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Week 2 Discussion

The GE/McKinsey Matrix is a strategic tool that helps corporations make informed investment and disinvestment decisions regarding their business units based on two dimensions: business strength and industry attractiveness. It categorizes business units into nine cells, guiding investment strategies such as Growth, Selectivity, and Harvest or Divest, depending on their market position and profitability potential. This matrix allows companies to prioritize resources effectively among various divisions to maximize long-term profitability.

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481 views2 pages

Week 2 Discussion

The GE/McKinsey Matrix is a strategic tool that helps corporations make informed investment and disinvestment decisions regarding their business units based on two dimensions: business strength and industry attractiveness. It categorizes business units into nine cells, guiding investment strategies such as Growth, Selectivity, and Harvest or Divest, depending on their market position and profitability potential. This matrix allows companies to prioritize resources effectively among various divisions to maximize long-term profitability.

Uploaded by

Somlata Bispat
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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How the GE/McKinsey Matrix (“GE Matrix,” henceforth) helps corporations make

investment and disinvestment decisions related to their business units.

The term "GE Matrix" refers to a multifactor portfolio matrix that aids businesses in selecting
product lines strategically based on where they fall within the matrix. Prioritizing investment
among multiple company divisions is its goal.

Nine cells make up the matrix, which has two main dimensions—business strength and industry
attractiveness. Market share, brand recognition, profit margins, customer retention, technological
prowess, and other factors all affect how strong a business is. On the other hand, factors like
pricing trends, economies of scale, market size, market growth rate, segmentation, distribution
structure, etc. have an impact on how appealing an industry is.

On the basis of their placement in the matrix when different product lines or business units are
represented, strategic decisions can be taken. Market attractiveness is represented on the matrix's
y-axis, while a business unit's competitiveness is displayed on the matrix's x-axis. The
attractiveness of an industry indicates how difficult or simple it will be for a company to compete
in the market and make a profit. If an industry is more profitable, it becomes more appealing.
The matrix analyzes a business unit's strength against its primary competitors in addition to the
attractiveness of the industry.

The investment strategies are based on:

Growth - includes those in which corporations prefer to invest due to their excellent potential for
long-term high profits. These investments could go toward brand expansion, R&D initiatives,
ads, and improvements to production capacity.

Selectivity - this category is only responsible for investments if they serve a strategic purpose
and after the money has already been put toward the Grow category's functional areas. Even
though the viability of these business units is unclear, investments will nonetheless be made in
them.

Harvest or Divest - Poorly performing company units that are located in less desirable areas and
industries fall under this category of investment strategy. Only if these business units generate
enough money to cover the investment will investments be made in them. The prospect of
liquidating these may present itself in the absence of this.

References:

Kubr, M (ed.) 2002, Management Consulting : A Guide to the Profession, International Labour
Office, Washington. Available from: ProQuest Ebook Central. [8 August 2022].

McKinsey & Company (2008). Enduring Ideas: The GE–McKinsey Nine-box Matrix. McKinsey
Quarterly. Available at: https://www.mckinsey.com/business-functions/strategy-and-corporate-
finance/our-insights/enduring-ideas-the-ge-and-mckinsey-nine-box-matrix (Accessed on August
8, 2022)

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