It is the business portfolio framework developed by General Electric with the help of McKinsey and Company, a consulting firm. GE Business Screen includes nine cells based on long-term industry attractiveness and business strength/competitive position
Factors that Affect Market Attractiveness:
There are several factors which can help determine attractiveness. These are listed below:
- Market Size
- Market growth
- Market profitability
- Pricing trends
- Competitive intensity / rivalry
- Overall risk of returns in the industry
- Opportunity to differentiate products and services
- Distribution structure (e.g. retail, direct, wholesale
Factors that Affect Competitive Strength:
There are several factors which can help determine the business unit strength. These are listed below:
- Strength of assets and competencies
- Relative brand strength
- Market share
- Customer loyalty
- Relative cost position (cost structure compared with competitors)
- Distribution strength
- Record of technological or other innovation
- Access to financial and other investment resources
Plotting the Information:
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.
The green zone indicates go ahead. It includes the strong SBU’s in which the company should invest and grow. They go for Expansion Strategies
The yellow zone indicates wait and see. It includes SBS’s that are medium in overall attractiveness. They should maintain their level of investments. They go for Stability Strategies
The red zone indicates stop. It includes SBU’s that are low in overall attractiveness. They go for Retrenchment Strategies (Divestment and Liquidation).
The shading of the above circle indicates a 40% market share for the strategic business unit. The arrow in the upward left direction indicates that the business unit is projected to gain strength relative to competitors, and that the business unit is in an industry that is projected to become more attractive. The tip of the arrow indicates the future position of the center point of the circle.
Six-step approach for the implementation of the McKinsey Matrix
- Specify drivers of each dimension. The corporation must carefully determine those factors that are important to its overall strategy.
- Determine the weight of each driver. The corporation must assign relative importance weights to the drivers.
- Score the SBU’s on each driver.
- Multiply weights and scores for each SBU.
- View resulting graph and interpret it.
- Perform a review/sensitivity analysis. Make use of adjusted other weights and scores (there may be no consensus).