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
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 firm’s
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
 BCG & GE Matrix
Relative Position
(Market Share) Business Strength

Market Attractiveness
Market Growth
 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
 Classification
Business Strength
Strong Medium Weak
5.00
High
Market Attractiveness

3.67
Medium

2.33
Low

5.00 3.67 2.33 1.00

 Market Attractiveness

 Annual market growth

rate
 Overall market size
 Historical profit margin
 Current size of market
 Market structure
 Market rivalry
 Demand variability
 Global opportunities
 Business Strength

 Current market share

 Brand image
 Brand equity
 Production capacity
 Corporate image
 Profit margins relative to
competitors
 R & D performance
 Managerial personal
 Promotional effectiveness
 Strategies
 Protect Position
• Invest to grow
• Effort on maintaining strength

 Invest to Build
• Challenge for leadership
• Build selectively on strength

 Build Selectively
• Invest in most attractive segment
• Build up ability to counter competition
• Emphasize profitability by raising productivity
 Strategies
 Protect & Refocus
• Manage for current earning
• Defend strength
 Selectivity for Earning
• Protect existing program
• Investments in profitable segments
 Build Selectively
• Specialize around limited strength
• Seek ways to overcome weaknesses
• Withdraw if indication of sustainable
growth are lacking
 Strategies
 Limited Expansion for Harvest
• Look for ways to expand
 Manage for Earnings
• Protect position in profitable segment
• Upgrade product line
• Minimize investment

 Harvest
• Sell at time that will maximize cash value
• Cut fixed costs and avoid investment
meanwhile
 Factors Underlying Market
Attractiveness
Factors Weight Rating Value =
(1 –5) (Weight * Rating)
Resource availability 0.20 2.5 0.5
Overall market size 0.15 3 0.45

Annual Market growth rate 0.20 3 0.6

Profitability 0.15 3 0.45

Competitive intensity 0.10 2.5 0.25

Technological requirements 0.20 2.5 0.5

Total 1.0 2.75

 Factors Underlying Market
Strength
Factors Weight Rating Value =
(1 –5) (Weight * Rating)

Market share 0.15 5 0.75

New product development 0.10 3.5 0.35

Brand Image 0.10 4 0.40

Sales force 0.15 3 0.45

Pricing 0.15 3 0.45

Distribution capacity 0.10 4.5 0.45

Product quality 0.10 4.5 0.45

R&D Performance 0.15 3 0.45

Total 1.0 3.75

 Classification
Business Strength
Strong Medium Weak
5.00
High
Market Attractiveness

3.67
Medium

2.33
Low

5.00 3.67 2.33 1.00

Case Study
 Overview
High Business Strengths Low

High
Market Attractiveness

Attractive

Moderate
Attractive

Unattractive

Low
 Case Study of TATA

 TATA

• IT (Information Technology) : TCS

• Consumer Durable : Automobiles,
Titan etc.
•Textiles : Tata Fabrics, West Sides etc
 GE Matrix For TATA
High Business Strengths Low
High
IT
Market Attractiveness

Consumer
Durables

Low Textiles
 BCG v/s GE
BCG GE
Market
Market Growth
Attractiveness
Market share Market strength

4 cell 9 cell
Multi Business
Multi Products Units

Primary tools Secondary tools

 Industry/Market 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
 Criteria which makes a market attractive

• Market size • Variability of demand

• Growth • Rate of technological
• rate change
Overall returns in the • Volatility
• industry • Availability of market
• Industry profitability intelligence
• Intensity of competition • Availability of work force
• Profit margins • Global opportunities
• Differentiation • PEST factors
• Industry fluctuations • Entry and exit barrier
Customer/supplier • Government regulation
relations
 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
 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
 The GE/ McKinsey Matrix
High strength Medium strength Low strength

High X Cell 1 Y Cell 2 Y Cell 3

attractiveness

Medium Y Cell 4 Y Cell 5 Y Cell 6

attractiveness

Low Y Cell 7 Y Cell 8 Z Cell 9

attractiveness
 The matrix

• Arranges the company’s 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
 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
 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
 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
 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
 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
 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
 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