The traditional way of looking at the business units’ strengths and weaknesses as well as comparing business sector prospects was to use historical and forecast rates of return on capital employed. This was done because a sector where prospects were favourable and the company’s position strong tended to show higher profitability. Shell found that these records and forecasts were not sufficient for the guidance of management in the corporate planning and allocation of resources. Reasons for this being:

 Records and forecasts do not provide a systematic explanation why one business sector has more favourable prospects than another or why the company’s position in a particular sector is strong or weak.  Records and forecasts do not provide enough insight into the underlying dynamics and balance of the individual business sectors or the balance between the sectors.  Using the forecast and record method, when new products are being considered, actual experience cannot be consulted.  Worldwide inflation has severely weakened validity and credibility of financial forecasts especially in the case of businesses that are affected by oil process. The basic method of the directional policy matrix is to identify and place on the horizontal and vertical axes  The main criteria by which prospects for a business may be judged to be favourable or unfavourable (favourable meaning a high profit and growth potential)  The main criteria by which a company’s position in a sector may be judged to be strong or weak

Horizontal Axis
Horizontal labels for the quadrants are the reverse of those on the GE matrix. The extreme left quadrant is labelled unattractive while the corresponding quadrant on...
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