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 The GE matrix / McKinsey matrix
is a model to perform a business portfolio analysis on the Strategic Business Units of a corporation.
A business
portfolio is the collection of Strategic Business Units that make up a
corporation. The optimal business portfolio is one that fits perfectly to
the company's strengths and helps to exploit the most attractive
industries or markets. A Strategic Business Unit (SBU) can either
be an entire mid-size company or a division of a large corporation, that
formulates its own business level strategy and has separate objectives
from the parent company.
The aim of a portfolio analysis is:
1) Analyze its
current business portfolio and decide which SBU's should receive more or
less investment, and
2) Develop growth strategies for adding new products and businesses to the
portfolio
3) Decide which businesses or products should no
longer be retained.
The BCG Matrix
(Boston Consulting Group Matrix) is the best-known portfolio planning framework. The GE /
McKinsey Matrix is a later and more advanced form of the BCG Matrix.
The McKinsey
matrix /
General Electric Matrix
The GE / McKinsey Matrix is more sophisticated than the BCG Matrix
in three aspects:
1.
Market (Industry) attractiveness
replaces market growth as the dimension of industry attractiveness. Market
Attractiveness includes a broader range of factors other than just the
market growth rate that can determine the attractiveness of an industry /
market. Compare also: Porter's Five
Competitive Forces model
2.
Competitive strength replaces
market share as the dimension by which the competitive position of each
SBU is assessed. Competitive strength likewise includes a broader range of
factors other than just the market share that can determine the
competitive strength of a Strategic Business Unit.
3. Finally the
GE / McKinsey Matrix works
with a 3*3 grid, while the BCG Matrix has only 2*2. This
also allows for more sophistication.
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Typical (external) factors that affect Market
Attractiveness:
- Market size
- Market growth rate
- Market profitability
- Pricing trends
- Competitive intensity / rivalry
- Overall risk of returns in the industry
- Entry barriers
- Opportunity to differentiate products and services
- Demand
variability
- Segmentation
- Distribution structure
- Technology development
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Typical (internal) factors that affect Competitive Strength of a Strategic Business Unit:
- Strength of assets and competencies
- Relative brand strength
(marketing)
- Market share
- Market share
growth
- Customer loyalty
- Relative cost position (cost structure compared with competitors)
- Relative
profit margins (compared to competitors)
- Distribution strength and production capacity
- Record of technological or other innovation
- Quality
- Access to financial and other investment resources
- Management strength
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Often, Strategic
Business Units are portrayed as a circle plotted in the GE McKinsey
Matrix, whereby:
- The size of the
circles represent the Market Size
- The size of the
pies represent the Market Share of the SBU's
- Arrows represent
the direction and the movement of the SBU's in the future
A six-step
approach to implementation of portfolio analysis (using the GE /
McKinsey Matrix) could look like this:
1. Specify drivers of each dimension. The corporation must carefully
determine those factors that are important to its overall strategy
2. Weight drivers. The corporation must assign relative importance weights
to the drivers
3. Score SBU's each driver
4. Multiply weights times scores for each SBU
5. View resulting graph and interpret it
6. Perform a review/sensitivity analysis using adjusted other weights
(there may be no consensus) and scores.
Some important limitations
of the GE matrix / McKinsey Matrix are:
- Valuation of the realization of the
various factors
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Aggregation of the indicators is difficult
-
Core competencies are not
represented
- Interactions
between Strategic Business Units are not considered
This method is
also called "Business Assessment Array" and "GE Business
Screen".
See also:
BCG Matrix |
ADL Matrix |
Positioning |
STRATPORT |
Profit
Pools |
Four
Trajectories of Industry Change | Product
Life Cycle |
Blue Ocean Strategy
More management models
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