GE-McKinsey Matrix
The GE-McKinsey Matrix is a business portfolio analysis that provides a structured way to evaluate business units on two key dimensions: the attractiveness of the market involved and the strength of the firm’s position in that market. The result is graphical portrayal of the various business units on these key dimensions and gives insight to a resource allocation decision.
The figure below shows the market attractiveness-business position matrix into which each business unit is to be positioned. The market attractiveness, horizontal axis, shows how attractive the market is for a competitor in terms of cash flow generation. Evaluating market attractiveness should start with Porters 5 forces (also explained on this web page). However,, the other elements of the market analysis as well as the analyses of customers, competitors, and the environment of the business should also contribute. Examples of factors that could be considered are size, growth, customer satisfaction, competition (quantity, types, effectiveness, commitment) price levels, profitability, technology, governmental regulations, and sensitivity to economic trends. The actual factors to use in a specific case depends on what is relevant for the context.
The business-position assessment, vertical axis, should be based on an internal analysis of the business and in particular on an evaluation of its assets and competencies related to those of its competitors. Examples of factors that could be considered are organization, growth, share by segment, customer loyalty, margins, distribution, technology skills, patents, marketing and flexibility but the appropriate set will need to be generated for each particular context.
Implication
The market attractiveness-business position matrix is a formal and structured way to match a firm’s strength with market opportunities. One implication is that when both firm position and market attractiveness are positive, as in the boxes marked “Invest/grow”,a firm should probably invest and attempt to grow. When the assessment is more negative, as in the boxes marked “Harvest/divest”, the
recommendation would be either to harvest or divest. For the boxes marked “Selective investment”, a selective decision to invest would be made only when there was a specific reason to believe the investment would be profitable.
The figure below shows the market attractiveness-business position matrix into which each business unit is to be positioned. The market attractiveness, horizontal axis, shows how attractive the market is for a competitor in terms of cash flow generation. Evaluating market attractiveness should start with Porters 5 forces (also explained on this web page). However,, the other elements of the market analysis as well as the analyses of customers, competitors, and the environment of the business should also contribute. Examples of factors that could be considered are size, growth, customer satisfaction, competition (quantity, types, effectiveness, commitment) price levels, profitability, technology, governmental regulations, and sensitivity to economic trends. The actual factors to use in a specific case depends on what is relevant for the context.
The business-position assessment, vertical axis, should be based on an internal analysis of the business and in particular on an evaluation of its assets and competencies related to those of its competitors. Examples of factors that could be considered are organization, growth, share by segment, customer loyalty, margins, distribution, technology skills, patents, marketing and flexibility but the appropriate set will need to be generated for each particular context.
Implication
The market attractiveness-business position matrix is a formal and structured way to match a firm’s strength with market opportunities. One implication is that when both firm position and market attractiveness are positive, as in the boxes marked “Invest/grow”,a firm should probably invest and attempt to grow. When the assessment is more negative, as in the boxes marked “Harvest/divest”, the
recommendation would be either to harvest or divest. For the boxes marked “Selective investment”, a selective decision to invest would be made only when there was a specific reason to believe the investment would be profitable.
Source: David A. Aaker, Strategic Market Management 7th Edition, 2005, Hoboken
