Beatrice Lang
The GE matrix, also known as the GE McKinsey matrix, is a model used in marketing to assess the strength of a corporation's strategic business unit (SBU). It was developed by McKinsey and Company consultancy group in the 1970s to help General Electric manage its large and complex portfolio of unrelated products and improve the returns on its investments. The GE matrix is plotted on a two-dimensional, 3x3 grid, with the Y-axis measuring market attractiveness and the X-axis measuring business unit strength, both on a scale of high, medium, or low. The GE matrix is considered an extension and improvement over the BCG matrix, offering more flexibility and taking into account a wider range of factors.
| Characteristics | Values |
|---|---|
| Purpose | Assess the strength of a strategic business unit (SBU) of a corporation |
| Type of Analysis | Multifactorial analysis |
| Number of Cells | 9 |
| Axes | Market Attractiveness, Business Unit Strength |
| Market Attractiveness Factors | Market size, market growth rate, market profitability, pricing trends, competitive intensity, overall risk, entry barriers, product/service differentiation, demand variability, segmentation, distribution channels |
| Business Unit Strength Factors | Assets, holdings, market share, brand position and loyalty, innovation, environmental/government concerns |
| Investment Strategy | Grow, selectivity, harvest |
| Comparison to BCG Matrix | More complex, takes longer to construct and implement, allows more flexibility and is not limited to products |
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What You'll Learn
GE matrix vs BCG matrix
The GE matrix, also known as the McKinsey matrix or the Boston Consulting Group matrix, is a tool used for strategic business management and planning. It was first developed by General Electric (GE) in the 1970s and is now widely used in the corporate world. The GE matrix is considered by many to be an extension and even an improvement over the BCG model.
The GE matrix is a two-dimensional, 3 x 3 grid that analyses market attractiveness and competitive strength to determine the overall strength of a strategic business unit (SBU) of a corporation. The Y-axis measures market attractiveness based on a high, medium, or low score, while the X-axis measures business unit strength on a similar scale. Market attractiveness deals with external factors such as market size, market growth rate, and market profitability, while competitive strength deals with internal factors such as assets, competencies, brand strength, profit margins, innovation, and quality. The GE matrix can be used to determine if an organisation should enter a market or reposition a product line or brand within a market.
The BCG matrix, or Boston Consulting Group growth-share matrix, is a simpler tool that is widely used in industry. It is a two-dimensional model that evaluates business units based on market growth rate and relative market share. The BCG matrix helps corporations analyse product lines or business units, prioritise them, and allocate resources. It classifies business units into four categories: stars, cash cows, dogs, and question marks.
The key difference between the two matrices is that the BCG matrix primarily focuses on the relative market share and market growth rate of a company's business units, while the GE matrix takes into account a broader range of factors, including industry attractiveness, market size, competition, and technological changes. The GE matrix is considered more complex and detailed, making it more suitable for academic settings or larger companies with complex product portfolios.
Both models have their advantages and disadvantages, and the choice between the two depends on the company's needs, product portfolio, and resources. While the BCG matrix is simple and easy to understand, the GE matrix offers more flexibility and a more comprehensive analysis of strategic options.
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How to allocate resources
The GE matrix, also known as the GE McKinsey matrix, is a model used to assess the strength of a strategic business unit (SBU) of a corporation. It can be used to determine how to allocate resources and is considered an extension, and even an improvement, of the Boston Consulting Group (BCG) matrix. The GE matrix was developed by McKinsey & Company consultancy group in the 1970s when General Electric was managing a large and complex portfolio of unrelated products and was unsatisfied with the returns from its investments.
The GE matrix is plotted on a two-dimensional, 3 x 3 grid, or nine-box framework, and measures business unit strength against industry attractiveness. The Y-axis measures market attractiveness based on a high, medium, or low score, while the X-axis measures business unit strength on a similar scale.
Industry attractiveness indicates how easy or difficult it will be for a company to compete in the market and earn profits. It takes into account external factors such as market size, market growth rate, market profitability, pricing trends, competitive intensity, overall risk, and entry barriers.
Business unit strength, on the other hand, considers internal factors such as assets, competencies, brand strength, profit margins, innovation, and quality.
When using the GE matrix to determine how to allocate resources, it is important to first identify which box of the matrix an SBU falls into: grow, selectivity, or harvest. SBUs that are classified as “grow” are expected to yield high returns in the future and attract various company investments. These investments should be directed towards research and development, acquisition of other SBUs, extensive advertisements, and expanding production capacity.
"Selectivity" or "Earnings" SBUs are those with a lot of ambiguity and uncertainty. They should generally only be invested in if there is money left over after investing in "grow" business units and if there is a belief that these units will generate cash in the future.
Poor-performing units in an unattractive industry should only be invested in if they can make more money than is put into them; otherwise, they should be liquidated.
By using the GE matrix to assess the strength of different strategic business units, companies can make more informed decisions about how to allocate their resources and improve their performance.
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Assessing strategic business units
The GE/McKinsey Matrix is a strategic planning tool used to assess and prioritize strategic business units (SBUs) or product lines within a company. It was developed in the 1970s by the consulting firm McKinsey & Company in collaboration with General Electric (GE), one of the largest multinational conglomerates at the time. The GE/McKinsey Matrix is considered an extension and improvement of the Boston Consulting Group's (BCG) Growth-Share Matrix.
The GE/McKinsey Matrix is structured as a 3x3 grid comprising nine cells. The Y-axis measures market attractiveness based on a high, medium, or low score, while the X-axis measures business unit strength on the same scale. Market attractiveness deals with different external factors, such as market size, market growth rate, market profitability, pricing trends, competitive intensity, overall risk, and entry barriers. Internal factors of business unit strength include assets, competencies, brand strength, profit margins, innovation, and quality.
Each SBU is plotted on the matrix based on their scores across the two dimensions. The matrix provides a clear visual representation of where each SBU stands, helping stakeholders quickly grasp complex strategic insights. Depending on the cell that each SBU occupies, strategic actions such as investing, divesting, or maintaining the current level of operations can be derived.
The GE/McKinsey Matrix offers several benefits for strategic planning. Firstly, it provides a comprehensive analysis by incorporating multiple factors for both dimensions, resulting in a more detailed evaluation of each SBU compared to simpler models. Secondly, it aids in portfolio management by helping maintain an optimal mix of high-potential and mature business units, balancing risk and growth potential. Thirdly, it assists in resource allocation by rationalizing resource distribution among various SBUs, ensuring that investments are directed towards promising and strong business units.
Despite its advantages, the GE/McKinsey Matrix also presents certain limitations. Firstly, the broad set of criteria can lead to increased complexity in data collection and analysis, requiring more time and resources. Secondly, assessing qualitative factors like management quality or brand strength can result in subjective judgments that impact the accuracy of the analysis. Thirdly, rapid changes in market conditions and competitive landscapes may require frequent updates to the assumptions and inputs used in the matrix. Finally, the focus on strategic business units might overlook synergies and interactions among different parts of the organization.
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Market attractiveness and competitive strength
The GE Matrix, also known as the GE McKinsey Matrix, is a strategic business planning tool that assists companies in making informed decisions. The GE Matrix was developed by the General Electric Company and McKinsey consultants in the 1970s. It is considered an extension and improvement of the Boston Consulting Group (BCG) matrix. The GE Matrix provides an analytical approach to portfolio management, helping businesses prioritize their product lineup in terms of market attractiveness and business unit strength.
Market attractiveness, represented on the Y-axis, deals with external factors that can impact a business's offerings. These factors include market size, market growth rate, market profitability, pricing trends, competitive intensity, overall risk, and entry barriers. Market attractiveness also considers opportunities to differentiate products and services, demand variability, and segmentation.
Business unit strength, represented on the X-axis, involves internal factors such as assets, competencies, brand strength, profit margins, innovation, quality, market share, and current capacity and capability.
The GE Matrix is plotted on a two-dimensional, 3x3 grid. Each axis is measured on a scale of high, medium, or low. The location of each strategic business unit (SBU) on the grid indicates whether the company should invest and grow, hold, or harvest specific business units. For example, units that land in the high market attractiveness and high business strength quadrant generally have a high market share and promise high returns in the future, so they should be invested in. Conversely, units that land in the low market attractiveness and low business strength quadrant are poor performers in an unattractive industry and should only be invested in if they can make more money than is put into them. Otherwise, they should be liquidated.
The GE Matrix is a versatile strategic planning tool that helps businesses make better decisions concerning their business units and product development. It assists in evaluating the potential of different business units or product lines, guiding decisions on resource allocation and strategy.
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GE McKinsey matrix applications
The GE McKinsey matrix, also known as the GE-McKinsey nine-box matrix, is a strategic framework that can be used to assess the strength of a corporation's strategic business unit (SBU). It was developed by McKinsey and Company consultancy group in the 1970s to help General Electric make investment decisions about its various SBUs.
The GE matrix is plotted on a two-dimensional, 3x3 grid, with the Y-axis measuring market attractiveness based on a high, medium, or low score, and the X-axis measuring business unit strength on a similar scale. Market attractiveness deals with external factors such as market size, market growth rate, market profitability, pricing trends, competitive intensity, overall risk, and entry barriers. Business unit strength, on the other hand, deals with internal factors such as assets, competencies, brand strength, profit margins, innovation, and quality.
The GE McKinsey matrix has several applications, including:
- Analyzing and prioritizing business portfolios: The matrix can be used to determine which markets might be best for a company's products. It helps businesses understand which products and services are most important to their growth, allowing them to focus their resources and time accordingly.
- Resource allocation: The GE matrix can help identify where more resources are needed and facilitate the reallocation of resources to higher-priority projects.
- Strategic planning: By providing insight into each business unit or product's direction, the matrix can assist in future strategic planning.
- Risk assessment: The matrix can help assess potential risks. For example, products placed in the lower right grid box might be at higher risk due to low market attractiveness and competitive strength.
- Department alignment: As a visual tool, the GE matrix makes it easier to communicate priorities and decisions across an organization, discouraging siloed work.
- Investment prioritization: The GE matrix helps decentralized corporations prioritize their investments among different business units. Instead of relying solely on each unit's projections of its future prospects, companies can use the matrix to assess units based on their market attractiveness and competitive strength.
Overall, the GE McKinsey matrix is a valuable tool for strategic portfolio management, PMOs, and corporate-level decision-makers. It provides a simple way to assess the performance of different business units or product portfolios and inform strategic investment planning.
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Frequently asked questions
The GE matrix, also known as the GE McKinsey matrix, is a model used to assess the strength of a corporation's strategic business unit (SBU). It was developed by McKinsey & Company consultancy group in the 1970s to help General Electric manage its portfolio of unrelated products.
The GE matrix is plotted on a two-dimensional, 3x3 grid. The Y-axis measures market attractiveness (based on factors like market size, growth rate, and profitability) and the X-axis measures business unit strength. Each axis is scored as high, medium, or low.
The BCG matrix consists of four cells and focuses on market share and market growth. The GE matrix, with nine cells, is more complex and takes into account a wider range of factors. It is considered more flexible as it can be applied to products, product lines, services, or brands.
The GE matrix helps businesses understand the overall strength of their SBUs and make decisions about market entry or product repositioning. It also aids in developing strategies to maximise returns from available resources and provides insights into potential market opportunities.
The GE matrix helps businesses decide where to invest their resources. It categorises business units into "grow", "selectivity/earnings", or "harvest". "Grow" business units are expected to yield high returns and attract investment in R&D, advertising, and acquisitions. "Selectivity/Earnings" units are more uncertain and are invested in only if there are funds left over from "grow" units. "Harvest" units are poorly performing and should be invested in only if they can generate more money; otherwise, they should be liquidated.
