General Electric (GE) Matrix

About GE Matrix
Developed by McKinsey & Company in 1970s. GE is a model to perform business portfolio analysis on the SBUs. GE is rated in terms of Market Attractiveness & Business Strength It is an Enlarged & Sophisticated version of BCG. The matrix is divided into 9 cells, it has 3 zones, one at the upper left, one at the lower right and one central-diagonal

The upper left zone represents business that are most important to the company: the lower right zone represents business that are least important: and the central diagonal zone represents businesses that are medium in their importance.
Using the ratings in the matrix, the firm can appropriately set its objectively and strategies in respect of each of its businesses.

This Planning matrix ,holds that a company can suitably rate its different businesses for the purpose of strategic planning on the basis of two main parameters

(1) Industry attractiveness, and (2) Companys Business Strength.

When the industry concerned is highly attractive and the company has the best of strengths for excelling in that industry, the business is rated as the most important one to the company. When the industry concerned is least attractive and the company's strength for excelling in that industry is also very low, the business is rated as the least important one. The other businesses will occupy a position somewhere between the two extremes. This is the idea of GE Matrix.

The Business Strength-Industry Attractiveness Matrix

To eliminate some of the limitations of the BCG growth/share matrix, a more complete matrix analysis was developed by the General Electric planners and mostly used McKinsey & Co - a management consulting firm. The primary improvement of BS/IA matrix is that it allows for the analysis of multiple variables (rather than only market share and growth) depending on the context. And, rather than focusing on cash flow , it concerns potential future return on investment.

Overview
High High

Firms Business Strengths

Low

Market Attractiveness

Attractive

Moderate Attractive

Unattractive

Low

Business Strength and Industry Attractiveness Dimensions

Horizontal axis market

attractiveness;

Vertical axis business

strength;

Market Attractiveness
Annual market growth rate Overall market size Historical profit margin Current size of market Market structure Technology Customer satisfaction levels Global opportunities

Business Strength
Current market share Brand image Brand equity Production capacity Corporate image Profit margins relative to competitors R & D performance Managerial personal Promotional effectiveness

Weight, Rating, Value?

In BS/IA matrix, each of the key variables used must be given a weight, rating and value. The weight will be based on its importance to the company, relative to other selected variables. The total point must equal 10. the weights can be determined by management or, when possible, by customer surveys. A rating (or grade) will be given for each business strength variable. E.g. a strength would receive a high score, a weakness would receive a low score.

The rating for each variable is then multiplied by its weight to obtain the variables value. The values are individual summed for total value for business strength for that particular business. For industry attractiveness, influencing variables will be given a weight based on their importance to the business, and a rating based on favorable or unfavorable conditions in the environment (opportunity or threat?). The total value for industry attractiveness is calculated in the same manner as for business strength. The two scores for each business unit are then used to position the business on the matrix.

Factors Underlying Market Attractiveness

Factors Resource availability Overall market size Weight 0.20 0.15 Rating (1 5) 2.5 3 Value = (Weight * Rating) 0.5 0.45

Annual Market growth rate

Profitability Competitive intensity Technological requirements

0.20
0.15 0.10 0.20

3
3 2.5 2.5

0.6
0.45 0.25 0.5

Total

1.0

2.75

Factors Underlying Market Strength

Factors Weight Rating (1 5) 5 3.5 4 3 Value = (Weight * Rating) 0.75 0.35 0.40 0.45 Market share New product development Brand Image Sales force 0.15 0.10 0.10 0.15

Pricing
Distribution capacity Product quality R&D Performance Total

0.15
0.10 0.10 0.15 1.0

3
4.5 4.5 3

0.45
0.45 0.45 0.45 3.75

Classification
Business Strength
Strong High Medium Weak
5.00

Market Attractiveness

3.67

Medium

2.33

Low
5.00

3.67

2.33

1.00

GE Multifactor Portfolio Matrix

Industry Attractiveness High Medium Invest to Build Low

High

Protect Position

Build selectively

Medium

Selectively Build selectively manage for earnings

Limited expansion or harvest

Invest/Grow Selectivity /earnings

Low

Protect & refocus

Manage for earnings Divest

Harvest /Divest

Strategy Implications
The position on the matrix (determined according to the weight, rating and value) will indicate the appropriate strategy (as in the BCG matrix). Green cells define the businesses that will receive the resources to grow; the so called green light businesses. The market is high or medium in attractiveness and the organization has high or enough skills and resources to take advantage of the market.

Red cells define the businesses that lack opportunity in terms of market and or company capabilities; the so called red light businesses. They are managed to harvest their resources or are just divested. Yellow cells define businesses that are to receive selective investment, and where caution (the yellow light) is the operating style.

Strategies
Protect Position Invest to grow Effort on maintaining strength Invest to Build Challenge for leadership Build selectively on strength

Build Selectively Invest in most attractive segment Build up ability to counter competition Emphasize profitability by raising productivity

Strategies
Protect & Refocus Manage for current earning Defend strength

Selectivity for Earning Protect existing program Investments in profitable segments

Build Selectively
Specialize around limited strength Seek ways to overcome weaknesses Withdraw if indication of sustainable growth are lacking

Strategies
Limited Expansion for Harvest Look for ways to expand without high risk

Manage for Earnings Protect position in profitable segment Upgrade product line Minimize investment Harvest Sell at time that will maximize cash value Cut fixed costs and avoid investment meanwhile

Limitations of BS/IA Matrix

Although richer and more broadly applicable than the BCG growth-share matrix, it can be more subjective in the selection and weighting of the factors. Different business units may involve different factors which makes the analysis ambiguous. As it is the case with the BCG growth-share matrix, the results are very sensitive to the definition of the product market. E.g. luxury cars, all cars?

Case Study

Overview
High
High

Business Strengths

Low

Market Attractiveness

Attractive

Moderate Attractive

Unattractive

Low

Case Study of TATA

TATA

IT (Information Technology) : TCS Consumer Durable : Automobiles, Titan etc. Textiles : Tata Fabrics, West Sides etc

GE Matrix For TATA

High High IT Consumer Durables

Business Strengths

Low

Market Attractiveness

Low

Textiles

BCG v/s GE
BCG Market Growth Market share
4 cell Multi Products Primary tools

GE Market Attractiveness
Market strength 9 cell

Multi Business Units

Secondary tools