GENERAL ELECTRICAL 9 CELL MODEL

GE / McKinsey Matrix In consulting engagements with General

Electric in the 1970's, McKinsey & Company developed a nine-cell portfolio matrix. This business screen became known as the GE/McKinsey Matrix.

The GE/McKinsey Matrix identifies the optimum business portfolio as one that fits perfectly to the company's strengths and helps to exploit the most attractive industry sectors or markets.

Thus, the objective of the analysis is to position each SBU on the chart depending on the SBU's Strength and the Attractiveness of the Industry Sector or Market on which it is focused. Each axis is divided into Low, Medium and High, giving the nine-cell matrix as depicted below.

Description of the ModelThe General Electric Company, with the

aid of the Boston Consulting Group and McKinsey and Company, pioneered the nine cell strategic business screen illustrated here. The circle on the matrix represents the enterprise. Both axes are divided into three segments, yielding nine cells. The nine cells are grouped into three zones:

The Green Zone consists of the three cells in the upper left corner. If an enterprise falls in this zone it is in a favorable position with relatively attractive growth opportunities. This indicates a "green light" to invest in this product/service

The Yellow Zone consists of the three diagonal cells from the lower left to the upper right. A position in the yellow zone is viewed as having medium attractiveness. Management must therefore exercise caution when making additional investments in this product/service. The suggested strategy is to seek to maintain share rather than growing or reducing share

The Red Zone consists of the three cells in the lower right corner. A position in the red zone is not attractive. The suggested strategy is that management should begin to make plans to exit the industry.

Strategy Implications of Attractiveness/Strength Matrix

Businesses in upper left corner◦Accorded top investment priority◦Strategic prescription is grow and build

Businesses in three diagonal cells◦Given medium investment priority◦ Invest to maintain position

Businesses in lower right corner◦Candidates for harvesting or divestiture◦May be candidates for an overhaul and reposition strategy

The Attractiveness/Strength Matrix

Allows for intermediate rankings between high and low and between strong and weak

Incorporates a wide variety of strategically relevant variables

Stresses allocating corporate resources to businesses with greatest potential for

◦ Competitive advantage and◦ Superior performance

GE MODEL V/S BCG MATRIX

The GE / McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBU's position in the industry. The GE matrix however, attempts to improve upon the BCG matrix in the following two ways:

The GE matrix generalizes the axes as "Industry Attractiveness" and "Business Unit Strength" whereas the BCG matrix uses the market growth rate as a proxy for industry attractiveness and relative market share as a proxy for the strength of the business unit.

The GE matrix has nine cells vs. four cells in the BCG matrix

Industry Attractiveness

The vertical axis of the GE / McKinsey matrix is industry attractiveness, which is determined by factors such as the following:

Market growth rate, Market size,Demand variability Industry profitability Industry rivalry Global opportunities Macro-environmental factors (PEST)

Business Unit StrengthThe horizontal axis of the GE / McKinsey

matrix is the strength of the business unit. Some factors that can be used to determine business unit strength include:

Market share Growth in market share Brand equity Distribution channel access Production capacity Profit margins relative to competitors

Plotting the Information

Each business unit can be portrayed as a circle plotted on the matrix, with the information conveyed as follows:

Market size is represented 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 by means of an arrow.