The GE McKinsey Matrix is a strategic management tool designed to help multi-business corporations prioritize their portfolio of business units (SBU). Developed by McKinsey & Company in collaboration with General Electric in the 1970s, this matrix evaluates business units by plotting them on a two-dimensional grid, where one axis represents the industry attractiveness and the other represents the competitive strength.
Objectives of the GE McKinsey Matrix
The primary objectives of the GE McKinsey Matrix are to:
- Assist in resource allocation: Optimize the distribution of resources across business units.
- Identify strong and weak units: Determine which units to invest in, hold, or divest.
- Strategic direction: Provide strategic recommendations based on unit performance and potential.
Axes of the GE McKinsey Matrix
Industry Attractiveness
This axis measures how favorable an industry is for growth and profitability. Factors evaluated may include:
- Market size and growth rate
- Industry profitability
- Intensity of competition
- Technological advancements
- Regulatory environment
Competitive Strength
This axis evaluates the business unit’s ability to compete within its industry. Key factors include:
- Market share
- Product quality and differentiation
- Distribution channels
- Cost efficiency
- Brand strength
Structure of the GE McKinsey Matrix
The matrix is typically a 3x3 grid with nine cells. Here’s how the typical categorizations are defined:
- Invest/Grow: Business units in high industry attractiveness and strong competitive position.
- Selectively Invest/Maintain: Units in medium industry attractiveness with medium competitive strength.
- Divest/Harvest: Units in low industry attractiveness with weak competitive strength.
Application of the GE McKinsey Matrix
- Data Collection: Gather extensive data on industry attractiveness and competitive strengths relevant to each business unit.
- Scoring: Assign numerical values to each factor of industry attractiveness and competitive strength.
- Mapping: Plot the business units on the matrix based on their scores to identify their strategic position.
- Strategic Decisions: Develop strategies for each unit depending on their position in the matrix.
Examples and Historical Context
General Electric used this matrix to restructure and manage their diversified portfolio effectively in the 1970s. It continues to be widely used across various industries for strategic planning.
Related Terms
- BCG Matrix: Another portfolio management tool focused on market growth rate and market share.
- SWOT Analysis: Assesses strengths, weaknesses, opportunities, and threats for strategic planning.
FAQs
What is the main benefit of using the GE McKinsey Matrix?
How does the GE McKinsey Matrix differ from the BCG Matrix?
References
- McKinsey & Company. (1970s). Development of the GE McKinsey Matrix.
- General Electric Annual Reports. Historical application of the matrix in corporate strategy.
Summary
The GE McKinsey Matrix remains a vital strategic tool for large corporations to manage and prioritize their diverse business portfolios. By evaluating SBUs on industry attractiveness and competitive strength, companies can make informed decisions to drive growth, optimize resource allocation, and sustain competitive advantage.
