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We have come up with the new article which can increase your basic marketing concepts multi fold times. This is a simple explanation of ‘GE-McKinsey Matrix‘ with some intriguing facts like: Why was it introduced, how can it be used for analyses & can help in taking business decisions.
This is a well-known matrix that is used for the business units’ analyses in order to find out which are the units where the company needs to invest, divest or hold.
Why did this matrix come into the picture? What about the BCG matrix then?
We have already penned down the detailed concept of BCG. Therefore, we would request you to first have a look at that (BCG Matrix) as we have already mentioned the limitations of BCG. Now the BCG matrix takes into consideration two factors into the account: market growth & relative market share, overlooking other factors involved in the competitive space. Therefore, this was one of the major reasons that there was a need of the new framework as well. Hence the GE-McKinsey matrix came up.
GE Matrix Definition
As per McKinsey, the GE-McKinsey nine-box matrix is a strategy tool that offers a systematic approach for the multi-business corporation to prioritize its investments among its business units.
In 1970’s, General Electric asked its consultants & McKinsey, to develop a portfolio management model that would suit it needs as GE, at that time was having more than 150 business units & they had been using the BCG matrix. But with the vast number of businesses they were into, a need was felt by GE to create a sophisticated model to decide which of the units deserved development funds.
Have a look at the snapshot. It is a pretty simple matrix having 2 dimensions in it – industry attractiveness & business unit strength as the criteria for its measurements & nine quadrants giving insights based on three categories – Invest, Hold & Divest. A corporation can plot its business units (or products) on the GE Matrix on the basis of the attractiveness of the industry concerned and the competitive strength of the units.
The three categories: –
- Grow/Invest: Units that land in this section of the grid generally have high market share and promise high returns in the future so should be invested in without any hesitation.
- Hold: Units that land in this section of the grid can be ambiguous and should only be invested in if there is money left over after investing in the profitable units.
- Harvest/Divest: Poor performing units in an unattractive industry end up in this section of the grid. This should only be invested in if they can make more money than is put into them. Otherwise they should be liquidated.
Now as we know the limitations of BCG Matrix, two dimensions of GE matrix are very much wide taking numerous factors into the account.
Industry Attractiveness: Multiple factors like market size, market growth, PESTEL analysis etc.
Business Unit Strength: Factors affecting market share, brand equity, growth in market share etc.
This was only the basic concept of GE-Mckinsey matrix & in the upcoming articles we will tell you how to plot business units on this matrix. Till then, learn more concepts from our articles which will give you a perspective of the marketing scenario today. Happy learning!