The GE / McKinsey matrix is a model used to assess the strength of a strategic business unit (SBU) of a corporation.
Review the definition of the GE Approach and its uses
- The GE matrix analyzes market attractiveness and competitive strength to determine the overall strength of an SBU.
- External factors of market attractiveness that affect a business include market size, market growth, entry barriers, segmentation, and overall risk.
- Internal factors of competitive strength include assets, competencies, brand strength, profit margins, innovation, and quality.
- The GE matrix can also be used to determine if an organization should enter a market or if it should reposition a product line or brand within a market.
- strategic business unit: A mid-sized business or a division of a corporation that has different strategies and objectives than its parent company.
GE Approach to Strategic Planning
The GE / McKinsey matrix is a model used to assess the strength of a strategic business unit (SBU) of a corporation. It analyzes market attractiveness and competitive strength to determine the overall strength of a SBU.
The GE Matrix is plotted in a two-dimensional, 3 x 3 grid. The Y-axis measures market attractiveness based on a high, medium, or low score. The X-axis measures business unit strength on a high, medium, or low score.
Market attractiveness deals with different external factors. These factors can include such things as market size, market growth rate, and market profitability. External factors that can affect market attractiveness also include pricing trends, competitive intensity, overall risk, and entry barriers. Other considerations regarding market attractiveness include what if any opportunities there are to differentiate products and services, demand variability, segmentation, distribution structure, and technology development.
Competitive strength focuses on internal factors and the ability of the SBU to overcome specific issues with the market and competitors. Different internal factors that need to be considered include assets and competencies, brand strength, market share, market share growth, and customer loyalty. Other factors that should be considered include relative cost position, profit margins, innovation, quality, financial resources, and management strength.
Uses for a GE Matrix
While the GE / McKinsey matrix was originally used to assess a SBU, corporations can use this for other purposes as well. It is a good way to determine if a company should enter a specific market. It is also a good way to assess how a company is doing in a specific market and if repositioning may be necessary to revive a faltering product line, brand, or organization.