Assignment 05: BCG Matrix—McKinsey 7s

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Chapter13.pptx

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Strategic Analysis for Healthcare

Chapter 13

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General Electric Matrix

The General Electric (GE) nine-block business screen, commonly called the GE matrix, was developed by the consulting firm McKinsey & Company.

It is similar in many respects to the BCG matrix, but it has surpassed the BCG in popularity.

In the GE matrix, the business’s overall strength is compared to the overall attractiveness of the market within which the business competes.

As in the BCG matrix, multiple divisions can be placed on the GE matrix so that the strategist can quickly take in a great deal of data in a simplified format.

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General Electric Matrix

The popularity of the GE Matrix stems from its flexibility as well as from its ability to include a greater number of variables in the analysis.

Whereas the BCG matrix uses the term market growth for the vertical axis, the GE matrix uses market attractiveness.

And where the BCG uses relative market share for the horizontal axis, the GE matrix uses business strength.

Although the differences may seem subtle, the effect on practical application is significant.

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General Electric Matrix

High





MARKET
ATTRACTIVENESS









Low
	High		Low
		BUSINESS STRENGTH

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Market Attractiveness

What makes a market attractive?

There is no clear definition.

Ultimately, market attractiveness is for the strategist to judge, and as a result, successful strategy development hangs in the balance.

One way to define market attractiveness, as with the BCG matrix, is simply to use market growth.

In reality, market attractiveness is much more complex. The recognition of this complexity is where the GE matrix has an inherent advantage over the BCG.

It has the ability to combine an infinite number of variables to arrive at a customized definition of market attractiveness.

At the same time, however, this imprecision could also be a drawback.

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Market Attractiveness

When determining market attractiveness, the strategist may consider aspects of other industry analysis models, such as the following:

Porter’s five forces

Threat of new entrants

Rivalry among existing firms

Threat of substitutes

Bargaining power of buyers

Bargaining power of sellers

The opportunities and threats sections of SWOT

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Business Strength

Just as market attractiveness is loosely defined, the same is true for business strength.

When considering the strength of a business, the strategist may think of the strengths and weaknesses sections of SWOT.

These SW issues will likely include things like

market share,

strength of the brand,

quality,

distribution reach,

customer loyalty,

cost structure, and

staff quality.

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Constructing the Matrix

The analyst first creates a nine-block chart.

The vertical axis represents market attractiveness, and the three levels of blocks are labeled “Low,” “Medium,” and “High.”

The horizontal axis represents business strength and is divided into the same three levels.

The company’s divisions are placed on the matrix according to their intersection of market attractiveness and business strength.

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Constructing the Matrix

When the divisions are placed on the matrix, each is represented by a circle.

The size of the circle represents the size of the market within which that particular division competes.

Within each division’s circle, a pie slice represents that particular division’s share within its market.

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General Electric Matrix

High





MARKET
ATTRACTIVENESS









Low
	High		Low
		BUSINESS STRENGTH

Division 1

Division 2

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General Electric Matrix

Strategic conclusions can be drawn from each division’s position on the GE matrix.

Strategies associated with the upper-left corner of the matrix can be loosely described as “grow and build” strategies.

Those associated with the lower-right corner can be described as “harvest and divest.”

“Hold and maintain” strategies are associated with the boxes running from the lower-left corner to the upper-right.

More detailed strategic conclusions associated with each of the nine boxes are shown in Exhibit 13.3 in your book.

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General Strategies on Matrix Location

Grow and Build: Integration strategies, intensive strategies

Hold and Maintain: Market penetration, product development, joint venture

Harvest and Divest: Retrenchment, divestiture, liquidation

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Exercise

Form groups.

Develop a GE Matrix for your project company.

Identify the divisions.

Identify the size of the market the division plays in (size of the circle).

Identify the market share the division has (size of pie slice).

For classroom purposes, you can approximate these values. For a research paper, they should be research based.

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