GE Matrix detail and example with Indian context

1. GE-MATRIX
VISHNU

2.  In the 1970s, General Electric asked its consultants, McKinsey, to develop a portfolio
management model that would suit it needs.
 GE, which had about 150 business units under it at that time, had been using the BCG Matrix,
but it had eventually felt the need for a more sophisticated framework to help it decide which of
the units deserved development funds.
 Moreover, while the BCG Matrix uses market growth and market share as its dimensions, the
GE Matrix uses industry attractiveness and business unit strength as the criteria for its
measurements.
 The matrix was developed out of a need by emerging multi-business companies to manage
various business units profitably.

3. McKinsey itself provides a most lucid definition of the GE/McKinsey Matrix:
“The GE-McKinsey nine-box matrix is a strategy tool that offers a systematic approach for the multi-
business corporation to prioritize its investments among its business units.”
The GE McKinsey matrix is a nine-box matrix which is used as a strategy tool. It helps multi-business
corporations evaluate business portfolios and prioritize investments among different business units in a
systematic manner.
It assess area of business in terms of two criteria.
1. The attractiveness of industry
2. Strength of business

4. This dimension helps determine the attractiveness of the market by analysing the benefits a company is likely to get by
entering and competing within the market.
some factors are affecting industry attractiveness
• Market size
• Market growth rate
• Overall return in the industry
• Industry profitability
• Intensity of competition
• Profit margin
• Industry fluctuation
• Customer supplier relation
• Technology changes
• Availability of workforce

5. The other main dimension that makes up this grid is the competitive or business strength of the company
itself. An assessment along this dimension helps understand whether a company has the required
competence to compete in a particular market.
• Total market share
• Market share growth compared competitors
• Strength of brand
• Company profitability
• Customer loyalty
• Value chain
• Product differentiation
Strength of business

6. • The G.E matrix is constructed in a 3x3 grid with Market Attractiveness plotted on the Y-axis and Business
Strength on the X-axis, both being measured on a high,medium,or low score. Five steps must be considered in
order to formulate the matrix
• The range of products produced by the SBU must be listed
• Factors which make the particular market attractive must be identified
• Evaluating where the SBU stands in this market
• Processes through which calculations about business strength and market attractiveness can be made
• Determining which category an SBU lies in; high, medium, or low.

8. PLOTTING THE INFORMATION
• Step-1
select criteria to rate the industry for each product line or business unit. Assess over all industry attractiveness for each product
line or business unit on a scale form
1- unattractiveness
2- very attractiveness
Step -2
select the key factors needed for success in each product line or business unit.
assess the business strength and competitive position for each product line or business unit a scale
1- very week
2- very strong
Step-3
plot each product line business unit position on a matrix like that depicited in figure
Step-4
decide the firm current portfolio or assuming that present corporate and business strategy remain unchanged
when find the performance gap to change the mission or vision and objective of the company

9. • Each business unit can be portrayed as a circle plotted on the matrix, with the
information conveyed as follows.
market size represent 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 means of an arrow
The shading above circle indicate a 38% of market share for the strategic business
unit .
The arrow In upward left direction indicate that the business unit projected to gain
strength relative to competitors, and business unit is an industry that is projected to
become more effective. The tip of
Arrow indicate the future position of the centre point of the circle.
Chart Title
market size market share
38

11. HOW TO APPLY THE MATRIX TO YOUR BUSINESS
• Step 1: Determine Industry Attractiveness of Different Business Units
Industry attractiveness can be determined by the following steps:
• Compile a list of factors – The first step is to identify and compile a list of relevant factors which help
determine industry attractiveness. There are some common factors across industries but the company
should include those factors that are most appropriate for the business.
• Assign Weights – Once the factors have been listed down, it is necessary to give them weights. These
weights determine the importance of the factor to the determination of industry attractiveness. The weight
could be from 1 (not important) to 10 (very important). The total of all the weights should be equal to one
and all chosen factors should be assigned a weight.
• Rate the Factors – Once weighted, the factors are now rated for each product or business unit. Values can
be between 1-5 or between 5-10. 1 is an indicator or low industry attractiveness while the higher value
signifies higher industry attractiveness.

12. • Calculate Final Scores – With the weights and ratings in hand, a total score can now be determined. This
is achieved by multiplying the weight of each factor by the rating of each factor. These are added up to
achieve one figure for each business unit and these total score can then be used to compare industry
attractiveness.
• Step 2: Determine the Competitive Strength of each Business Unit
• With the industry attractiveness out of the way, this step takes a look at the competitive strength for each
business in much the same manner as step 1.
• Compile a list of factors – As before, you can choose from a list of common determinants of competitive
strength but should try to make these as relevant to the particular business as possible.
• Assign weights – The chosen factors are then assigned weightage according to their importance in
helping the company achieve sustainable competitive advantage. As before, the weights can be between
1 to 10.
• Rate Factors – Once the weights have been assigned, the rating for each factor needs to be determined
for each product or business unit. These ratings can be between 1-5 or 5-10. 1 is the weakest while 5 or 10
will be strongest ratings.

13. • Calculate Total Score – Multiple the weight of each factor with the rating for each of the business units and add
up to achieve a total score.
Step 3: Plot the business units on a matrix
• With all the scores needed in hand, the business units can now be plotted in the matrix. Each unit is denoted
by a circle with the size of the circle representing the same proportion as the business revenue that the unit
brings in for the company.
Step 4: Analysis of Information
Based on the position of each business unit in the matrix, there are three actions a company can take for each
unit. These actions are to invest/grow, selectivity/earnings and harvest/divest. Each unit falls within a certain set of
boxes and this position determines the action to be taken.

14. Step 5: Identify future direction of each unit
The matrix itself only helps a company determine the current state of the industry and competitive
strength with no indication of the future and where things may be headed. With the help of an industry
analyst, the company may be able to determine the potential direction the future will take. Will the industry
grow more or less attractive or will it stay the same? Will the competitive strength grow or reduce. With this
information, the steps to be taken may be altered significantly if the potential in any area is expected to
improve or reduce.
Step 6: Prioritize Investments
• The final step in the matrix analysis is to decide the where's and how's of the investment decisions for the
company in practice. Some questions that may need to be answered in addition to the matrix analysis
include:
• Are some units really worth the investment?
• How much should be invested in each unit?
• Which area within a unit should get more investment than others? For example, should the funds go to
research and development, marketing, value chain development or customer development)

15. GE Matrix For TATA
Business Strengths
MarketAttractiveness
Low
High
LowHigh
IT
Consumer
Durables
Textiles

16. MARUTI SUZUKI GE MATRIX
baleno
ciaz Kizashi
gypsy
S cross

17. BCG v/s GE
BCG GE
Market Growth
Market share
4 cell
Multi Products
Primary tools
Market
Attractiveness
Market strength
9 cell
Multi Business Units
Secondary tools

18.  BCG matrix can be understood as the growth-share model, that reflects a growth of business and the
market share possessed by the firm. On the other hand, GE matrix is also termed as multifactor
portfolio matrix, which businesses use in making strategic choices for product lines or business units
based on their position in the grid.
 The two dimensions on which BCG matrix is based are market growth and market share. Conversely,
industry attractiveness and business strengths are two factors of GE matrix.
 BCG matrix is used by the companies to deploy their resources among various business units. On the
contrary, firms use GE matrix to prioritize investment among various business units.
 In BCG matrix only a single measure is used, whereas in GE matrix multiple measures are used.
Different between BCG and GE

19.  A major assumption behind the GE-McKinsey matrix is that it can operate when the economies
of scale are achievable in production and distribution. Unless the same holds true, the concept
of leveraging the competencies of the firm and the SBU falls flat.
 Also some of the factors of competitive strength and market competitiveness may be
extremely important for a particular instance, while another instance may even require even
other factors. The top management of the organization should decide upon these factors very
carefully as there is no generic set of factors with which all SBUs may be evaluated.

20.  The relative weightage given to each of the factors of competitive strength and market
competitiveness is often arbitrary. While some methodology such as the Analytic Hierarchy
Process may be used to compute the relative importance of such factors, such is mostly not done.
Thus the overall position of the SBU on the matrix could come under criticism.
 The core competencies of the firm or the corporation are not represented in this analysis. The
core competencies may be leveraged across SBUs and can be a deciding factor while judging the
competitive strength of the SBUs