GENERAL ELECTRICAL 9

CELL MODEL
GE / McKinsey Matrix
 
In consulting engagements with General
Electric in the 1970's, McKinsey &
Company developed a nine-cell portfolio
matrix. This business screen became
known as the GE/McKinsey Matrix.
The GE/McKinsey Matrix identifies the
optimum business portfolio as one that fits
perfectly to the company's strengths and
helps to exploit the most attractive industry
sectors or markets.
Thus, the objective of the analysis is to
position each SBU on the chart depending on
the SBU's Strength and the Attractiveness of
the Industry Sector or Market on which it is
focused. Each axis is divided into Low,
Medium and High, giving the nine-cell matrix
as depicted below.
Description of the Model
The General Electric Company, with the
aid of the Boston Consulting Group and
McKinsey and Company, pioneered the
nine cell strategic business screen
illustrated here. The circle on the matrix
represents the enterprise. Both axes are
divided into three segments, yielding nine
cells. The nine cells are grouped into three
zones:
The Green Zone consists of the three cells
in the upper left corner. If an enterprise
falls in this zone it is in a favorable
position with relatively attractive growth
opportunities. This indicates a "green
light" to invest in this product/service
The Yellow Zone consists of the three
diagonal cells from the lower left to the
upper right. A position in the yellow zone is
viewed as having medium attractiveness.
Management must therefore exercise
caution when making additional investments
in this product/service. The suggested
strategy is to seek to maintain share rather
than growing or reducing share
The Red Zone consists of the three cells in
the lower right corner. A position in the
red zone is not attractive. The suggested
strategy is that management should begin
to make plans to exit the industry.
Strategy Implications of
Attractiveness/Strength Matrix

 Businesses in upper left corner

◦ Accorded top investment priority
◦ Strategic prescription is grow and build
 Businesses in three diagonal cells
◦ Given medium investment priority
◦ Invest to maintain position
 Businesses in lower right corner
◦ Candidates for harvesting or divestiture
◦ May be candidates for an overhaul and
reposition strategy
 Allows for intermediate rankings between high
and low and between strong and weak
 Incorporates a wide variety of strategically
relevant variables
 Stresses allocating corporate resources to
businesses with greatest potential for
◦ Competitive advantage and
◦ Superior performance
The Attractiveness/Strength
Matrix
The GE / McKinsey matrix is similar to the
BCG growth-share matrix in that it maps
strategic business units on a grid of the
industry and the SBU's position in the
industry. The GE matrix however,
attempts to improve upon the BCG matrix
in the following two ways:

GE MODEL V/S BCG MATRIX

The GE matrix generalizes the axes as
"Industry Attractiveness" and "Business
Unit Strength" whereas the BCG matrix
uses the market growth rate as a proxy
for industry attractiveness and relative
market share as a proxy for the strength
of the business unit.
The GE matrix has nine cells vs. four cells
in the BCG matrix
The vertical axis of the GE / McKinsey matrix is
industry attractiveness, which is determined by
factors such as the following:
Market growth rate,
Market size,
Demand variability
Industry profitability
 Industry rivalry
Global opportunities
Macro-environmental factors (PEST)

Industry Attractiveness
Business Unit Strength
The horizontal axis of the GE / McKinsey
matrix is the strength of the business unit.
Some factors that can be used to determine
business unit strength include:
Market share
 Growth in market share
Brand equity
 Distribution channel access
 Production capacity
Profit margins relative to competitors
Each business unit can be portrayed as a
circle plotted on the matrix, with the
information conveyed as follows:
Market size is represented by the size of
the circle.
Market share is shown by using the circle
as a pie chart.
 The expected future position of the circle
is portrayed by means of an arrow.

Plotting the Information