GE/MCKINSEY MATRIX

  • In consulting engagements with general cleelric in the 1970s Mckinsey and company developed a nine cell portfolio matrix as a tool for screening GE’s large portfolio of strategic business units.
  • The GE [Mckinsey matrix] is similar to BCG growth share matrix in that it maps strategic units on a grid of the industry and 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 ones as industry attractiveness and business unit strength whereas 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 v/s four cells in the BCG matrix.
  • Industry attractiveness and business unit strength are calculated y first indentifying criteria for each, determining the value of each parameter in the criteria and multiplying that value by a weighting factor.
  • The result is a quantitative measure of industry attractiveness and the business unit’s relative performance in that industry.

Steps in developing GE matrix

  1. Select factor and indicators
  2. Assign each indicator a weight (total =1) based on its importance.
  3. Rate the industry indicator and company on business indicators on scale of 1(weak) – 5 (strong)
  4. Multiply weight time rating and total for summary measure.

GE Portfolio Example

Market factor Weight Rating Value
Size .33 5 1.65
Growth .33 3 .99
Profit margin .34 2 .65
  3.32
Business Weight Rating Value
Market share .33 1 .33
Product quantities .33 5 1.65
Distribution net .34 2 .68
  2.66

 

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