The GE-McKinsey Matrix is a strategic tool developed in the 1970s by General Electric and McKinsey to evaluate business units by considering industry attractiveness and business unit strength. It expands on concepts from the BCG Matrix by incorporating a broader range of factors, such as market size and competitive intensity, into its analysis. This matrix aids organizations in prioritizing investments and making informed decisions about where to allocate resources to maximize potential success.
We've interviewed dozens of senior Strategy & Operations leaders to hear how they've built and scaled the function at their high-performing organizations.
Be the first to get the report ->
The GE McKinsey Matrix is a strategic tool that helps businesses assess their portfolio of business units or products and make informed decisions about resource allocation and strategic direction. In this comprehensive guide, we will explore the origins, purpose, components, interpretation, benefits, and limitations of the GE McKinsey Matrix.
The GE McKinsey Matrix, also known as the GE Matrix or the McKinsey 9-cell matrix, was developed by the General Electric Company and McKinsey & Company in the 1970s. It was created as a means to evaluate business units and products based on their industry attractiveness and business unit strength.
The matrix has since become a widely used strategic tool that helps organizations visualize their portfolio, identify areas for improvement, and make data-driven decisions.
The GE McKinsey Matrix was inspired by the Boston Consulting Group (BCG) Matrix, which evaluates business units based on market growth rate and relative market share. However, the GE McKinsey Matrix took a more nuanced approach by considering additional factors such as industry attractiveness and business unit strength.
The framework was initially designed for General Electric to assess its diverse range of businesses and product lines. However, it quickly gained popularity among other companies and industries due to its comprehensive nature and ability to prioritize investments across a portfolio of businesses.
General Electric, a multinational conglomerate, faced the challenge of managing a wide range of businesses in various industries. The company needed a tool that could provide a holistic view of its portfolio and help identify areas of potential growth or decline. This led to the development of the GE McKinsey Matrix, which aimed to provide a more comprehensive analysis of business units and products.
The GE McKinsey Matrix was a departure from the traditional approach of solely considering market growth rate and market share. It introduced the concept of industry attractiveness, which takes into account factors such as market size, growth rate, profitability, and competitive intensity. Additionally, it considered business unit strength, which includes factors like market share, brand reputation, technological capabilities, and competitive advantage.
The GE McKinsey Matrix serves two primary purposes: to determine the attractiveness of an industry and to assess the strength of a business unit within that industry. By evaluating both factors, organizations can identify which business units or products have the greatest potential for success and which may require strategic adjustments or divestment.
With the GE McKinsey Matrix, organizations can gain a deeper understanding of their portfolio and make informed decisions about resource allocation. By categorizing business units or products into different cells of the matrix, companies can prioritize investments in high-potential areas, invest in improving the performance of moderate-potential areas, and consider divestment or restructuring for low-potential areas.
Furthermore, the GE McKinsey Matrix encourages organizations to regularly reassess their portfolio and adapt their strategies based on changing market dynamics. It provides a framework for ongoing portfolio management, allowing companies to stay agile and responsive to market trends and competitive forces.
In conclusion, the GE McKinsey Matrix is a valuable tool that helps organizations evaluate their portfolio, identify areas for improvement, and make strategic decisions. By considering industry attractiveness and business unit strength, companies can allocate resources effectively and prioritize investments to maximize their chances of success in a dynamic business environment.
The GE McKinsey Matrix consists of two dimensions: industry attractiveness and business unit strength. Each dimension is further divided into three subcategories, resulting in a 3x3 matrix.
The first dimension, industry attractiveness, measures the market conditions and potential opportunities within a specific industry. It is assessed using criteria such as market size, market growth rate, profitability, competition, and regulatory environment.
Within the GE McKinsey Matrix, industry attractiveness is divided into three subcategories:
The second dimension, business unit strength, evaluates the internal capabilities and competitive position of a specific business unit. It takes into account factors such as market share, brand reputation, financial performance, technological advantages, and managerial expertise.
Similar to industry attractiveness, business unit strength is divided into three subcategories:
Understanding how to interpret the data provided by the GE McKinsey Matrix is crucial for making informed strategic decisions. The matrix provides a visual representation of each business unit or product's position within the portfolio based on its industry attractiveness and business unit strength.
Each business unit or product is represented by a bubble or cell within the matrix. The size of the bubble indicates the relative size or importance of the business unit in terms of revenue or profit. The position of the bubble within the matrix indicates its current position in terms of industry attractiveness and business unit strength.
Business units or products located in the upper-right quadrant of the matrix, representing high industry attractiveness and high business unit strength, are considered stars. Stars have significant growth potential and should be allocated resources to further capitalize on their existing strengths and market conditions.
Business units or products in the lower-right quadrant, representing high industry attractiveness but low business unit strength, are question marks or problem children. These units may require additional investment, strategic adjustments, or even divestment decisions to improve their performance and market position.
Units located in the upper-left quadrant, representing low industry attractiveness but high business unit strength, are cash cows. Cash cows generate consistent cash flow and profitability, but their growth potential may be limited. These units are often relied upon to finance other investments within the portfolio.
The lower-left quadrant, representing low industry attractiveness and low business unit strength, is occupied by dogs. Dogs have limited growth potential and weak competitive positions, requiring careful evaluation and potential exit strategies to optimize the portfolio's overall performance.
The GE McKinsey Matrix provides valuable insights into the overall health and potential of a business unit or product portfolio. By analyzing the matrix, organizations can:
Organizations that employ the GE McKinsey Matrix can derive various benefits for their strategic decision-making processes and resource allocation efforts.
The GE McKinsey Matrix provides a structured framework for evaluating business units or products within a portfolio. It enables organizations to make more informed decisions about where to allocate resources, which opportunities to pursue, and which units may require strategic adjustments or divestment. This leads to better alignment of resources with strategic goals and objectives.
By assessing industry attractiveness and business unit strength, the GE McKinsey Matrix enables organizations to allocate resources more effectively. It helps identify which business units or products have the greatest growth potential or competitive advantage, allowing for optimization of resource allocation and improving the overall performance of the portfolio.
While the GE McKinsey Matrix is a valuable strategic tool, it is important to acknowledge its limitations and consider them when making decisions.
Assessing and quantifying industry attractiveness and business unit strength involves subjective evaluation and judgment calls. Different individuals within an organization may have varying perspectives, leading to potential biases or disagreements when assessing each dimension. It is crucial to involve multiple stakeholders and ensure an objective evaluation process.
The GE McKinsey Matrix heavily emphasizes market share as a measure of business unit strength. While market share is an important metric, it may not always capture the full picture of a business unit's competitive position or potential. Other factors, such as brand reputation, customer loyalty, or technological advantages, also play a significant role and should be considered alongside market share.
In conclusion, the GE McKinsey Matrix is a powerful tool that helps organizations assess their portfolio of business units or products. By understanding industry attractiveness and business unit strength, companies can make data-driven decisions regarding resource allocation, strategic adjustments, and divestment. However, it is essential to be aware of the matrix's limitations and exercise judgment in its application. When used effectively, the GE McKinsey Matrix can be a valuable asset in strategic decision-making processes.
‍
.png)
.png)
.png)
