The GE/McKinsey Matrix is a portfolio analysis tool used to classify business units within a large company based on two criteria: industry attractiveness and business unit strength. It evaluates each unit and places it in one of nine cells based on its criteria scores, recommending different strategies for units in each cell ranging from investing for growth to harvesting or divesting.

1. Business Strategy - the GE/ McKinsey Matrix

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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