Summary of the GE Matrix. Abstract
The GE matrix / McKinsey matrix (MKM) 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
3) Decide which businesses or products should no
longer be retained.
MKM versus BCG Matrix
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 MKM works with a 3*3 grid, while the BCG Matrix has only 2*2. This also allows for more sophistication.
- 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
approach to implementation of portfolio analysis (using the MKM) could look like this:
Some important limitations of the MKM are:
- Valuation of the realization of the various factors
- 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".
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