GE-McKinsey or nine-box matrix offers a systematic approach for the decentralized corporation to decide where to better invest its cash.
Instead of depending on the predictions of its potential expectations from each business segment, the organization should evaluate a unit by two criteria that will decide whether it can perform well in the future including: the attractiveness of the relevant industry and the unit’s competitive strength within that industry.
- Components of a GE-McKinsey Matrix
- What is a GE-McKinsey Matrix used for
- When to use GE-McKinsey Matrix
- Using the Tool
- Example of GE-McKinsey Matrix
- GE-McKinsey Matrix tips
- Advantages and Disadvantages of GE-McKinsey Matrix
The GE-McKinsey Matrix is an overview of the business portfolio that provides a systematic way for business units to be measured on two main dimensions: the attractiveness of the market involved and the importance of the role of the organization in that market.
The outcome is a graphical representation of these main aspects of the different business units and offers insight into a decision on resource allocation.
The GE/McKinsey matrix is equivalent to the growth-share matrix of the BCG in that it maps strategic business units on an industry grid and the industry role of the SBU.
However the GE matrix attempts to enhance the BCG matrix in two ways: the GE matrix generalizes the axes as "Industry Attractiveness" and "Business Unit Strength" while the BCG matrix utilizes the market growth rate as a proxy for the attractiveness of the industry and relative market share as a proxy for the strength of the business unit.
Industry attractiveness and business unit strength are determined by first determining parameters for each one, evaluating the value of each parameter in the criteria and multiplying the value by a weighting factor. The outcome is a quantitative indicator of the competitiveness of the market and the relative success of business units in that industry.
This nine-box matrix plots the business units on its nine cells. These cells indicate whether the company should:
- Invest in a Product (Grow)
- Leave a product as is (Hold)
- Drop a product (Divest)
The business units are evaluated on two axes:
- Industry attractiveness
- Business unit strength
Various variables in the industry attractiveness and business unit strength determine to what degree a corporation can invest or divest a business unit.