Strategic Analysis and Planning with MATRIX V5
Tutorial Step 13 - The Directional Policy Matrix

The Directional Policy Matrix is one of a number of 'classical marketing concepts' addressed by MATRIX V5, the software application for business strategists. The Directional Policy Matrix (or GE-McKinsey Matrix) illustrates which segments the Host Company should actively pursue, and which segments should be divested.

Development of the multivariate Directional Policy Matrix came about through recognition of the potential limitations of using only one single variable within the Boston Matrix. It was considered that a number of additional factors should also be utilised to develop a more representative analysis of the business.

The matrix shows the relative position of each segment using ‘Relative Competitive Strength’ as the (horizontal) X-Axis and ‘Relative Segment Attractiveness’ as the (vertical) Y-Axis. The diameter of each pie is proportional to the Volume or Revenue accruing to each Segment, and the solid slice of each ‘pie’ represents the share of the market enjoyed by the Host Company. The example on the right is a typical 'Text Book' representation of the Directional Policy Matrix.

The host company should invest in Product / Market opportunities that appear to the top left of the matrix. The rationale is that the Host Company should invest in segments that are both attractive and in which it has established some measure of competitive advantage. Product / Market opportunities appearing in the bottom right of the matrix are both unattractive to the host company and in which it is competitively weak. At best, these are candidates for cash management; at worst candidates for divestment. Product / Market opportunities appearing 'in between' these extremes pose more of a problem, and the host company has to make a strategic decision whether to 'redouble its efforts' in the hopes of achieving market leadership, manage them for cash, or cut its losses and divest.

The Directional Policy Matrix And MATRIX V5

Below - An example of a Directional Policy Matrix produced by MATRIX V5.

1. Each 'pie' represents a Niche. The colour of the pie matches the colour of the Niche in the Segmentation Matrix.
2. Relative Market Attractiveness is calculated from the Scores and Weights entered in the Market Attractiveness Scorecard. Plots are positioned on the Y-Axis.
3. Relative Competitive Strength is calculated from the Scores and Weightings entered in the Competitive Strength and Criteria Scorecards. Plots are positioned on the X-Axis.
4. The Diameter of each Pie is directly proportional to Volume or Revenue accruing to the Niche. Corresponding data was entered via the Market History And Forecast Data Editor.
5. The Angle of Pie Slice is directly proportional to the Host Company’s share. Corresponding data was entered via the Market History And Forecast Data Editor.

A 'key' can be revealed on the left-hand side of the chart by clicking and dragging the chart edge. 'Hotspots', accessed by moving the cursor over the matrix provide on-screen information about the Niche, Volume (or Revenue), Market Attractiveness, Competitive Strength, and other relevant information. The matrix can also be copied and pasted into a compatible graphics or presentation package by means of the Right-Hand Mouse Click / 'Copy to Clipboard' function.

The 'Select Directional Policy Matrix' Dialogue

MATRIX V5 is an 'expert user' software tool which provides great flexibility when plotting the Directional Policy Matrix. Tabs on the 'Select Directional Policy Matrix' dialogue give the user choice in the format and detail of the plot.

To open the 'Select Directional Policy Matrix' dialogue, click the 'Directional Policy Matrix' button (above) which is located upon the toolbar.

To display the Directional Policy Matrix shown earlier, the following settings are required within the ‘Select Directional Policy Matrix’ Dialogue:

1. Plot: Select ‘Scenario In Focus’. Ensure the ‘Equalise Pie Dimensions’ Tick Box remains blank
2. Scope: Select ‘Ideal / Threshold’. Tick the ‘Use Niche Colours’ Tick Box
3. Data: Select ‘Revenue’
4. Time: Drop Down Start Year ‘2006’ and End Year ‘2010’
5. Axes: Ensure the ‘Reverse X-Axis’, ‘View X-Axis Scale’ and ‘View Y-Axis Scale’ Tick Boxes remain blank. Tick the ‘View Sector Captions’ Tick Box.
6. Also, tick the ‘View Key’ Tick Box

Clicking the ‘Plot’ button now reveals the required example.

The Tabs In Detail ...

1. Plot
Enables a plot of the Scenario in Focus , or a comparison of two Scenarios .

2. Scope
Options include:

• Ideal / Threshold . In this instance the 100% and 0% limits are set by an 'Ideal' Niche (or competitor) which has been derived from the highest 'Market Attractiveness' scores across all Niches (or competitor scores within a Niche) and a theoretical 'Threshold' Niche (or competitor) which has been derived from the lowest 'Market Attractiveness' scores across all Niches (or competitor scores within a Niche).
• Best / Worst . In this instance the 100% and 0% limits are set by the most attractive, and the list attractive Niches (or the most competitive and the least competitive Suppliers within a Niche). Note that one Niche will always be located on the top edge of the matrix and one will always be located on the base edge.

3. Data
Depending upon the options selected in File / Preferences (Input and Analysis), enables either Volume, or Revenue based analysis. Note that the area covered by each 'pie' MAY be different in each case, but the co-ordinates of the pies (for equivalent Niches) will remain identical.

4. Time
Enables the user to define the 'Start' and 'End' dates for the plot.

5. Axes
Enables a 'Conventional' representation for the Directional Policy Matrix in which the 100% mark is to the left , or the 'Reverse X-Axis' view in which the 100% mark is to the right . Also enables scales to be plotted on both Axes.
 

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