GE Matrix process

Topics: Strategic management, Strategic business unit, Marketing Pages: 6 (1244 words) Published: March 19, 2014
The General Electric (GE) Market Attractiveness-Business Position Matrix is one of the best-known directional policy matrices, “which categorises business units into those with good prospects and those with less good prospects” (Johnson, Whittington & Scholes, 2011, p.252). The following two factors is the principal cause for the development of the GE Matrix. In the 20th century, since the blossoming of multi-activity enterprises, corporations have faced the challenge of managing its portfolio of business units effectively (McKinsey & Co, 2008). In addition, the prosperity as well as the over simplicity of the BCG Matrix incited the development of a more comprehensive model (Jobber, 2007). This essay will attempt to describe how to use this tool in marketing strategy planning and discuss its restrictions and necessities.

With the purpose of assisting the US General Electric Company in classifying strategic business units (SBU), McKinsey & Co. developed the GE Matrix, which assesses business units in terms of two criteria: the attractiveness of the industry concerned and the competitive strength of the SBU within that industry (Johnson, Whittington & Scholes, 2011). A SBU is an independent department or organizational unit, small enough to be adjustable and comprehensive enough to run control over most of the parts affecting its long-term achievement. Since strategic business units are more flexible and usually have independent tasks and objectives, they allow the owning empire to respond quickly to changing economic or market status. The two criteria can be divided by high, medium and low and put into two axes. The horizontal axis of the matrix is industry attractiveness concerning to a firm of entering or remaining in a particular industry. And the vertical axis is the strength of the business unit referring to how strong the firm or SBU is in terms of the market (Thompson & Martin, 2010). When launching a portfolio analysis of the business unit, the GE Matrix is the best tool as McKinsey & Co. (2008) stated that rather than depend on the anticipation of outlook of every SBU, a firm can simply make a judgment via the two criteria to decide which SBU can be profitable in the future. Table 1 can illustrate this.

Table 1 Strategy guidelines based on the directional policy matrix

High attractiveness
Medium attractiveness
Low attractiveness
High strength
1. Investment and growth
2. Selective growth
3. Selectivity
Medium strength
4. Selective growth
5. Selectivity
6. Harvest
Low strength
7. Selectivity
8. Harvest
9. Divest
(Source: Johnson, Whittington & Scholes, 2011)

The first step to take when putting the nine-box matrix into use is to define the criteria that make a market attractive. Considering a range of factors each of which is given a weighting to produce a composite picture assesses industry attractiveness. According to Evans (2013), there are five most relevant factors to take into consideration in measure process: market size, market demand growth, competitive intensity, industry profitability and market risk. In a practical situation, it is the managers business to decided which factors are applicable for the products. After deciding which criteria to use, the second step to take is to accept upon a weighting system for these factors (Jobber, 2007). The table 2 gives an example of market attractiveness assessment. The market size (weighting = 4.0) is the most significant factor, and market risk (weighting = 1.0) is the least significant one. The third step listed by Jobber (2007) is to examine the particular products in relevant industry according to each of the five factors in a scale of 1 to 10. For instance, also in table 2 the factor rating for market size is very high rating (rating=9.0). Making a multiplication between weighting and rating is the total score to show a product’s attractiveness. Finally, the products attractiveness is 84 per cent. The factors listed before may not be...

References: Evans, V. (2013) Key Strategy Tools: The 80+ Tools for Every Manager to Build a Winning Strategy. 1st edn. Harlow: Pearson Education
Jobber, D. (2007) Principles and Practice of Marketing. 5th edn. Glasgow: McGraw-Hill Education
Johnson, G., Whittington, R., and Scholes, K. (2011) Exploring Strategy Text & Cases. 9th edn. Harlow: Pearson Education.
McKinsey&Company, Insights & Publications (2008) Enduring Ideas: The GE–McKinsey nine-box matrix. Retrieved 8 September, 2013 from http://www.mckinsey.com/insights/strategy/enduring_ideas_the_ge_and_mckinsey_nine-box_matrix
Thompson, J. and Martin, R. (2010) Strategic Management: Awareness and Change. 6th edn. Andover: CENGAGE Learning Business Press
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