The GE / McKinsey Matrix (also termed “GE multi-factor model” or “nine-box matrix”) is a strategic planning tool designed to assess and prioritize a company’s portfolio of businesses. Developed in the 1970s by McKinsey & Company for General Electric (GE), it is an improvement on the Boston Consulting Group (BCG) Matrix, providing a more nuanced approach to evaluating strategic business units (SBUs) along two key dimensions: industry attractiveness and business strength. Unlike the BCG Matrix, which simplifies categorization into four quadrants, the GE / McKinsey Matrix offers a nine-cell grid that allows for greater flexibility and strategic depth in decision-making.
This tool helps executives allocate resources effectively, determining which SBUs should receive investment, be maintained, or potentially divested.
Key Components of the GE / McKinsey Matrix
The matrix evaluates business units across two dimensions, each assessed based on multiple factors:
1. Industry Attractiveness
This dimension reflects external market conditions affecting a business unit’s potential for growth and profitability. Key factors include:
- Market size and growth rate – Larger, fast-growing markets are more attractive.
- Competitive intensity – Lower competition enhances industry attractiveness.
- Profitability and pricing power – Industries with higher margins are preferable.
- Regulatory environment – Favorable regulations can increase attractiveness.
- Technological advancements – Innovative industries may yield superior returns.
2. Business Strength
This dimension reflects the internal capabilities of a company relative to its competitors. Factors include:
- Market share and competitive positioning – Strong brands hold more pricing power.
- Financial resources – Well-funded SBUs can sustain strategic initiatives.
- Operational efficiency – Lower costs and effective management improve strength.
- Brand equity and customer loyalty – A loyal customer base enhances stability.
- Innovative capability – The ability to introduce new products and services secures long-term success.
Once an SBU is evaluated across both dimensions, it is mapped onto the nine-cell GE / McKinsey Matrix, typically categorized into three strategic zones:
- Invest/Grow (High Attractiveness, High Strength) – Businesses with strong competitive positions in attractive industries should receive substantial investment.
- Hold/Selective Investment (Medium Attractiveness, Medium Strength) – Businesses in moderate positions should maintain their stance, selectively investing where needed.
- Harvest/Divest (Low Attractiveness, Low Strength) – Businesses that lack industry appeal and competitive advantage should be considered for divestment or resource optimization.
Theoretical Foundations and Linkages to Other Strategy Models
The GE / McKinsey Matrix is rooted in portfolio theory and draws upon key strategic frameworks:
1. Porter’s Five Forces – This model helps evaluate industry attractiveness by analyzing competition, supplier power, buyer influence, potential entrants, and substitute threats.
2. Resource-Based View (RBV) – Business strength is determined not only by market factors but also by firm-specific capabilities, aligning with RBV’s focus on unique competitive advantages.
3. Ansoff’s Growth Matrix – The decision to invest in a business unit can be informed by Ansoff’s framework, guiding whether firms should pursue market penetration, product development, market development, or diversification.
4. BCG Matrix Comparison – While the BCG Matrix classifies SBUs into four simple categories, Stars, Cash Cows, Question Marks, and Dogs, the GE / McKinsey Matrix allows for greater granularity, providing a more nuanced approach to resource allocation.
By integrating insights from these models, executives can strengthen strategic decision-making and improve portfolio management.
Practical Application: How Businesses Use the GE / McKinsey Matrix
Consider a large multinational corporation with diverse business units, such as a consumer electronics company like Samsung. Using the matrix:
- Invest/Grow – High-tech smartphone division with strong brand equity in a growing market.
- Hold/Selective Investment – Mid-range home appliances division facing stable but slow growth.
- Harvest/Divest – Legacy fax machine division, operating in a declining industry.
By using the GE / McKinsey Matrix, Samsung can prioritize investments in high-growth sectors, selectively maintain mid-tier businesses, and phase out obsolete units.
Final Thoughts
For experienced business professionals, the GE / McKinsey Matrix is a critical tool for resource allocation and long-term strategy formulation. By systematically assessing industry attractiveness and business strength, firms can make data-driven investment decisions, ensuring sustainable competitive advantage.