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SHELL DIRECTIONAL POLICY MATRIX

Shell directional policy matrix (Portfolio analysis) only enter those segments where the company has
the opportunity to succeed.

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:
1. 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.
2. 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.
 3. Using the forecast and record method, when new products are being considered, actual
experience cannot be consulted.
4. 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

unfavorable (favorable 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 the GE matrix is labelled High The horizontal axis is labelled

‘Business Sector Prospects’ while the vertical axis is named ‘Company’s Competitive Capabilities/Position’
VERTICAL AXIS
Note that the y-axis labels are the reverse of those in the GE
McKinsey matrix and the lowest quadrant is labelled Strong
versus the GE matrix Low. The Shell directional policy matrix
can be used to analyse different business sectors in an
industry as well as competitors within a business sector

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