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Ge matrix

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Ge matrix

  1. 1. Business Strategy - the GE/ McKinsey Matrix
  2. 2. 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 Business Strategy - the GE/ McKinsey Matrix
  3. 3. 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 Business Strategy - the GE/ McKinsey Matrix
  4. 4. 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 Business Strategy - the GE/ McKinsey Matrix
  5. 5. Industry 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 Business Strategy - the GE/ McKinsey Matrix
  6. 6. Criteria which makes a market attractive • Market size • Growth rate • Overall returns in the industry • Industry profitability • Intensity of competition • Profit margins • Differentiation • Industry fluctuations • Customer/supplier relations • Variability of demand • Rate of technological change • Volatility • Availability of market intelligence • Availability of work force • Global opportunities • PEST factors • Entry and exit barrier • Government regulation Business Strategy - the GE/ McKinsey Matrix
  7. 7. 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 Business Strategy - the GE/ McKinsey Matrix
  8. 8. 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 Business Strategy - the GE/ McKinsey Matrix
  9. 9. The GE/ McKinsey Matrix High strength Medium strength Low strength High attractiveness X Cell 1 Y Cell 2 Y Cell 3 Medium attractiveness Y Cell 4 Y Cell 5 Y Cell 6 Low attractiveness Y Cell 7 Y Cell 8 Z Cell 9 Business Strategy - the GE/ McKinsey Matrix
  10. 10. 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 Business Strategy - the GE/ McKinsey Matrix
  11. 11. 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 Business Strategy - the GE/ McKinsey Matrix
  12. 12. 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 Business Strategy - the GE/ McKinsey Matrix
  13. 13. 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 Business Strategy - the GE/ McKinsey Matrix
  14. 14. 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 Business Strategy - the GE/ McKinsey Matrix
  15. 15. 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 Business Strategy - the GE/ McKinsey Matrix
  16. 16. 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 Business Strategy - the GE/ McKinsey Matrix
  17. 17. 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 Business Strategy - the GE/ McKinsey Matrix

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