PRESENTATION ON GE MCKINSEY MATRIX

Submitted to: Mrs. Rutvi UmrigarPresented by: Ragini Patel Roll.no.-34

Sub.:- BPSM

Portfolio Analysis

Analyze its current business portfolio and decide which SBU's should receive more or less investment

Develop growth strategies for adding new products and businesses to the portfolio

Decide which businesses or products should no

longer be retained.

Analysis models

• Boston consultancy Group.• GE matrix.• Shell’s directional policy matrix

GE McKinsey Matrix

The GE matrix / McKinsey matrix is a model to perform a business portfolio analysis on the Strategic Business Units of a corporation.

In consulting engagements with General Electric in the 1970's, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic business units (SBU).

This business screen became known as the GE/McKinsey Matrix

The GE / McKinsey matrix is similar to the BCG growth-share matrix in that it maps strategic business units on a grid of the industry and the SBU's position in the industry.

GE Multifactor Portfolio MatrixIndustry Attractiveness

Bu

sin

ess S

tren

gth

s

High

High

Medium

Medium

Low

Low

Invest/Grow

Selectivity/earnings

Harvest /Divest

Protect Position

Invest to Build

Build selectively

Build selectively

Selectively manage for earnings

Limited expansion or harvest

Protect & refocus

Divest

Manage for earnings

The GE matrix however, attempts to improve upon the BCG matrix in the following two ways:

The GE matrix generalizes the axes as "Industry Attractiveness" and "Business Unit Strength“.

The 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.

Industry Attractiveness

The vertical axis of the GE / McKinsey matrix is industry attractiveness, which is determined by factors such as the following:

Market growth rate Market size Demand variability Industry profitability Industry rivalry Global opportunities Macro-environmental factors (PEST)

Business Unit Strength

The horizontal axis of the GE / McKinsey matrix is the strength

of the business unit. Some factors that can be used todetermine business unit strength include:

Market share Growth in market share Brand equity Distribution channel access Production capacity Profit margins relative to competitors

The business unit strength index can be calculated bymultiplying the estimated value of each factor by thefactor's weighting, as done for industry attractiveness.

Strategic Implications

Resource allocation recommendations can be made to grow,hold, or harvest a strategic business unit based on its positionon the matrix as follows:

Grow strong business units in attractive industries, average

business units in attractive industries, and strong business units in average industries.

Hold average businesses in average industries, strong businesses in

weak industries, and weak business in attractive industries.

Harvest

weak business units in unattractive industries, average business units in unattractive industries, and weak business units in average industries.

There are strategy variations within these three groups.

For example, within the harvest group the firm would be inclined to quickly divest itself of a weak business in an unattractive industry, whereas it might perform a phased harvest of an average business unit in the same industry.

Some Limitations of the GE Model

Subjective measurements across SBUs Process also highly subjective

From the selection and weighting of factors to the subsequent development of both a firm’s position and the market attractiveness

Businesses may have been evaluated with respect to different criteria

Sensitive to how a product market is defined

Aggregation of the indicators is difficult