This article explains the GE McKinsey Matrix in a practical way. After reading you will understand the basics of this powerful marketing strategy and product portfolio analysis tool.
What is the GE McKinsey Matrix?
In the 1970s, General Electric (GE) commissioned McKinsey & Company to develop a portfolio analysis matrix for screening its business units. This matrix or GE Matrix is a variant of the Boston Consulting Group (BCG) portfolio analysis.
The GE McKinsey Matrix has also many points in common with the MABA analysis. MABA is an acronym that stands for Market, Attractiveness, Business position and Assessment.
The GE McKinsey Matrix also compares product groups with respect to market attractiveness and competitive power. Another name for this type of analysis is Portfolio analysis. The portfolios of businesses consist of all combinations of products and/ or services that are offered to the market/ target groups. Originally, this Matrix made an analysis of the composition of the portfolio of GE business units. Later, this matrix proved to be very useful in other companies as well.
The GE McKinsey Matrix
The GE McKinsey Matrix comprises two axes. The attractiveness of the market is represented on the y-axis and the competitiveness and competence of the business unit are plotted on the x-axis. Both axes are divided into three categories (high, medium, low) thus creating nine cells. The business unit is placed within the matrix using circles. The size of the circle represents the volume of the turnover.
The percentage of the market share is entered in the circle. An arrow represents the future course for the business unit.
GE McKinsey Matrix factors
It is possible to determine in advance whether a market is attractive enough to enter.
This can be done by using the following factors:
- Market size
- Historical and expected market growth rate
- Price development
- Threats and opportunities (component of SWOT Analysis)
- Technological developments
- Degree of competitive advantage
Other factors are used to determine competitiveness:
- Value of core competences
- Available assets
- Brand recognition and brand strength
- Quality and distribution
- Access to internal and external finance resources
GE McKinsey Matrix vs BCG Matrix
The GE McKinsey Matrix bears a strong resemblance to the BCG Matrix.
However, there are some differences:
- The GE McKinsey Matrix does not only consider growth, it mainly considers market attractiveness.
- In addition to market share the GE McKinsey Matrix also considers the strength of a business unit.
- Instead of the four cells that are created in the BCG Matrix, the GE McKinsey Matrix creates nine cells.
Three different strategies can be distinguished and adopted using the GE McKinsey Matrix:
Growth is facilitated by expanding the market or making investments.
By making careful investments, the current market is consolidated.
Harvest / sell
No extra investments but mainly focusing on maximizing returns. By assigning a weight to each factor, the GE McKinsey Matrix can be used more effectively. Based on these weights, the scores for competitiveness and market attractiveness can be calculated more accurately for each business unit.
How to set up a GE McKinsey Matrix
This analysis is characterized by seven steps that must be followed:
- Define the Product Market Combinations (PMC’s). Who are the customers of an organization and what are its products and/or services?
- Define the aspects that determine the attractiveness of the market. Certain weight factors can be assigned to certain aspects. Market attractiveness is a critical factor that has to be considered carefully.
- Define the aspects that determine the competitive power of the organizations.
- Assign scores to the different PMC’s. Have this done by several people within and outside of the organization. This will ensure a fair representation.
- Calculate the final scores. By comparing the final scores for market attractiveness and competitive power with the maximum score, it is possible to determine their position on the matrix.
- Draw the matrix and plot market attractiveness on the x-axis and competitive power on the y-axis. The higher the volume in turnover of a PMC, the larger the circle.
- Evaluate and discuss. The matrix can serve as the basis for a discussion about strategic decisions.
Both the GE McKinsey Matrix and the MABA matrix provide good projections about an organization’s future developments. It is important not to just focus on the current PCM’s but also on the possible future PCM’s.
It’s Your Turn
What do you think? Is the GE McKinsey Matrix applicable in today’s modern economy and marketing? What is your experience with making up the GE McKinsey matrix? What are your recommendations/ suggestions that you would like to share to help others?
Share your experience and knowledge in the comments box below.
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