The GE/ McKinsey Matrix This is a form of portfolio analysis used for classifying product lines or strategic business units within a large company It was developed by McKinsey for the US General Electric Company It assesses areas of the business in terms of two criteria: The attractiveness of the industry/market concerned The strength of the business
Business Strategy - the GE/ McKinsey Matrix 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 Business Strategy - the GE/ McKinsey Matrix 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 and demand tangible resources and capabilities from the overall corporation A discrete grouping within an organisation with delegated responsibility for strategically managing a product/ service or group of product of services A division within a large national or multinational company is a SBU Business Strategy - the GE/ McKinsey Matrix Industry attractiveness The vertical axis of the matrix is industry attractiveness 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 Business Strategy - the GE/ McKinsey Matrix 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 Business Strategy - the GE/ McKinsey Matrix Business unit strength The horizontal axis of the matrix is the strength of the business 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 lacks strengths 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 in the GE matrix- market growth is an element of industry attractive and market share is an element in business strength Business Strategy - the GE/ McKinsey Matrix 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 to competitors 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
Business Strategy - the GE/ McKinsey Matrix 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 Low attractiveness Y Cell 7 Y Cell 8 Z Cell 9 Business Strategy - the GE/ McKinsey Matrix The matrix Arranges the companys SBUs in three bands and nine boxes Band X - Successful SBUs in which the business is strong and the industry is attractive Band Y - Mediocre SBUs in which either the industry is less attractive and/or the business is lacks strengths Band Z - Disappointing SBUs - in which the business is weak and the industry unattractive Business Strategy - the GE/ McKinsey Matrix 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 Business Strategy - the GE/ McKinsey Matrix Options for each cell 1Protect position -maintain position 2Try harder - challenge the leader 3Be choosy - keep an eye of opportunities if risk is low 4Harvest - reduce cost to maximise profits 5Manage carefully
6Grow wisely - invest in attractive areas 7Regroup - preserve cash flow, defend strengths 8Keep investment to a minimum- protect the position that you have 9Get out
Business Strategy - the GE/ McKinsey Matrix Invest for growth (cell 1) This is a very attractive market in which the firm has 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 Business Strategy - the GE/ McKinsey Matrix Manage selectively (cells 2 and 4) These two cells record a high rating in either business 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
Business Strategy - the GE/ McKinsey Matrix Manage selectively (cells 3,5,7) In each case the SBU has certain positive features high 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
Business Strategy - the GE/ McKinsey Matrix Harvest (cells 6 and 8) In each case either market attractiveness or business 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 Business Strategy - the GE/ McKinsey Matrix Divest (Cell 9) This is an unattractive market in which the firm has no 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