In This Article

  1. Introduction
  2. The Two Dimensions
  3. The Nine-Cell Matrix
  4. Strategic Recommendations
  5. How to Apply
  6. Conclusion

Introduction

The Shell Directional Policy Matrix (DPM) is a portfolio planning tool developed by Shell Chemical Company in the 1970s. Similar to the GE-McKinsey Matrix, it uses a 3×3 grid but focuses specifically on business sector prospects and the company's competitive capabilities.

The matrix helps organizations decide how to allocate resources among different business units or product lines based on the attractiveness of the market and their ability to compete.

The Two Dimensions

Business Sector Prospects (Vertical Axis)

Measures the attractiveness of the industry or market:

  • Market growth rate
  • Market quality (profitability potential)
  • Industry situation (competitive intensity)
  • Environmental factors

Rated as: Unattractive, Average, or Attractive

Company's Competitive Capabilities (Horizontal Axis)

Measures the company's ability to compete in that sector:

  • Market position (share, trend)
  • Production capability
  • Product research and development
  • Cost position

Rated as: Weak, Average, or Strong

The Nine-Cell Matrix

Prospects ↓ / Position → Weak Average Strong
Attractive Double or Quit Try Harder Leader
Average Phased Withdrawal Custodial Growth
Unattractive Disinvest Phased Withdrawal Cash Generator

Strategic Recommendations

Leader (Strong/Attractive)

Invest heavily to maintain leadership position. Maximize market share and growth.

Try Harder (Average/Attractive)

Invest to improve competitive position. Attractive market justifies effort to strengthen position.

Double or Quit (Weak/Attractive)

Either invest heavily to build position or exit. The market is attractive but requires significant investment.

Growth (Strong/Average)

Selectively invest to capitalize on strong position. Focus on profitable segments.

Custodial (Average/Average)

Maintain position without major investment. Focus on profitability over growth.

Phased Withdrawal (Weak/Average or Average/Unattractive)

Gradually reduce investment and harvest cash. Prepare for eventual exit.

Cash Generator (Strong/Unattractive)

Milk the business for cash. Minimize investment, maximize short-term returns.

Disinvest (Weak/Unattractive)

Exit the business. Sell or liquidate to free resources for better opportunities.

How to Apply the Matrix

  1. Define Business Units: Identify SBUs or product lines to analyze
  2. Assess Sector Prospects: Evaluate market attractiveness factors
  3. Evaluate Competitive Position: Assess company's strengths in each market
  4. Plot on Matrix: Position each business unit in the appropriate cell
  5. Determine Strategy: Apply the recommended strategy for each cell
  6. Allocate Resources: Distribute resources according to strategic priorities

Example Application

A chemical company analyzes three product lines:

  • Specialty polymers: Attractive market, strong position → Leader (invest)
  • Commodity plastics: Average market, average position → Custodial (maintain)
  • Industrial solvents: Unattractive market, weak position → Disinvest (exit)

Conclusion

Key Takeaways

  • Shell DPM is a 3×3 portfolio planning matrix
  • Two dimensions: Business Sector Prospects and Competitive Capabilities
  • Provides nine strategic positions with specific recommendations
  • Helps allocate resources across business units
  • Similar to GE-McKinsey Matrix but with different terminology
  • Useful for diversified companies with multiple business units

Special Thanks to Mr. Kavit Kaul, JBIMS batch of 2009 for sharing his marketing notes.