GE McKinsey Matrix

What is the GE McKinsey Matrix

Well, this matrix is a tool that helps companies prioritize its investment in its strategic business units

that is, the smaller business units under the organization, whether those are simply operational units or subsidiary units held by a parent company

So you're strategizing the amount of investment you're going to put into it

or whether you're going to divest yourself of it. Now, here's a visualization of this

You're looking at two things in this matrix. On the left side, you'll see industry attractiveness

So you are gauging how attractive is the industry. On the bottom part of the matrix, you see strength of the business unit

So in this one, you're evaluating the business unit itself. So once again, these are two separate things

The characteristics of the industry in which the business unit is operating

and the characteristics of the business unit with regard to its operations in that industry

So rating the industry and rating the business unit. So what are we looking at here with regard to attractiveness and strength of the business unit

So attractiveness of the industry means how much potential is there So you look at factors such as size growth rate profitability or profit margins the competitive landscape what environmental factors are affecting the

industry, these types of things. So you will assess whether the industry is attractive

Now you identify various factors. You'll say, okay, these are the factors or characteristics

of the industry that would make it attractive, all right, or unattractive if you will. So

identify all the factors that are present that you can identify. And then you weight them from

one to ten. Now, all the weightings have to add up to ten, but you weight the individual factors

okay, relative to importance. So, if one's twice as important as the other, you'd make sure you

weighted it accordingly. And you'd have to adjust the weights until you got to a suitable weighting

for all the elements that you've identified about the industry. And then you'll say, okay

once you have all the weights, how does the industry itself stack up? So now you will assess

the industry for each of those characteristics. Because remember, during the weighting process

all you've done is said that these factors need to be present or make it attractive or not. And

this is how important each of the factors are. So now you're assessing that industry with regard to

how attractive it is and you doing that on a 1 to 10 basis for each factor So then you would multiply whatever you rate it If you rate something a 10 and its weight is 0

then you end up with 1.5 score for that factor. And you would add all those up

And that would be an industry attractiveness score. Okay? You would do the exact same thing for the business unit

You're assessing it on competitive strength. So you would identify the factors that affect its competitive strength, market share, growth rate, profitability, etc

And based upon the business unit, there may be other factors that make it competitive

So identify all of those factors, give them a relative weight that adds up to 10, and then you would assess the company for each of those factors

This will give you a company score for competitiveness for each of those factors, then you add it up

And this gives you the total company competitiveness score. Okay. Now, taking these two together, you can actually plot the strategic business unit based upon these factors

Okay. Where does it land in terms of competitive strength and industry attractiveness

Right. So it will plot somewhere on the diagram that we looked at Something that very attractive in terms of industry and it has very low business strength would be up in the top left corner

If it had very attractiveness and very high business strength, it would be in the top right corner

So anyway, you can see how this works on the matrix, right

So you're plotting circles to identify. And what this allows you to do is to compare the business units

So anything on the top right corner there is going to be you invest more money in it

The purpose is, again, growth. Anything that falls in the middle line there, you would hold it and see which way it's going to go and make a decision based upon its progression

And anything that falls below these lines, that is low industry attractiveness and low business strength, you would harvest it

You'd either sell it or divest yourself of it in that way. So once again, it allows you to rank and compare strategic business units so you can make the determination of which business units you want to invest more resources in

which you want to hold, and which you want to harvest or divest yourself of in some way

So this is the GE McKenzie matrix