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The GE Matrix

 

Disciplines > MarketingUnderstanding Markets > The GE Matrix

Business strength | Industry/market attractiveness | Different markets | See also

 

 

The GE Matrix is a way of mapping a number of different factors to help in the understanding of markets. It is particularly useful for concurrently examining multiple markets or a portfolio of products.

It is also known by other names such as the GE Multi-factor Portfolio Matrix or the Directional Policy Matrix. It was developed for GE in the 1970s by McKinsey as an improvement on the Boston Matrix and is now one of the classic market analysis matrices taught at business schools around the world.

A typical matrix is shown below:

 

Clearly, the best position is to have high business strength, a very attractive market and a significant market share. Yet business is not always like this and the chart can help with various decisions, such as shoring up strengths in attractive markets or getting out of unattractive small markets where only a limited share is held.

Business strength

Business strength is an indicator of the ability of the company to compete in each of the markets being analyzed. Business strength can depend on a number of factors including:

  • Soundness of financial structure, able to invest in markets and weather downturns.
  • Quality products that are both desirable and affordable within the market in question.
  • Flexibility in being able to adapt to market conditions.
  • Innovative ability in creating products and adapting marketing to compete well the target market.
  • The ability to grow quickly, for example with spare capacity at hand.
  • Fit with government concerns, such as lower energy usage.

A major benefit of the chart is in the sheer amount of information that can be displayed at once. All charts can be overloaded and there may still be a decision as to whether to create a larger chart with many smaller circles, or to spread the circles across multiple separate charts.

Although many graphs have 'high' on the right, the GE matrix is often drawn with higher strength on the left and lower strength on the right. In practice is does not matter which is used, just so long as people reading the chart realize this.

Industry/market attractiveness

The attractiveness of the market indicates the desirability for the company to enter and compete within each market being analyzed. Factors that indicate an attractive market include:

  • Growth rate of market.
  • Potential for profit, both short-term and long-term.
  • Limited serious competition within market.
  • Good infrastructure and other factors.

As with other variables, determining the important factors to include is a critical aspect and itself may involve a significant piece of research.

Different markets

The GE Matrix shows a number of circles, each indicating a separate market. The 'market' can be defined in several ways, including geographically and by product. Hence, for example, you could have one circle for each of your products (or product families). Another alternative is to have one circle per country or region where products are sold.

Circles may also be plotted on different charts for brands, business units, portfolios, services and so on. The chart may also be used to map major competitors within markets. These may be shown by adding further segments to each circle. As with any chart, you can adapt it to any purpose, just as long as it continues to make sense.

Market size

The circles on the chart represent markets and the radius or area of each circle indicates the size of each market.

While the radius may be easier to use, the area of a circle is proportional to the square of the radius, so a circle that is twice as wide is four times as big, so to double the area, increase the radius by only 1.4 times. In practice, perception is more important than calculation, so do be careful that whatever representation is used is understood in an appropriate way.

Market share

The share of the market that the company has is shown as a segment, where the angle of the segment represents the current percentage share of the company. The market share of competitor products may be shown as additional segments.

See also

Boston Matrix

 

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