The GE Matrix is a 3x3 matrix designed to help you decide where your investment for resources should be within a business. You can think of it as similar to the arguably more famous BCG Matrix, in that you allocate products or activities within each box in order to determine future actions.
Let’s take a look in more detail…
The GE Matrix is a 3x3 tool that allows you to map different products, services or activities based on the attractiveness of the industry and the strength of the business unit.
The matrix is helping you make a decision between the following options:
Grow/Invest: Activities placed in this area should be invested as you have a high strength in a highly attractiveness industry.
Hold: Activities that land within this section are less appealing for investment than the Grow activities, but not necessarily at the point of exiting.
Harvest/Divest: If activity is weak in strength and the industry is not attractive then it’s likely one you should consider exiting or closing down.
Now it’s important to note that these are guides not gospel, so keep in mind you’ve got to consider the wider factors and future potential of your business unit and market.
Industry attractiveness is a measurement of how easy it would be for you to have success within the market. The more profitability potential in your market then the more attractive it is for the company.
Some of the elements you should consider:
Also worth noting is:
You can find out more about attractiveness by looking at Porter’s Three Tests.
Business Unit Strength is a measurement of how effective your current business unit is in the market. This can be subjective, but there are ways to help evaluate the performance. Consider the following:
It can helpful to look at VRIO framework as part of this process.
Industry attractiveness is measured by looking at the market size, market growth, potential profitability, and future projection of the industry. Tools such as Five Forces, Six Forces and PESTLE are commonly used.
A similar concept is used in Porter’s Three Tests, one of which is establishing how attractive an industry is in order to decide upon a diversification strategy.
Measuring Business Unit Strength comes down to looking at the results, so consider your market share, your rate of growth, the brand reputation and the profit margins. Partnerships and channels may also play a role in determining the strength.
The advantages of GE Matrix are:
Some disadvantages and limitations include:
One alternative to the GE Matrix is the BCG Matrix.
The GE matrix was first developed by McKinsey for General Electric in the 1970s, building on the work from the BCG Matrix.
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