?The General Electric (GE) Market Attractiveness-Business Position Matrix is one of the best-known directional policy matrices, “which categorises business units into those with good prospects and those with less good prospects” (Johnson, Whittington & Scholes, 2011, p. 252). The following two factors is the principal cause for the development of the GE Matrix. In the 20th century, since the blossoming of multi-activity enterprises, corporations have faced the challenge of managing its portfolio of business units effectively (McKinsey & Co, 2008).
In addition, the prosperity as well as the over simplicity of the BCG Matrix incited the development of a more comprehensive model (Jobber, 2007). This essay will attempt to describe how to use this tool in marketing strategy planning and discuss its restrictions and necessities. With the purpose of assisting the US General Electric Company in classifying strategic business units (SBU), McKinsey & Co. developed the GE Matrix, which assesses business units in terms of two criteria: the attractiveness of the industry concerned and the competitive strength of the SBU within that industry (Johnson, Whittington & Scholes, 2011).
A SBU is an independent department or organizational unit, small enough to be adjustable and comprehensive enough to run control over most of the parts affecting its long-term achievement. Since strategic business units are more flexible and usually have independent tasks and objectives, they allow the owning empire to respond quickly to changing economic or market status. The two criteria can be divided by high, medium and low and put into two axes. The horizontal axis of the matrix is industry attractiveness concerning to a firm of entering or remaining in a particular industry.
And the vertical axis is the strength of the business unit referring to how strong the firm or SBU is in terms of the market (Thompson & Martin, 2010). When launching a portfolio analysis of the business unit, the GE Matrix is the best tool as McKinsey & Co. (2008) stated that rather than depend on the anticipation of outlook of every SBU, a firm can simply make a judgment via the two criteria to decide which SBU can be profitable in the future. Table 1 can illustrate this. Table 1 Strategy guidelines based on the directional policy matrix
High attractiveness Medium attractiveness Low attractiveness High strength 1. Investment and growth 2. Selective growth 3. Selectivity Medium strength 4. Selective growth 5. Selectivity 6. Harvest Low strength 7. Selectivity 8. Harvest 9. Divest (Source: Johnson, Whittington & Scholes, 2011) The first step to take when putting the nine-box matrix into use is to define the criteria that make a market attractive. Considering a range of factors each of which is given a weighting to produce a composite picture assesses industry attractiveness.
According to Evans (2013), there are five most relevant factors to take into consideration in measure process: market size, market demand growth, competitive intensity, industry profitability and market risk. In a practical situation, it is the managers business to decided which factors are applicable for the products. After deciding which criteria to use, the second step to take is to accept upon a weighting system for these factors (Jobber, 2007). The table 2 gives an example of market attractiveness assessment.
The market size (weighting = 4. 0) is the most significant factor, and market risk (weighting = 1. 0) is the least significant one. The third step listed by Jobber (2007) is to examine the particular products in relevant industry according to each of the five factors in a scale of 1 to 10. For instance, also in table 2 the factor rating for market size is very high rating (rating=9. 0). Making a multiplication between weighting and rating is the total score to show a product’s attractiveness. Finally, the products attractiveness is 84 per cent.
The factors listed before may not be suitable for all the companies in assessing the business units. In reacting to different situations different criteria should be used. When dealing with the competitive strength, the method is almost the same. Jobber (2007) used market share, distribution capability, service quality, innovation capability and cost advantages as the determinants considered being needed for achievement. Using the same calculation method mentioned in market attractiveness, the total amount of the competitive strength of the company is 76 per cent.
Table 2 An Example of Market Attractiveness Assessments Market factors Relative importance weightings (10 points shared) Factor ratings (scale 1-10) Factor ratings (weightings*ratings) Market size 4. 0 9. 0 36 Market demand growth 2. 0 7. 0 14 Competitive intensity 2. 5 8. 0 20 Industry profitability 1. 5 6. 0 9 Market risk 1. 0 5. 0 5 84% (Source: Jobber, 2007) Next, the different business units should be placed within the GE Matrix and make an analysis of how to manage them. All the units can be categorized into three parts, which will be defined with table 1 according to McKinsey & Co.(2008). The first part, all the yellow boxes, may be recommended to invest for growth. The first box is a very attractive market in which the firm has excellent strength. Boxes No. 2 and No. 4 record a high rating in either business strength or industry attractiveness and a medium rating in the others. This suggests that these SBUs show some promise. The second part, all the purple boxes are recommend to be sold or manage for cash. Box no. 9 is an unattractive market in which the firm has no strength and should be abandoned from the market. In boxes No.6 and 8, either business units is low in market attractiveness or business strength, and the other one is only medium. In reacting to this, run for cash is the better solution. The third part is the blue boxes, which regarded as choices for selective investment. In each case, the SBU has certain positive features, which is high in one of the dimensions or average in both. Table 3 An Example of Competitive Strength Assessments Strengths needed for success Relative importance weightings (10 points shared) Factor ratings (scale 1-10) Factor ratings (weightings*ratings)
Market share 2. 5 8. 0 20 Distribution capability 1. 0 7. 0 7 Service quality 2. 0 5. 0 10 Innovation capability 3. 0 9. 0 27 Cost advantages 1. 5 8. 0 12 76% (Source: Jobber, 2007) Table 4 Evans (2013) claimed that when using the GE Matrix two limitations need to be take into consideration, “ Definition of the relevant market ” and “ inter-business synergies”. He further explained theses opinions by two examples. The portion of auto in UK motor vehicles industry is immeasurably small, however it has a substantial share in the luxury industry.
Therefore, Lotus should be placed in the luxury industry rather than UK motor vehicles industry when assess its market attractiveness. “Inter- business synergies” means that the working together of the whole company will produce an effect greater than the sum of their individual effects. Even though some business units performed badly in the market, however concerning the whole business strategy it is possible to keep the products in case of more severe loss in the future.
The primary improvement of GE Matrix comparing to BCG Matrix is that it involves a wider analysis of the firm’s operations. However, some people claimed that the GE Matrix is harder to use than BCG Matrix since there are many weight and scoring works (Jobber, 2007). What’s more, Jobber (2007) also pointed out that the flexibility leads to the bent on personal experience when choosing the factors influencing business strength and market attractiveness. (1232 words)