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GE/McKinseyMatrix

QuickMBA/Strategy/GEMcKinseyMatrix

GE/McKinseyMatrix
InconsultingengagementswithGeneralElectricinthe1970's,McKinsey&
CompanydevelopedaninecellportfoliomatrixasatoolforscreeningGE'slarge
portfolioofstrategicbusinessunits(SBU).Thisbusinessscreenbecameknownas
theGE/McKinseyMatrixandisshownbelow:

GE/McKinseyMatrix

BusinessUnitStrength
High Medium Low

High

Medium

Low

TheGE/McKinseymatrixissimilartotheBCGgrowthsharematrixinthatitmaps
strategicbusinessunitsonagridoftheindustryandtheSBU'spositioninthe
industry.TheGEmatrixhowever,attemptstoimproveupontheBCGmatrixinthe
followingtwoways:
TheGEmatrixgeneralizestheaxesas"IndustryAttractiveness"and
"BusinessUnitStrength"whereastheBCGmatrixusesthemarketgrowthrate
asaproxyforindustryattractivenessandrelativemarketshareasaproxyfor
thestrengthofthebusinessunit.
TheGEmatrixhasninecellsvs.fourcellsintheBCGmatrix.
Industryattractivenessandbusinessunitstrengtharecalculatedbyfirstidentifying
criteriaforeach,determiningthevalueofeachparameterinthecriteria,and
multiplyingthatvaluebyaweightingfactor.Theresultisaquantitativemeasureof
industryattractivenessandthebusinessunit'srelativeperformanceinthatindustry.
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GE/McKinseyMatrix

IndustryAttractiveness
TheverticalaxisoftheGE/McKinseymatrixisindustryattractiveness,whichis
determinedbyfactorssuchasthefollowing:
Marketgrowthrate
Marketsize
Demandvariability
Industryprofitability
Industryrivalry
Globalopportunities
Macroenvironmentalfactors(PEST)
Eachfactorisassignedaweightingthatisappropriatefortheindustry.Theindustry
attractivenesstheniscalculatedasfollows:
Industryattractiveness= factorvalue1xfactorweighting1
+ factorvalue2xfactorweighting2

.
.

+factorvalueNxfactorweightingN

BusinessUnitStrength
ThehorizontalaxisoftheGE/McKinseymatrixisthestrengthofthebusinessunit.
Somefactorsthatcanbeusedtodeterminebusinessunitstrengthinclude:
Marketshare
Growthinmarketshare
Brandequity
Distributionchannelaccess
Productioncapacity
Profitmarginsrelativetocompetitors
Thebusinessunitstrengthindexcanbecalculatedbymultiplyingtheestimated
valueofeachfactorbythefactor'sweighting,asdoneforindustryattractiveness.

PlottingtheInformation
Eachbusinessunitcanbeportrayedasacircleplottedonthematrix,withthe
informationconveyedasfollows:
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GE/McKinseyMatrix

Marketsizeisrepresentedbythesizeofthecircle.
Marketshareisshownbyusingthecircleasapiechart.
Theexpectedfuturepositionofthecircleisportrayedbymeansofanarrow.
Thefollowingisanexampleofsucharepresentation:

Theshadingoftheabovecircleindicatesa38%marketshareforthestrategic
businessunit.Thearrowintheupwardleftdirectionindicatesthatthebusinessunit
isprojectedtogainstrengthrelativetocompetitors,andthatthebusinessunitisin
anindustrythatisprojectedtobecomemoreattractive.Thetipofthearrow
indicatesthefuturepositionofthecenterpointofthecircle.

StrategicImplications
Resourceallocationrecommendationscanbemadetogrow,hold,orharvesta
strategicbusinessunitbasedonitspositiononthematrixasfollows:
Growstrongbusinessunitsinattractiveindustries,averagebusinessunitsin
attractiveindustries,andstrongbusinessunitsinaverageindustries.
Holdaveragebusinessesinaverageindustries,strongbusinessesinweak
industries,andweakbusinessinattractiveindusties.
Harvestweakbusinessunitsinunattractiveindustries,averagebusinessunits
inunattractiveindustries,andweakbusinessunitsinaverageindustries.
Therearestrategyvariationswithinthesethreegroups.Forexample,withinthe
harvestgroupthefirmwouldbeinclinedtoquicklydivestitselfofaweakbusinessin
anunattractiveindustry,whereasitmightperformaphasedharvestofanaverage
businessunitinthesameindustry.
WhiletheGEbusinessscreenrepresentsanimprovementoverthemoresimple
BCGgrowthsharematrix,itstillpresentsasomewhatlimitedviewbynot
consideringinteractionsamongthebusinessunitsandbyneglectingtoaddressthe
corecompetenciesleadingtovaluecreation.Ratherthanservingastheprimary
toolforresourceallocation,portfoliomatricesarebettersuitedtodisplayingaquick
synopsisofthestrategicbusinessunits.

RecommendedReading
DavidJ.Collis,AndrewCampbell,MichaelGoold,HarvardBusinessReviewonCorporateStrategy
(HarvardBusinessReviewPaperbackSeries)
QuickMBA/Strategy/GEMcKinseyMatrix
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GE/McKinseyMatrix

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