GE Matrix

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The GE/ McKinsey Matrix

This is a form of portfolio analysis used forclassifying product lines or strategic business units

within a large company

It was developed by McKinsey for the US GeneralElectric Company

It assesses areas of the business in terms of two

criteria:

The attractiveness of the industry/market concerned The strength of the business

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How does it differ from the Boston Matrix?

There are similarities: Two dimensions are used to create a matrix

Each cell suggests an appropriate strategy

In both cases we are concerned with the future strategy for a

particular area (eg a division) within the firm

There are major differences The GE matrix involves a wider analysis of the firms operations

The dimensions of the GE matrix are industry attractiveness and

business strength (rather than market share and market growth) There are nine cells and a wider choice of strategies

The Boston Matrix focuses on products within the firms product

range The GE matrix can be extended to look at strategic business

units

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Strategic Business Units (SBUs)

Definitions of a SBU:

A particular product market combination that typically

requires its own business plan

A part of a company that is large enough to have its own

well defined markets, attract its own set of competitors anddemand tangible resources and capabilities from the

overall corporation

A discrete grouping within an organisation with delegated

responsibility for strategically managing a product/ serviceor group of product of services

A division within a large national or multinational company

is a SBU

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Industry attractiveness

The vertical axis of the matrix is industryattractiveness

This concerns the attractiveness to a firm of

entering, or remaining, in a particular industry Industry attractiveness is assessed by considering

a range of factors each of which is given a

weighting to produce a composite picture

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Criteria which makes a market attractive

Market size

Growth rate

Overall returns in the

industry

Industry profitability

Intensity of competition

Profit margins

Differentiation

Industry fluctuations

Customer/supplier

relations

Variability of demand

Rate of technological

change

Volatility

Availability of market

intelligence

Availability of work force

Global opportunities

PEST factors

Entry and exit barrier

Government regulation

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Business unit strength

The horizontal axis of the matrix is the strength of thebusiness unit

This refers to how strong the firm or SBU is in terms of the

market

A market might be very attractive but the firm lacksstrengths in terms of supplying the market

As with industry attractiveness a composite of industry

strength is based on weighting a range of factors

Notice that the Boston Matrix dimensions are included inthe GE matrix- market growth is an element of industry

attractive and market share is an element in business

strength

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Assessing internal strengths

Production capacity Production flexibility

Unit costs

R and D capabilities

Quality

Reliability

Company image

Product uniqueness

Cost and profitability

Profit margins relative tocompetitors

Manufacturing capability

Organisational skills

Market share Growth in market share

Marketing capabilities

Management competence

Skills of workforce

Distribution network

Size and quality of sales force

Service quality

Customer loyalty

Brand recognition

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The GE/ McKinsey Matrix

High strength Medium strength Low strength

High

attractiveness

X Cell 1 Y Cell 2 Y Cell 3

Medium

attractiveness

Y Cell 4 Y Cell 5 Y Cell 6

Lowattractiveness

Y Cell 7 Y Cell 8 Z Cell 9

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The matrix

Arranges the companys SBUs in three bands and nineboxes

Band X- Successful SBUsin which the business is

strong and the industry is attractive

Band Y- Mediocre SBUsin which either the industry isless attractive and/or the business is lacks strengths

Band Z- Disappointing SBUs - in which the business is

weak and the industry unattractive

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Recommended strategies

Grow -strong business units in attractive industries-average business units in attractive industries

-strong units in average industries

Hold -average business units in average industries

-strong units in weak industries

-weak units in attractive industries

Harvest -weak units in unattractive industries

-average units in unattractive industries-weak units in average industries

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Options for each cell

1Protect position -maintainposition

2Try harder - challenge the

leader

3Be choosy - keep an eyeof opportunitiesif risk is

low

4Harvest - reduce cost to

maximise profits 5Manage carefully

6Grow wisely - invest inattractive areas

7Regroup - preserve cash

flow, defend strengths

8Keep investment to aminimum- protect the

position that you have

9Get out

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Invest for growth (cell 1)

This is a very attractive market in which the firmhas great strength

Distinctive competences can be harnesses to good

advantages Recommended strategies:

-Invest for growth

-search for global opportunities

-maximise market share -seek dominance

-concentrate on building up strength in this area

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Manage selectively (cells 2 and 4)

These two cells record a high rating in eitherbusiness strength or industry attractiveness and a

medium rating in the other This suggests that

these SBUs show some promise

Recommended strategy: Investment for growth

Invest to expand existing segments

Search for new segments

Build on existing strengths in order maintain competitive ability and

even to challenge for leadership

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Manage selectively (cells 3,5,7)

In each case the SBU has certain positive featureshigh in one of the dimensions or middling in both

Recommended strategy Invest for earnings

Maintain/defend market position

Concentrate on selected segments

Specialise in niches where strengths could be built on

Invest selectively

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Harvest (cells 6 and 8)

In each case either market attractiveness orbusiness strength is low and other one is only

medium

Recommended strategies: Manage for cash Avoid unnecessary investment

Move to the most profitable segments

Prune product lines

Specialise in profitable niches

Consider exit

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Divest (Cell 9)

This is an unattractive market in which the firm hasno strength

Recommended strategy: Exit the market

Time the exit in order to sell at a time that will maximize cash value

In the meantime, cut fixed costs and avoid investment

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