The General Electric (ge) – McKinsey Matrix
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The General Electric (GE)/ McKinsey Matrix
General Electronic is a leading corporation in United States (US). They have large number of strategic Business Units (SBUs), however they were very disappointed with the profit they made from those units so they were looking for concepts and techniques for strategic business planning. In 1971, McKinsey & Co., a consulting company in the USA, developed a nine-dimensional portfolio matrix for the General Electronic. This matrix helped GE to differentiate the potential for future profit in each of their SBUs. This matrix is also known as the industry attractiveness – business strength matrix and the nine box matrix. (Cipher-information into knowledge, 2006)
The GE/ McKinsey matrix is similar to the Boston Consulting Group (BCG) matrix or growth – share matrix. BCG matrix maps strategic business units on a grid of the industry and SBUs position in the industry. However since General Electric was using the Boston Consulting Group matrix to analyze their business portfolios, it suggests that BCG matrix was not flexible enough to take broader issues into account. So the GE matrix attempts to improve the BCG matrix by generalizing the axes as “Industry Attractiveness” and “Business Unit Strength” and by increasing the four cells of BCG matrix to nine cells.
The GE matrix cross-references market attractiveness and business position using three criteria for each – high, medium and low. The “market attractiveness” focuses on the variables that are related to market itself. Some of the examples could be the rate of market growth, market size, potential barriers to entering the market, the number and size of competitors, the actual profit margins currently enjoyed, and the technological implications of involvement in the market. The “Business position” includes the businesss strengths and weaknesses in a variety of fields. These include its position in relation to its competitors, and the businesss ability to handle product research, development and ultimate production. Furthermore considers how well placed the management is to deploy these resources.
The aim of the GE matrix portfolio analysis is “to analyze the current business portfolio and decide which businesses should receive more or less investment Develop growth strategies for adding new products and businesses to the portfolio Decide which businesses or products should no longer be retained” (Value based management.net, 2011).
GE matrix can be used as a strategic management tool which helps businesses to analyze their current portfolio and evaluate the possibilities for making changes. The tool simultaneously compares the internal and external business / industry factors alongside market size and share. The matrix comprises 9 squares in a grid format with the Y axis showing the industry attractiveness against the X axis which shows business strengths. This grid can be examined as three main areas; top left segment, middle three squares and bottom right segment.
The businesses which falls in the top left segment is very strong and the market very attractive, these businesses should focus on its investing their resources effectively. Middle three squares; here the business and the market attractiveness are neither too strong nor too weak. Discussion is needed to decide whether renewed investment should be injected to boost business, moving