Question:
What is the GE-McKinsey matrix and how do I use it?
Answer:
The GE-McKinsey matrix (also called the GE business screen) is a strategic planning tool developed by McKinsey & Company for General Electric. It helps organisations evaluate their business units based on two criteria: industry attractiveness and competitive strength. Unlike simpler models, such as the BCG matrix, this tool provides a more nuanced analysis. Here’s how to apply it step by step:
- Understand the matrix The GE-McKinsey matrix is a 3×3 grid. The vertical axis measures ‘Industry Attractiveness’ (high, medium, low), while the horizontal axis measures ‘Business Unit Strength’ (strong, average, weak). Each business unit is plotted on the matrix, guiding strategic decisions.
- Identify and weight key factors Determine relevant factors for industry attractiveness (market size, growth rate, profitability) and business strength (market share, brand loyalty, cost position). Assign a weight to each factor reflecting its importance.
- Rate each business unit Evaluate each business unit against these factors, scoring them typically from 1 (low) to 5 (high). This helps quantify their attractiveness and strength.
- Plot units on the matrix Using your scores, position each unit on the grid. This visual representation highlights areas for investment (high attractiveness and strength), cautious investment or holding (moderate attractiveness or strength), or divestment (low attractiveness and strength).
- Formulate strategic actions Units in the top-left zone (high attractiveness and strength) typically merit aggressive investment. Those in the middle (moderate attractiveness or strength) may require selective or cautious investment. Units in the bottom-right (low attractiveness and weak strength) are candidates for divestment or minimal investment.
Common pitfalls to avoid
- Using subjective or overly optimistic scoring.
- Ignoring changes in industry conditions.
- Failing to periodically update assessments.
