GE Nine Cell Matrix

GE Nine Cell Matrix

The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix used to perform business portfolio analysis as a step in the strategic planning process. The GE/McKinsey Matrix identifies the optimum business portfolio as one that fits perfectly to the company's strengths and helps to explore the most attractive industry sectors or markets.
The objective of the analysis is to position each SBU on the chart depending on the SBU's Strength and the Attractiveness of the Industry Sector or Market on which it is focused. Each axis is divided into Low, Medium and High, giving the nine-cell matrix as depicted below.

GE Nine Cell Matrix

Industry Attractiveness Business Unit Strength

Strong
High

Average

Weak

Medium

Low

GE Nine Cell Matrix

Different factors can be used to define Industry Attractiveness. Like:Market Size, Market Growth Rate, Demand variability, Industry Profitability, Competitive Rivalry, Global Opportunities, Entry and exit barriers, Capital requirement, Macro environmental Factors (PEST)

GE Nine Cell Matrix

Different factors can also be used to define SBU Strength. Like:Market Share, Distribution Channel Access, Financial Resources, R&D Capability, Brand equity, Production Capacity, Knowledge of customer and market, Caliber of management. Relative cost position

GE Nine Cell Matrix

The factors and their relative weightings are selected. The rating values for each factor are entered for each SBU and Industry.

Market Attractiveness

Annual market growth rate Overall market size Historical profit margin Current size of market Market structure Market rivalry Demand variability Global opportunities

Business Strength
Current market share Brand image Production capacity Corporate image Profit margins relative to competitors R & D performance Promotional effectiveness

GE Nine Cell Matrix

Industry attractiveness and business unit strength are calculated by first identifying criteria for each, determining the value of each parameter in the criteria, and multiplying that value by a weighting factor. The result is a quantitative measure of industry attractiveness and the business unit's relative performance in that industry Industry attractiveness =

factor value1 x factor weighting1

+ factor value2 x factor weighting2 +

GE Nine Cell Matrix

Each business unit can be portrayed as a circle plotted on the matrix, with the information conveyed as follows: Market size is represented by the size of the circle.

Market share is shown by using the circle as a pie chart.

The expected future position of the circle is portrayed by means of an arrow.

GE nine-cell Planning Grid

Zone
Green

Strategic Signal
Invest/Expand

Yellow

Select/Earn

Red

Harvest/Divest

 Invest/ Expand: In this Zone there is opportunity to Grow

through further Investment & Expansion. This zone is characterized by high business strength & high industry attractiveness which is a Ideal situation for growth. How ever this situation does not remain for a long time. Example: Initially IT industry was most attractive but later on it was facing competition from all sorts of places. Select/Earn : This zone presents a mixed situation in which growth possibility is low. However, it presents opportunities for selective earning. Harvest/Divest: In the case of red-cell, organization has to stop. In this case Harvesting or Divesting strategies are suitable. Harvesting means withdraw from a business but withdrawal is not immediate. Initially focus is on cost-cutting i.e., in R&D and advertising; the objective is to earn short term profit.

GE Nine-cell Planning Grid

Strategies based on GE Nine Cell Matrix

Industry Attractiveness Business Unit Strength

Strong

Average

Weak

High

Grow

Grow

Hold

Medium

Grow

Hold

Harvest

Low

Hold

Harvest

Harvest

GE Nine Cell Matrix

Grow Business units that fall under grow phase, attract high investment. Firms may go for product differentiation or Cost leadership. Huge cash is generated in this phase. Market leaders exist in this phase.

GE Nine Cell Matrix

Hold Business units that fall under hold phase attract moderate investment. Market segmentation, market penetration, imitation strategies are adopted in this phase. Followers exist in this phase.

GE Nine Cell Matrix

Harvest - Business units that fall under this phase are unattractive. Low priority is given to these business units. Strategies like divestment, diversification, mergers are adopted in this phase.

GE Nine Cell Matrix Strength a) It allows intermediate ratings between high and low and between strong and week. b) It helps in channeling the corporate resources to business and achieving competitive advantage and superior performance. c) It helps in better strategic decision making and better understanding of business scope.

GE Nine Cell Matrix Weakness a)It tends to obscure business that are become to winners because their industries are entering at exit stage. b)Assessment of business in terms of two factors is not fair.

EXAMPLE OF GE NINE CELL MATRIX

About Maruti Udyog

Founded in 1981 Products are Maruti 800, Omni, Alto,SX4, Swift Dezire, Swift, A-star, Gypsy, Wagon R, Ritz,others. Vision The Leader in the Indian Automobile Industry, Creating Customer Delight and Shareholders Wealth; a Pride of India Core Values: Maruti claims to be driven by some Core Values in every endeavour Customer Obsession, fast, Flexible, and first mover, Innovation and creativity Networking and Partnership Openness and Learning

800

GE Matrix For TATA

Strong High
IT

Business Strengths
Consumer Durables

Weak

Market Attractiveness

Textiles

Low

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