Professional Documents
Culture Documents
The GE/McKinsey Matrix was developed jointly by McKinsey and General Electric in the early
1970s as a derivation of the BCG Matrix. GE, by that time, had approximately 150 different
business units and was disappointed with the profits derived from its investments. This raised
internal concerns about the approach the organization had to investment decision making. While
exploring new models to implement, GE started to be interested in visual strategic frameworks
like the Growth-Share Matrix created by the Boston Consulting Group (BCG) a few years
before. However, the BCG Matrix showed to have some limitations. It was considered not
flexible enough to include all the broader issues that a company was facing while operating in a
fast changing global environment. The GE/McKinsey Matrix solves most of the issues of the
BCG model and proposes a more sophisticated and comprehensive approach to investment
decision making.
How it Works
1. Determine which factors are relevant for the corporation in the industry where it operates
2. Assign a weight to each factor
3. Score each factor
4. Multiply the relative scores and weights
5. Sum all up and interpret the graph
6. Perform a review / sensitivity analysis
The size of the circle represents the market size of the SBU
The share owned by the SBU is expressed as a pie slice with its relative percentage inside
The expected future direction of the SBU is represented with an arrow
The circles representing SBUs are then placed within the matrix. As a result, the executives of
the corporation will have a clear and powerful analytic map for understanding and managing
their entire multi-unit business. The units that fall above the diagonal indicate the investment and
growth to be pursued; the units along the diagonal require a thorough analysis and individual
selection for investment; finally, the units below the diagonal might indicate divestments are
necessary or otherwise that businesses can be kept only for cash reasons. The placement of the
units within the matrix is a necessary first step before the analysis phase that requires human
judgement can begin. For example, a strong unit in a weak industry is in a very different
situation than a weak unit in a highly attractive industry.
The GE/McKinsey Matrix, as an extension of the BCG framework, shares the aforementioned
advantages of the BCG model. Though the GE/McKinsey Matrix is more sophisticated than the
BCG matrix and can provide higher value information for the executive management, it has
several flaws and limitations:
The GE/McKinsey Matrix offers a broad strategy and does not indicate how best to implement it.
For the above limitations and issues, the GE/McKinsey Matrix can serve more as a quick
strategic visual framework rather than as a resource allocation tool.
Apple Inc. is a large technology company with several business units operating in different
markets, including desktop computers, laptops, tablet computers (iPads), portable music players
(iPods), smartphones (iPhones) and software to support these products. A competitor wishing to
gain competitive intelligence on the activities of Apple Inc. could do so by placing its business
units into a GE/McKinsey Matrix. By analyzing this matrix, it could determine which business
units Apple is likely to invest in heavily, develop selectively, or divest.
The market attractiveness axis would be relatively easy for the competitor to assess if it is
currently operating in that market, since this consists of factors external to Apple. This includes
easily obtainable information such as the current market size and market growth rate. However,
some factors would have to be assessed subjectively, such as barriers to entry and the state of
technological development.
In contrast, the business unit strength axis would be more difficult to assess since it consists of
factors internal to the company, such as customer loyalty, access to resources, and management
strength. However, a great deal of information could be obtained from secondary sources, such
as the Internet, the media, and shareholder reports.
Figure 4: Assessment of Apple business units in the GE/McKinsey Matrix
From an assessment of the above GE/McKinsey Matrix, it becomes clear that Apple is at least
moderately strong in each of its business units and it competes in a number of attractive and fast-
growing segments, such as tablet computers and smartphones. A competitor performing this
analysis would realize that Apple is unlikely to divest any of these business units and is likely
using its personal computer and music products as cash cows in order to fund R&D and growth
in the faster-growing markets. The barriers to entry in all of these markets are considerable, since
entry would require a large amount of funding for either R&D or the acquisition of the necessary
technology and expertise. If the company performing this analysis decides to compete with
Apple, it should do so in the newest, fastest-growing markets (tablets and smartphones), as these
represent the areas of greatest opportunity, despite Apple’s early dominance.