The GE matrix is an alternative technique used in brand marketing and product management to help a company decide what product(s) to add to its product portfolio, and which market opportunities are worthy of continued investment. Also known as the 'Directional Policy Matrix,' the GE multi-factor model was first developed by Mckinsey for General Electric in the 1970s.
Conceptually, the GE Matrix is similar to the Boston Box as it is plotted on a two-dimensional grid. In most versions of the matrix:
Each product, brand, service, or potential product is mapped as a piechart onto this industry attractiveness/business strength space. The diameter of each piechart is proportional to the Volume or Revenue accruing to each opportunity, and the solid slice of each pie represents the share of the market enjoyed by the planning company.
The planning company should invest in opportunities that appear to the top left of the matrix. The rationale is that the planning company should invest in segments that are both attractive and in which it has established some measure of competitive advantage. Opportunities appearing in the bottom right of the matrix are both unattractive to the planning company and in which it is competitively weak. At best, these are candidates for cash management; at worst candidates for divestment. Opportunities appearing 'in between' these extremes pose more of a problem, and the planning company has to make a strategic decision whether to 'redouble its efforts' in the hopes of achieving market leadership, manage them for cash, or cut its losses and divest.
The General Business Screen was originally developed to help marketing managers overcome the problems that are commonly associated with the Boston Matrix (BCG), such as the problems with the lack of credible business information, the fact that BCG deals primarily with commodities not brands or Strategic Business Units (SBU's), and that cashflow is often a more reliable indicator of position as opposed to market growth/share.
The GE Business Screen introduces a three by three matrix, which now includes a medium category. It utilizes industry attractiveness as a more inclusive measure than BCG's market growth and substitutes competitive position for the original's market share.
So in come Strategic Business Units (SBU's). A large corporation may have many SBU's, which essentially operate under the same strategic umbrella, but are distinctive and individual. A loose example would refer to Microsoft, with SBU's for operating systems, business software, consumer software and mobile and Internet technologies.
Growth/share are replaced by competitive position and market attractiveness. The point is that successful SBU's will go and do well in attractive markets because they add value that customers will pay for. So weak companies do badly for the opposite reasons. To help break down decision-making further, you then consider a number of sub-criteria:
For market attractiveness:
* Size of market. * Market rate of growth. * The nature of competition and its diversity. * Profit margin. * Impact of technology, the law, and energy efficiency. * Environmental impact.
. . . and for competitive position:
* Market share. * Management profile. * R & D. * Quality of products and services. * Branding and promotions success. * Place (or distribution). * Efficiency. * Cost reduction.
At this stage the marketing manager adapts the list above to the needs of his strategy. The GE matrix has 5 steps:
* One - Identify your products, brands, experiences, solutions, or SBU's.
* Two - Answer the question, What makes this market so attractive?
* Three - Decide on the factors that position the business on the GE matrix.
* Four - Determine the best ways to measure attractiveness and business position.
* Five - Finally rank each SBU as either low, medium or high for business strength, and low, medium and high in relation
to market attractiveness.
Now follow the usual words of caution that go with all boxes, models and matrices. Yes the GE matrix is superior to the Boston Matrix since it uses several dimensions, as opposed to BCG's two. However, problems or limitations include:
* There is no research to prove that there is a relationship between market attractiveness and business position. * The interrelationships between SBU's, products, brands, experiences or solutions is not taken into account. * This approach does require extensive data gathering. * Scoring is personal and subjective. * There is no hard and fast rule on how to weight elements. * The GE matrix offers a broad strategy and does not indicate how best to implement it.
McKinsey Quartely Enduring Ideas: The GE–McKinsey nine-box matrix https://www.mckinseyquarterly.com/Enduring_ideas_The_GE-McKinsey_nine-box_matrix_2198