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Strategy Frameworks 9 min read
McKinsey GE Matrix:
Importance & How
To Use It (2023)
Article by Cascade Team — Published January 12, 2023
Making the right decision at the right time
is hard. It’s a struggle business leaders
know well.
A broken decision-making process, the
wrong strategic tools, and no visibility into
the company’s portfolio performance can
lead to failed strategies and large
organizations going out of business.
But the ability to recognize growth
opportunities and cut dead-end strategies
in time has always been a competitive
advantage. And GE Matrix is one of the
strategic tools that can help you in the
process.
In this article, we will cover everything you
need to know about this framework,
including HOW to use it, and WHEN you
should use it.
TL;DR
McKinsey’s GE Matrix is a visual tool
designed to help portfolio managers
determine resource allocation for multi-
business portfolios.
The GE Matrix looks at two factors
when scoring SBUs (Strategic Business
Units) — the strength of a particular
business and the attractiveness of the
industry.
Pros: Along with providing an overview
of SBU performance, the GE Matrix also
prescribes three strategic paths (grow,
hold, and harvest) to inform strategic
decisions.
Cons: The GE Matrix only offers a
snapshot of business potential, which
must be contextualized by strategic
decision-makers.
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What Is the GE
Matrix?
The GE Matrix is a strategic framework that
helps multi-business corporations manage
portfolios and prioritize investments across
products and SBUs (Strategic Business
Units).
cascade
High Med Low
Invest Invest Selectivity
High
Grow Grow Earnings
Invest Selectivity Harvest
Med
Grow Earnings Divest
Selectivity Harvest Harvest
MOT
Earnings Divest Divest
BusinessUnitStrength
The GE Matrix looks at two factors: the
competitive strength of an SBU and the
attractiveness of the market in which it
operates.
Based on where the SBU sits within the 3x3
GE Matrix, portfolio managers can quickly
answer three strategic questions:
1. How to allocate capital throughout the
organization’s portfolio of companies?
2. What products or additional SBUs are
needed in their portfolio?
3. Which SBUs should be divested?
The
Components Of
The GE-
McKinsey Nine-
Box Matrix
Let’s look at the components of the GE-
McKinsey Matrix to make sense of the
results.
Y-Axis
The vertical axis scores the industry
attractiveness (either low, medium, or high)
of SBUs. A higher score on this axis will
place an SBU higher in the GE Matrix.
X-Axis
The horizontal axis indicates the SBU's
strength as either low, medium, or high. It
moves from right to left, but it goes from
high to low.
Invest/Grow (Green)
SBUs in these blocks have a mixture of solid
business performance and an attractive
industry. They are primed for growth and
should be allocated resources and capital.
Selectivity/Earnings
(Orange)
SBUs that fall within these blocks aren’t
performing optimally or operate in an
unattractive industry. These business units
require a more conservative approach to
either growth or divestment strategies.
Harvest/Divest (Red)
If an SBU is mapped in the red blocks, this
indicates that a divestment/harvest
strategy should be taken. Generally, this
means that a business should be closed,
further investment should be withheld, or
the company should be run for cash.
How To Use GE
Matrix?
1. Determine the
industry
attractiveness of
each SBU
Calculate the market attractiveness in
which each SBU operates. Remember, this
is a subjective estimate based on your
understanding of the SBUs industry or
sector.
Score the SBUs industry by looking at
factors like:
Market size
Industry profitability
Market growth potential
Industry segmentation
Market profitability
Differentiation
Market growth rate
Level of competition
Important note: The scale you use to score
SBU strength and industry attractiveness
will depend on your needs. Most businesses
use a 1-10 scorecard, but you may want to
use a different range when assigning
values.
2. Determine the
competitive strength
of each SBU
You’ll then repeat this process for each
company in your portfolio. Look at the
strength of the business unit and its
competitive position in the market.
Factors you can consider when working out
the strength of a business unit:
Sustainable competitive advantages
(use VRIO analysis)
Brand equity
Customer loyalty
Market share
Internal competencies
Strength of the value chain (use value
chain analysis)
Production capacity
Product lines
Pricing and cash flows
Profit margin compared to competitors
Important note: Different factors have
different levels of importance. When
calculating industry attractiveness and
business strength scores, you’ll need to
weigh numerous factors to reflect this.
3. Plot the information
on the GE Matrix
Next, plot the values for each strategic
business unit on your Matrix. Use the
market attractiveness score to plot your Y-
axis position and the business strength
score to plot your X-axis position.
The location of each SBU on the 3x3 chart
will indicate whether the company should
grow, hold, or harvest specific business
units.
4. Identify the future
direction of each SBU
The GE Matrix only provides a view of the
current state of SBUs in a portfolio and
doesn’t account for other variables that may
impact a business's viability.
This means that teams that use the GE
Matrix must analyze business units in more
detail to understand all strategic
implications.
Using different strategic analysis tools, such
as SWOT analysis, Porter’s 5 Forces, or
PESTEL analysis, could help you analyze
internal and external environmental factors.
This will also help you to identify potential
risks in the future.
5. Choose where to
invest and focus your
attention
Once you have a picture of your portfolio
mapped out on the GE Matrix, you’ll still
need to answer some critical questions
before making decisions about SBUs.
For example, how much money should you
put into a specific business unit? Does
investing in these SBUs align with your
long-term strategy? Which parts of a
particular SBU should you invest in?
As Michael Porter, the father of the modern
business strategy, says, “The essence of
strategy is choosing what not to do”.
At this point, you should clearly understand
what your organization will focus on. This
will help your organization to stay on the
right track and prevent wasting resources
on misaligned efforts.
6. Turn insights into
results
With a clear idea of direction and new
priorities, you should take those insights
and turn them into an actionable strategic
plan.
A strategy execution platform like
Cascade can streamline the process of
communicating new goals, strategizing,
and executing strategic initiatives. It can
also help your organization ensure
performance and align your portfolio
strategy with the company’s high-level
strategy.
#1 Strategy Execution Platform
Say goodbye to strategy
spreadsheets.
It’s time for Cascade.
Get started, free forever
3 Examples Of
GE Matrix And
Its Possible
Strategic
Scenarios
GE Matrix Example
(Harvest Strategy):
Microsoft Internet
Explorer
At one point, Microsoft Internet Explorer,
was the dominant internet browser in the
market. In 2003, more than 95% of all
internet users were using it to surf the web.
Here’s how the GE Matrix might look for the
Internet Explorer SBU over time.
The 2003 Microsoft Internet Explorer was:
1) A strong business unit
2) In an attractive industry
It would have been somewhere in the top
left corner of a GE-McKinsey Matrix.
However, more web browsers started to
appear, and the industry became more
competitive. By 2010, Microsoft had lost
35% of its web browser market share to
other competitors such as Firefox, Chrome,
and Safari.
After 2010, the Internet Explorer SBU likely
scored lower in competitive strength and
market attractiveness compared to its
earlier days.
Based on these significant changes,
Microsoft likely decided that the Internet
Explorer business unit would need to be
closed, run for cash, or selectively
harvested.
And that’s the strategy the company
followed over the next 12 years.
In 2013, Microsoft released the last
version of Internet Explorer (IE 11).
In 2015, they launched a new web
browser, Microsoft Edge.
In 2022, they ended support and retired
the program.
GE Matrix Example
(Hold Strategy):
David Jones
Need Help?
In 2014, Woolworths Holding Ltd., a
prominent South African retail chain,
acquired Australian retailer David Jones,
believing it could generate A$130 million
per annum in earnings within five years.
