Welcome to another instalment in Professional Academy's series of Marketing Theories Explained. You will most likely have heard of the Boston Consulting Group matrix, or BCG matrix, and if not you can read about it in our BCG blog. The GE matrix is considered by many to be an extension, and even an improvement, of that model. Like the BCG, the GE matrix helps you determine how to allocate resources, but it allows greater flexibility. You can explore more models in the series on the Marketing Theories page.
The GE matrix was developed by McKinsey and Company in the 1970s. Its nine-cell grid measures business unit strength against industry attractiveness, and this is the key difference from the BCG. Whereas the BCG is limited to products, business units in the GE matrix can be products, whole product lines, a service or even a brand. Plotting these chosen units on the grid helps determine which strategy to apply.
Before you can plot anything on the grid, you first need to decide how you will measure both industry attractiveness and business unit strength.
Measuring industry attractiveness
There are several factors you could choose to base this on, including market size, market growth, the PESTEL factors (political, economic, social, technological, environmental and legal) and Porter's Five Forces (competitive rivalry, buyer power, supplier power, threat of new entrants and threat of substitution). You need to decide which factors to use as determining factors, as these will be applied to all business units. The process runs as follows:
- Decide on the determining factors.
- Give each factor a weighting based on its importance, so that the total weight of all factors adds up to 1.00 or 10.00, for example.
- Rate each business unit against each factor on a scale, for example 1 to 5, where 1 is extremely attractive and 5 is extremely unattractive.
- Give each business unit a weighted rating on each factor by multiplying its rating by the weight for that factor.
- Total up all the weighted ratings for each business unit.
Measuring business unit strength
Factors used to determine how strong a unit is compared with others in its industry include market share, growth in market share, brand equity, profit margins compared with the competition, and the strength of the distribution channel process. The same five steps are then repeated for business unit strength.
Once you have both measurements, you can plot your business units on the GE matrix, and where they fall determines the strategy to apply.
Grow or invest
Units that land in this section of the grid generally have high market share and promise high returns in the future, so they should be invested in.
Hold or selectivity
Units that land in this section can be ambiguous and should only be invested in if there is money left over after investing in the more profitable units.
Harvest or divest
Poorly performing units in an unattractive industry end up in this section of the grid. They should only be invested in if they can make more money than is put into them; otherwise they should be wound down.
Why the GE matrix is useful
This model is valuable because it analyses business units against multiple factors, rather than the simpler two-dimensional approach of the BCG. In doing so, it gives an organisation a clear starting point from which to build a strategy for allocating resources and expanding its products.
How Professional Academy Supports Your Journey
Understanding strategic portfolio tools such as the GE matrix is central to developing marketing expertise. If you would like to develop your marketing strategy knowledge further, the CIM Level 6 Diploma in Professional Marketing is an excellent next step. To find more models in the series, visit the Marketing Theories page, and if you would like help referencing this blog, see the Harvard Referencing blog. To discuss the right qualification for you, the qualification advice team is on hand to help.
