GE/McKinsey Matrix

Definition

The GE/McKinsey Matrix, also known as the GE Matrix or McKinsey Matrix, is a strategic tool used for analyzing the relative strengths and weaknesses of business units or brands within a large diversified corporation. The matrix helps in making investment decisions based on two primary factors:

1. Market Attractiveness: This dimension includes factors such as the market growth rate, market size, profitability, competitive intensity, and entry barriers.
2. Business Unit Strength: This dimension looks at factors like market share, product quality, brand strength, customer loyalty, and cost structure.

Each business unit or brand is evaluated on these two dimensions and plotted on a grid comprising nine cells, each representing different strategic possibilities. Businesses positioned towards the top-left of the grid are considered to be prime candidates for investment, while those towards the bottom-right are often considered for divestment.

Examples

1. High Market Attractiveness & High Business Strength:

   • Example: An innovative tech startup in a rapidly growing AI industry with a strong product line and significant market share could fall into this category. Investment is highly recommended.

2. Low Market Attractiveness & Low Business Strength:

   • Example: A legacy media company with declining subscriptions and weak digital presence. Divestment or strategic repositioning might be necessary.

3. Intermediate Position:

   • Example: A mid-sized food and beverage company in a stable, moderately competitive market. This unit requires careful analysis and tactical investment for growth.

Frequently Asked Questions

What are the key dimensions of the GE/McKinsey Matrix?

The matrix evaluates business units based on:

• Market Attractiveness: Factors such as market size, growth rate, and profitability.
• Business Strength: Aspects like market share, competitive position, and operational efficiency.

How does the GE/McKinsey Matrix differ from the Boston Matrix?

While both serve similar purposes, the GE Matrix is more complex and considers multiple factors for each dimension, unlike the Boston Matrix which focuses primarily on market growth rate and relative market share.

What is a potential disadvantage of using the GE/McKinsey Matrix?

A significant drawback is the subjective nature of evaluating market attractiveness and business strength, which may lead to inconsistent results if not approached rigorously.

What are the strategic implications of the matrix?

The matrix aids in deciding where to invest, divest, or maintain, offering a visual representation of the strategic positioning of business units.

How is market size represented in the GE/McKinsey Matrix?

Market size is typically represented by the diameter of pie charts plotted on the grid, where larger pies indicate larger markets.

Can industry attractiveness change over time?

Yes, factors influencing industry attractiveness, such as technological advancements or regulatory changes, can shift, altering the strategic positioning of business units.

Is it necessary for all businesses to use the GE/McKinsey Matrix?

It is particularly useful for large diversified corporations with multiple business units or product lines. Smaller businesses might not derive the same benefits.

Related Terms

Boston Matrix

A simpler strategic planning tool focusing on market growth rate and relative market share.

Strategic Business Unit (SBU)

A discrete entity within a corporation, treated as a unique unit for strategic planning purposes.

Portfolio Analysis

The process of evaluating the mix of business units within a corporation to allocate resources effectively.

Market Attractiveness

A measure of the potential of the industry or market segment in terms of growth prospects and profitability.

Competitive Strength

An assessment of a business unit’s position within its market, considering factors like market share and competitive advantage.

Online References

1. Investopedia: GE/McKinsey Matrix
2. MBASkool: GE McKinsey Matrix
3. Harvard Business Review: Tools and Models: GE/McKinsey Matrix

Suggested Books for Further Studies

1. “Competitive Strategy: Techniques for Analyzing Industries and Competitors” by Michael E. Porter.
2. “The McKinsey Way: Using the Techniques of the World’s Top Strategic Consultants to Help You and Your Business” by Ethan M. Rasiel.
3. “Strategic Management and Business Policy” by Thomas L. Wheelen and J. David Hunger.
4. “Cases in Strategic Management and Business Policy” by Lawrence R. Jauch and William F. Glueck.

Accounting Basics: “GE/McKinsey Matrix” Fundamentals Quiz

Thank you for journeying through the GE/McKinsey Matrix and challenging yourself with our quiz. Keep up the pursuit of strategic excellence!