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GE Matrix

The GE matrix is a multi-factor model developed in the 1970s to evaluate General Electric's strategic business units. It maps units on a grid based on industry attractiveness on the y-axis and business unit strength on the x-axis, resulting in 9 cells compared to the BCG matrix's 4 cells. Industry and business unit scores are calculated by assessing factors like growth, profitability, and competition. The matrix is used to recommend growing, holding, or harvesting units and selectively allocating resources. However, it provides a limited view, and measurements are subjective.

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Keshav Bhatia
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337 views34 pages

GE Matrix

The GE matrix is a multi-factor model developed in the 1970s to evaluate General Electric's strategic business units. It maps units on a grid based on industry attractiveness on the y-axis and business unit strength on the x-axis, resulting in 9 cells compared to the BCG matrix's 4 cells. Industry and business unit scores are calculated by assessing factors like growth, profitability, and competition. The matrix is used to recommend growing, holding, or harvesting units and selectively allocating resources. However, it provides a limited view, and measurements are subjective.

Uploaded by

Keshav Bhatia
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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GE Matrix

BPSM-II
• Also known as the 'Directional Policy Matrix,'
the GE multi-factor model was first developed
by General Electric in the 1970s.
• The X-Axis comprises business strength
measures, such as Price, Service Levels etc.
• the Y-Axis comprises industry attractiveness
measures, such as Market Profitability, Fit
with Core Skills etc. and
• In consulting engagements with General
Electric in the 1970's, McKinsey & Company
developed a nine-cell portfolio matrix as a tool
for screening GE's large portfolio of strategic
business units (SBU).
• The GE / McKinsey matrix is similar to the BCG
growth-share matrix in that it maps strategic
business units on a grid of the industry and
the SBU's position in the industry.
• The GE matrix however, attempts to improve
upon the BCG matrix in the following two
ways:
• The GE matrix generalizes the axes as
"Industry Attractiveness" and "Business Unit
Strength"
• whereas the BCG matrix uses the market
growth rate as a proxy for industry
attractiveness and relative market share as a
proxy for the strength of the business unit.
• The GE matrix has nine cells vs. four cells in
the BCG matrix.
• Industry attractiveness and business unit strength
are calculated by first identifying criteria for each,
determining the value of each parameter in the
criteria, and multiplying that value by a weighting
factor.
• The result is a quantitative measure of industry
attractiveness and the business unit's relative
performance in that industry.
•
Industry Attractiveness

• The vertical axis of the GE / McKinsey matrix is


industry attractiveness, which is determined
by factors such as the following:
• Market growth rate
• Market size
• Demand variability
• Industry profitability
• Industry rivalry
• Global opportunities
• Macroenvironmental factors (PEST)
• Each factor is assigned a weighting that is
appropriate for the industry. The industry
attractiveness then is calculated as follows:
•
Industry attractiveness    =    factor value1   x  
factor weighting1   +  factor value2   x   factor
weighting2  .
.
.
     +  factor valueN   x   factor weightingN
Business Unit Strength

• The horizontal axis of the GE / McKinsey


matrix is the strength of the business unit.
Some factors that can be used to determine
business unit strength include:
Business Unit Strength

• Market share
• Growth in market share
• Brand equity
• Distribution channel access
• Production capacity
• Profit margins relative to competitors
• The business unit strength index can be
calculated by multiplying the estimated value
of each factor by the factor's weighting, as
done for industry attractiveness.
Plotting the Information

• Each business unit can be portrayed as a circle


plotted on the matrix, with the information
conveyed as follows:
• Market size is represented by the size of the
circle.
• Market share is shown by using the circle as a
pie chart.
• The expected future position of the circle is
portrayed by means of an arrow
• The following is an example of such a
representation:
• The shading of the above circle indicates a 38%
market share for the strategic business unit.
• The arrow in the upward left direction indicates
that the business unit is projected to gain
strength relative to competitors,
• and that the business unit is in an industry that is
projected to become more attractive.
• The tip of the arrow indicates the future position
of the center point of the circle.
Strategic Implications

• Resource allocation recommendations can be


made to grow, hold, or harvest a strategic
business unit based on its position on the
matrix as follows:
• Grow strong business units in attractive
industries, average business units in attractive
industries, and strong business units in
average industries.
• Hold average businesses in average industries,
strong businesses in weak industries, and
weak business in attractive industies.
• Harvest weak business units in unattractive
industries, average business units in
unattractive industries, and weak business
units in average industries.
• There are strategy variations within these
three groups.
• For example, within the harvest group the
firm would be inclined to quickly divest itself
of a weak business
• in an unattractive industry, whereas it might
perform a phased harvest of an average
business unit in the same industry.
• While the GE business screen represents an
improvement over the more simple BCG
growth-share matrix, it still presents a
somewhat limited view by not considering
interactions among the business units and by
neglecting to address the core competencies
leading to value creation
• Rather than serving as the primary tool for
resource allocation, portfolio matrices are
better suited to displaying a quick synopsis of
the strategic business units.
GE Multifactor Portfolio Matrix
Industry Attractiveness

High Medium Low

Protect Invest to Build


High Position Build selectively
Business Strengths

Selectively Limited
Build manage for expansion or Invest/Grow
Medium selectively earnings harvest
Selectivity
/earnings
Protect & Manage for
Low refocus earnings Harvest
Divest /Divest
GE Multifactor Portfolio Matrix (Cont’d)
Industry Attractiveness

High Medium Low

High
Business Strengths

Medium Invest/Grow

Selectivity
/earnings

Low Harvest
/Divest
Some Limitations of the GE Model

• Subjective measurements across SBUs


• Process also highly subjective
– From the selection and weighting of factors to the
subsequent development of both a firm’s position
and the market attractiveness
• Businesses may have been evaluated with
respect to different criteria
• Sensitive to how a product market is defined

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