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A problem that executives often face is finding a tool to identify where and how to compete, identify profitable markets, evaluate investment options, and price their products rightly.<\/p>\nA problem that executives often face is finding a tool to identify where and how to compete, identify profitable markets, evaluate investment options, and price their products rightly.<\/p>\n
GE-McKinsey Matrix<\/a> is one such strategic planning<\/a> tool that helps the executives make investment decisions and manage their product portfolio based on sound analysis. \u00a0Outlined by McKinsey & Co. in the 1970s, GE-McKinsey Matrix is, basically, an adaptation of the BCG analysis, which facilitates in analyzing the current portfolio of business units and develop strategies to achieve growth through addition of new products or through divesture options.<\/p>\n The GE-McKinsey Matrix is a more sophisticated strategic business portfolio tool compared to the BCG matrix. \u00a0It guides the strategic direction an enterprise takes to enhance productivity of its business units and keeps the leaders informed on and manage the performance<\/a> of their products and units. \u00a0The GE-McKinsey Matrix is a 3×3 grid comprising 3 core components:<\/p>\n Plotted on the Y-axis of the grid, it measures the advantage for an enterprise to enter or compete in a market (as \u201chigh,\u201d \u201cmedium,\u201d or \u201clow\u201d scores). \u00a0Evaluating the Industry Attractiveness warrants predicting how the industry will transpire in the long term.\u00a0 Industry attractiveness signifies assessing key elements including long-term growth, industry structure and profitability, price trends, demand patterns, market segmentation, and manpower availability.<\/p>\n Plotted on the X-axis, this dimension measures the ability of a firm to compete in the market. \u00a0Market share, brand position (value), customer loyalty, company profitability, production flexibility, and value chain strength are some critical factors affecting this dimension.<\/p>\n Once the business unit(s) strengths and market attractiveness has been plotted on the GE-McKinsey Matrix, executives can finalize an appropriate investment strategy from one of the following:<\/p>\n The formulation of the GE-McKinsey Matrix encompasses the following critical steps:<\/p>\n Let’s dive deeper into the first 3 steps of the approach.<\/p>\n Establish Industry Attractiveness of Each Business Unit<\/strong><\/p>\n The first step is to determine the industry attractiveness of a business unit. \u00a0To achieve this, senior leaders need to identify the factors affecting industry attractiveness\u2014e.g., market, size, industry growth rate, industry profitability, and competition.\u00a0 They need to then assign weights to each factor based on its importance\u2014e.g., a number from 1 (not important) to 10 (very important).\u00a0 Each factor (for each of your product or unit) should be then rated based on the assigned weights.\u00a0 This facilitates in obtaining weighted scores for each factor (by multiplying the weight of the factor by its rate).<\/p>\n Ascertain the Competitive Strengths of Each Business Unit<\/strong><\/p>\n The second step to formulating the GE-McKinsey Matrix involves gauging the competitive strengths of all business units.\u00a0 This is done by determining the factors that influence the competitive strengths of business units\u2014e.g., growth rate, market share, profitability, or brand reputation\u2014; assigning weights to each factor based on the importance of a factor in achieving competitive advantage; rating all factors for each of the product or business units on a scale of 1 (least important) to 10 (very important); and calculating the weighted score for each factor.<\/p>\n Outline the Position of Business Units on the Matrix<\/strong><\/p>\n This step involves plotting the weighted scores of the strengths of the business units\u2014obtained in the previous step\u2014on the GE-McKinsey Matrix.\u00a0 Specifically, the step entails representing each business unit by a circle corresponding to the revenue generated by that BU and placing a diagonal line on the matrix.\u00a0 The units that lie above the diagonal are suitable for additional investments (Invest\/Grow); the units that fall below the diagonal should be divested; whereas those that fall exactly over the diagonal should be put on \u201chold,\u201d and invested with caution.<\/p>\n Interested in learning more on how to formulate the GE-McKinsey Matrix<\/a>?\u00a0 You can download an editable PowerPoint on GE-McKinsey Matrix<\/strong> here<\/u><\/a> on the Flevy documents marketplace<\/a>.<\/p>\n You can download this and hundreds of other\u00a0consulting frameworks<\/a>\u00a0and\u00a0consulting training guides<\/a>\u00a0from the\u00a0FlevyPro library<\/a>.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" A problem that executives often face is finding a tool to identify where and how to compete, identify profitable markets, evaluate investment options, and price their products rightly. GE-McKinsey Matrix is one such strategic planning tool that helps the executives make investment decisions and manage their product portfolio based on sound analysis. \u00a0Outlined by McKinsey… GE-McKinsey Matrix: A Strategic Business Portfolio & Investment Analysis Tool<\/span><\/a><\/p>\n","protected":false},"author":110,"featured_media":7196,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"","neve_meta_content_width":0,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","footnotes":""},"categories":[408,81],"tags":[2106,2111,2108,56,1419,2109,2110,2112,2107],"class_list":["post-7151","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-management-leadership","category-strategy","tag-bcg-analysis","tag-business-portfolio-tool","tag-competitor-analysis","tag-ge-mckinsey-matrix","tag-industry-analysis","tag-industry-attractiveness","tag-investment-strategies","tag-market-share","tag-strategic-tools"],"_links":{"self":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/7151","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/users\/110"}],"replies":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/comments?post=7151"}],"version-history":[{"count":5,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/7151\/revisions"}],"predecessor-version":[{"id":8711,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/7151\/revisions\/8711"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media\/7196"}],"wp:attachment":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media?parent=7151"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/categories?post=7151"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/tags?post=7151"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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<\/a><\/p>\nGE-McKinsey Matrix Approach<\/strong><\/h2>\n
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Are you a Management Consultant?<\/strong><\/h2>\n