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The Model

In the GE/McKinsey approach, businesses or segments are displayed against two composite dimensions: Industry Attractiveness and the company's Business Strength. These dimensions are, in turn, composed of a series of weighted factors that make up the composite dimension. Both the factor weights and the factors themselves may vary from one application to another.
The Attractiveness factor often includes measures of market size, growth rate, competitive intensity, and the like, while the Strength factor often includes such measures as brand image, product quality, distribution coverage, and relative price. These factors should reflect the internal and external fit criteria.

(a) external fit: a strategic fit between the market environment and the organization's resources, competencies and product offerings.
(b) internal fit: strategic fit between the organization's strategy, structure, business processes and management style.

A six-step procedure to implement this process is as follows:
  1. Specify drivers of each dimension. The firm should carefully determine those factors that are important to its specific, overall strategy.


  2. Weight drivers. Here, the firm must assign relative importance weights to the drivers, again a critical strategic decision. Some form of consensus building process is usually required to come to agreement on a set of weights.


  3. Rate segments on each driver. This scoring process is normally a consensus-building process like the one that develops the weights


  4. Multiply weights times rates for each SBU. This is simply an arithmetic operation


  5. View resulting graph. The graph helps interpret the results of the analysis.


  6. Review/sensitivity analysis. The process should be repeated with other weights (there may be no consensus) and other ratings.

Getting started

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Instructions can be found here.

Read this help section and the Tutorial carefully before running the software.

You can download here (conglomerate.gef) an example file (Conglomerate Case) you can load into the software.


Running the software

Step by Step instructions on how to run the software can be found in the Tutorial.


Understanding the results

Example:

The following GE Matrix has been generated with the default Conglomerate Inc, case. You can download the corresponding data file that you can load into the software here.

Conglomerate Inc, was reviewing the support the firm was giving to four different business segments, TRANS, SALT, UBC, and POWER. In order to help prioritize the allocation of resources to these business opportunities, the firm went through the 6 steps outlined above.

The figure below shows the resulting graph. Segments are more attractive as we move in a northwesterly direction, suggesting that POWER is the most attractive segment, TRANS the least attractive and UBS (with the biggest bubble) is the largest potential opportunity.



Many of these matrices, like the one in the figure above, are designed to have nine cells. The three cells in the upper right are those in which the company is strong and the market is attractive. Hence, these product-market combinations should be considered for investment and growth. The three cells along the diagonal are of intermediate overall attractiveness, and the company should consider a policy of selectively enhancing businesses in those cells to generate earnings. Finally, the cells in the lower left corner are low in overall attractiveness, and the company should consider harvesting and divesting any products targeted to customers in those cells.

To reduce the risk associated with choosing a single segment, a company may instead decide to serve two or more segments. The selection of these segments can be analyzed in two steps.
First, which segments pass the attractiveness criteria outlined above?
Second, which of these acceptable segments offer the best combination of risk and return to the company, given its risk tolerance?
Different products targeted to different market segments typically create higher sales than a single product targeted to the average customer. However, differentiated marketing almost always increases the costs of doing business (e.g., product modification costs, production costs, administrative costs, inventory costs, and promotion costs).