GE’s Directional Policy

Presented ByKartik Sharma(95)Harshvardan Yadav(102)

IntroductionIn 1968, then-CEO of GE, Fred Borch, asked McKinsey and Co. for an examination of GE’s corporate structure. McKinsey’s examination revealed that GE’s structure was inadequate, and they argued that “thefirm should be organized on more strategic lines, with greater concern for external conditions than internal controls.” The company was divided into strategic business units, or SBUs.

In 1971, GE asked McKinsey to evaluate strategic plans drawn up by the SBUs. According to GE, the BCG Growth Matrix, with only two performance measures, was insufficient for the company’s needs.From this request, the GE/McKinsey 9-block matrix, a system using a “dozen measures to screen for industry attractiveness and another dozen to screen for competitive position,” was developed

GE’s Business Portfolio

Appliances Aircraft Engines Capital Services Industrial Systems Lighting Medical Systems NBC Television Network Plastics Power Systems Transportation Systems

GE Matrix It is a strategic and marketing management

tool used for portfolio analysis.

It is used for analyzing portfolio of products, services, and strategic business units.

Also known as the GE/McKinsey 9-Block Matrix.

A Two dimensional matrix

The GE matrix is plotted on two dimensional grid. In most versions of the matrix:

The Y-Axis comprises Market Attractiveness measures.

The X-Axis comprises Business Strength measures.

9-Cell Grid

A nine cell grid emerges from dividing the Vertical axis into three regions

( High, Medium , Low) and

Horizontal axis into three regions ( Strong, Average, Weak)

Mar

ket A

ttrac

tiven

ess

Strong Medium WeakLo

wM

ediu

mH

igh

Business Strength

Annual market growth rate Overall market size Historical profit margin Current size of market Market structure Market rivalry Demand variability Global opportunities

Market Attractiveness

Current market share Brand image Brand equity Production capacity Corporate image R & D performance Managerial personal Promotional effectiveness Profit margins relative to competitors

Business Strength

GE Multifactor Portfolio MatrixIn

dust

ry A

ttra

ctiv

enes

sBusiness Strengths

High

High

Medium

Medium

Low

Low

Invest/Grow

Selectivity/earnings

Harvest /Divest

Protect Position

Invest to Build

Build selectively

Build selectively

Selectively manage for earnings

Limited expansion or harvest

Protect & refocus Divest Manage

for earnings

Invest to Build• Challenge for leadership• Build selectively on strength

Protect Position• Invest to grow• Effort on maintaining strength

Build Selectively• Invest in most attractive segment• Build up ability to counter competition• Emphasize profitability by raising productivity

Strategies-Segment 1

Protect & Refocus• Manage for current earning• Defend strength

Selectivity for Earning• Protect existing program• Investments in profitable segments

Build Selectively • Specialize around limited strength• Seek ways to overcome weaknesses• Withdraw if indication of sustainable growth are lacking

Strategies-Segment 2

Manage for Earnings• Protect position in profitable segment• Upgrade product line• Minimize investment

Limited Expansion for Harvest• Look for ways to expand without high risk

Harvest / Divest• Sell at time that will maximize cash value• Cut fixed costs and avoid investment meanwhile

Strategies-Segment 3

Case Study-LVMH(Moët Hennessy - Louis Vuitton)

A world leader in luxury, LVMH possesses a unique portfolio of over 60 prestigious brands. The Group is active in five different sectors:

Wines & Spirits Fashion & Leather Goods Perfumes & Cosmetics Watches & Jewelry Selective retailing

Thanks to its brand development strategy, and the expansion of its international retail network (more than 2,300 stores worldwide) .LVMH has had a strong growth dynamic since its creation in 1987.

Today, LVMH has 77,000 employees.

References• Arthur A. Thompson & A.J. Strickland., Strategic Management.• John A. Pearce, II, and Richard B. Robinson, Jr., Strategic

Management: Strategy Formulation and Implementation• David J. Collis, Andrew Campbell, Michael Goold, Harvard,

Business Review on Corporate Strategy• “Competition and Business Strategy in Historical Perspective,”

Harvard Business School• Various websites -

• www.Mydashboard.com• www.ValueBasedManagement.com• www.wikipedia.org• www.QuickMBA.com• www.redpointcoaching.com• www.lvmh.com