McKinsey GE Matrix – Tips, Guide and Free Templates

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The McKinsey GE Matrix is a portfolio management tool developed in the 1970s by McKinsey & Company for General Electric.

In this article, I’ll walk you through how the principles of the McKinsey GE Maatrix and show you how to use it.

What is the McKinsey GE Matrix Used For?

The GE Matrix was designed to help large corporations allocate resources across their different business units, known as Strategic Business Units (SBUs).

A Strategic Business Unit (SBU) is a part of a company that operates as its own business, focusing on a specific product line or market.

Each SBU has its own strategy and objectives, enabling the company to manage distinct business areas more effectively.

This focused approach helps with decision-making and resource allocation across a company’s portfolio.

Strategic questions the McKinsey GE Matrix addresses:

The matrix offers a clear framework for resource allocation, ensuring that the most promising units get sufficient investment while underperforming units do not drain resources unnecessarily.

• Where should we invest? The matrix identifies which business units are worth investment by assessing their market attractiveness and competitive strength. High-potential units in growing markets with strong competitive positions receive priority for resources.
• Which business units should we maintain or improve selectively? For business units in moderately attractive markets or with average competitive strength, the matrix helps to decide whether to invest and in which ones to improve the overall portfolio.
• Which business units should we divest or harvest? The matrix helps decide which underperforming or low-potential business units should be divested or harvested, freeing up resources to be redirected to other opportunities in the portfolio.
• How do we balance our portfolio? The matrix enables firms to maintain a balanced portfolio that mitigates risks and maximises returns.
• How should we allocate resources across our business units? The matrix offers a framework to asses where to allocate resources (people, executive time, finances etc). This ensures that the most promising units get sufficient investment.

A Guide to The McKinsey GE Matrix

The GE McKinsey Matrix is a strategic tool that evaluates business units based on two critical factors: market attractiveness and competitive strength.

The matrix is structured as a nine-box grid, which provides a visual representation of the performance and potential of each unit.

Let’s first take a look at each other axis.

McKinsey GE Matrix: Market Attractiveness (Y-Axis)

The market attractiveness axis assesses external factors that influence the potential profitability and growth of a market.

This allows firms to evaluate how promising a specific market is for investment; e.g. is it growing rapidly and has relatively uncontested space.

As an example, the global artificial intelligence (AI) market is expected to grow massively, with various reports estimating a Compound Annual Growth Rate (CAGR) ranging between 30.3% and 35.7% during the forecast period from 2024 to 2030. 

Industrial revolutions such as this cause rifts in how value can be created while destoying old industry ways of working. Firms may see this as an ideal opportunity to redirect resources into AI based services or unites that can benefit the most from AI.

A high score here indicates a market environment with opportunities for expansion. A low score suggests limited growth potential.

Key factors that contribute to market attractiveness include:

• Market size: The overall potential of the market in terms of value or volume.
• Market growth rate: The speed at which the market is expanding.
• Profitability: The potential for profit margins and returns within the industry.
• Competitive structure: The intensity of competition and the presence of barriers to entry.
• Macro-environmental factors: External influences such as political, economic, and technological trends, often analysed using tools like PESTLE.

My recommendation is to develop the scoring in an MS Excel sheet first. It’s easier to get the positions and scoring and then transfer this to a PPT template when presenting.

Also, do your homework and use reliable data for future market potential, e.g., Mintel, Statista are good sources. Furthermore, ensure that you are not overly optimistic with your outlook

McKinsey GE Matrix: Competitive Strength (X-Axis)

The competitive strength axis measures the internal capabilities of a business unit relative to its competitors.

This helps a firm determine whether it has the necessary resources and market position to succeed in a given industry.

A strong score suggests a business unit has a competitive edge, while a low score indicates weaknesses that need addressing or markets where the SBU is struggling.

Key factors that contribute to competitive strength include:

• Market share: The proportion of the market that the business unit controls.
• Brand equity: The value and recognition of the business unit’s brand among customers.
• Operational efficiency: The ability to manage production, distribution, and costs effectively.
• Profit margins: The unit’s ability to generate and sustain profits.
• Customer loyalty: The strength of relationships with repeat customers and long-term engagement.

McKinsey GE Matrix Nine-Box Grid and Strategic Categories

Once the market attractiveness and competitive strength have been assessed, business units are plotted on the nine-box grid.

The McKinsey GE Matrix consists of a nine part grid divided into three main strategic categories:

• Invest/Grow: Business units that fall into attractive markets and demonstrate strong competitive positions. These units should be prioritised for further investment to maximise growth and profitability.
• Hold/Selectivity: Business units with moderate scores in either market attractiveness or competitive strength. These units may require selective investments to improve performance or maintain their position.
• Harvest/Divest: Units in unattractive markets or those with weak competitive positions. These units should either be divested or maintained with minimal investment to extract any remaining value.

Strategic Implications of the GE McKinsey Matrix

The McKinsey GE Matrix provides a robust framework for making informed strategic decisions across a company’s portfolio.

Once business units are plotted on the matrix (see below).

Each SBU falls into one of three categories—Invest/Grow, Hold/Selectivity, or Harvest/Divest—guiding companies on how to allocate resources and plan their long-term strategy.

Here are the strategic implications for each categoryand some of the decisions to consider:

McKinsey GE Matrix: Invest/Grow

Business units that fall into the Invest/Grow category occupy the most favourable position in the matrix.

These units are in highly attractive markets and possess strong competitive strength, indicating they have the potential to deliver significant returns with additional investment.

Firms should focus their resources on these units to capture market opportunities, expand market share, and increase profitability.

Strategic actions for Invest/Grow units include:

• Increase capital investment: Allocate more resources to scale operations, increase production, or enter new segments of the market.
• Focus on market share expansion: Prioritise marketing, sales, and distribution efforts to outpace competitors and gain more market share.
• Invest in innovation: Enhance product development or introduce new services to meet customer demands and sustain competitive advantages.

Example:
The Disney+ streaming service is an example of an Invest/Grow unit within The Walt Disney Company. The SBU operates in the rapidly growing streaming market.

Disney is investing heavily in original content for Disney+ to expand its subscriber base and maintain a strong competitive position against rivals like Netflix and Amazon Prime.

This investment has allowed Disney+ to capture a sizeable market share in a highly attractive industry.

McKinsey GE Matrix: Hold/Selectivity

Units in the Hold/Selectivity category are positioned in markets with moderate attractiveness or have average competitive strength.

While these units may not have the same immediate growth potential as Invest/Grow units, they still contribute positively to the company’s portfolio.

These units should be maintained, but investment should be more selective, with the aim of improving efficiency or positioning the unit for potential future growth.

Strategic actions for Hold/Selectivity units include:

• Selective investment: Focus on targeted areas that could improve competitive strength, such as operational efficiency, marketing, or customer service enhancements.
• Cost management: Prioritise operational improvements that can reduce costs while maintaining profitability.
• Explore partnerships or acquisitions: Consider strategic alliances, joint ventures, or acquisitions to strengthen the unit’s competitive position or explore new market opportunities.

Example:
Google Cloud is a division within Alphabet Inc (see the Google business model). This SBU fits the Hold/Selectivity category. Despite rapid growth in the cloud computing market, Google Cloud continues to face intense competition from Amazon Web Services (AWS) and Microsoft Azure.

As a result, Alphabet has chosen to maintain selective investments in the unit, focusing on specific areas like AI and machine learning capabilities.

This approach helps Google Cloud sustain its competitive position without over-committing resources in a highly competitive and capital-intensive market.

McKinsey GE Matrix: Harvest/Divest

Business units that fall into the Harvest/Divest category are in unattractive markets with weak competitive positions.

These units are often seen as underperformers and provide limited potential for future growth. The recommended strategy is to either harvest the business unit for cash flow or divest it to free up resources for other opportunities in the portfolio.

Strategic actions for Harvest/Divest units include:

• Harvest for cash flow: Continue operating the unit with minimal additional investment, maximising any remaining profitability or cash flow it generates.
• Divest: Sell or shut down the business unit to focus on more profitable or strategically important areas of the portfolio.
• Reallocate resources: Use the proceeds from divestment to invest in higher-potential business units or growth initiatives.

Example:
Microsoft’s Internet Explorer became a Harvest/Divest unit when Microsoft decided to discontinue the browser as the market became unattractive and competitive strength declined (see the Microsoft business model for more details).

Microsoft reallocated resources to other areas, such as its Edge browser and cloud services, where it saw more growth potential.

Advantages of the McKinsey GE Matrix

The McKinsey GE Matrix offers a good way to asses a portfolio of SBU’s. Below are the key advantages:

Comprehensive Evaluation of Business Units

The GE Matrix provides an holistic overview to help visually assess performance of SBU’s and their potential within a market.

Flexibility in Application

The nine-box grid offers a flexible and detailed method for classifying business units. Unlike the more rigid structure of the BCG Matrix, which uses only four quadrants, the GE McKinsey Matrix’s nine-box layout allows for a more nuanced evaluation of business units.

Data-Driven Decision-Making

The McKinsey GE Matrix relies on quantifiable data for both market attractiveness and competitive strength leads to more objective and data-driven decisions. The use of weighted scoring systems considers a broad variety of factors, such as profitability, market growth, brand strength, and operational efficiency.

Targeted Resource Allocation

One of the key benefits of the McKinsey GE Matrix is its ability to guide resource allocation efficiently. By clearly categorising business units into Invest/Grow, Hold/Selectivity, and Harvest/Divest, the matrix helps to determine where to focus their resources for maximum return.

Adaptability Across Industries

The McKinsey GE Matrix can be applied to lots of different industries. This makes it a versatile tool for corporations with complex portfolios.

Visual Simplicity for Strategic Clarity

Despite the complexity of the factors involved, the visual simplicity of the nine-box grid provides clarity to decision-makers. The matrix offers a clear visual representation of the relative performance of business units.

Disadvantages of the GE McKinsey Matrix

While useful for portfolio management, the McKinsey GE Matrix has limitations that are worth noting:

Subjectivity in Scoring

Scoring for market attractiveness and competitive strength relies on subjective judgments and can involve biases. This is especially true when considering factors like brand strength or customer loyalty, which aren’t easily quantifiable.

Time-Consuming and Resource-Intensive

The GE matrix requires a lot of time and resources to gather accurate data on market growth and competitive strength, particularly for large corporations. Some firms may need external consultants to help guide them in gathering data and performing the analysis.

Limited Future Outlook

The McKinsey GE matrix only provides a snapshot at a specific point in time. It doesn’t consider future trends like new competitors or regulatory changes. This static view can quickly become outdated.

Complexity

The McKinsey GE Matrix is complex and has multiple factors and nine possible outcomes – This can overwhelm decision-makers or prevent them from ranking priorities. This may lead to paralysis by analysis or tempt users to oversimplify the results.

Lack of Synergy Analysis

The matrix assesses business units individually, ignoring potential synergies between them. Units may seem less attractive in isolation, but their value could increase when considering shared resources or cross-unit benefits, which the matrix doesn’t account for.

Not Suited for Rapidly Changing Industries

In fast-evolving industries, such as tech or digital services, the matrix’s static nature may fail to capture market shifts and innovation. Firms in these (VUCA) environments may need more dynamic tools that incorporate future trends.

Comparing the McKisney GE Matrix with the BCG Matrix

Both the McKinsey GE Matrix and BCG Matrix are used for portfolio management. The McKinsey GE Matrix focuses on Strategic Business Units, while the BCG Matrix focuses on product portfolio’s.

• Complexity:
  • BCG Matrix: Simple, focuses on market growth and market share with four quadrants (Stars, Cash Cows, Question Marks, Dogs).
  • GE McKinsey: Evaluates market attractiveness and competitive strength using multiple factors, offering a more detailed nine-box grid.
• Factors Assessed:
  • BCG: Market growth and share.
  • GE McKinsey: Includes market size, profitability, brand strength, and operational efficiency.
• Strategic Categories:
  • BCG: Recommends clear invest/divest decisions based on four quadrants.
  • GE McKinsey: Offers more flexibility with Invest/Grow, Hold, and Harvest/Divest strategies, accommodating selective investments.
• Applicability:
  • BCG: Suited for simpler portfolios, ideal for a quick overview.
  • GE McKinsey: Best for complex, multi-industry corporations needing granular analysis.
• Data Requirements:
  • BCG: Easier to implement but may oversimplify.
  • GE McKinsey: More data-intensive and can be subjective, but allows for tailored industry-specific analysis.

Free McKinsey GE Matrix Templates Pdf and PPT

Looking for a quick, effective way to manage your portfolio? Download our free McKinsey GE Matrix PPT templateand McKinsey GE Matrix PDF template to streamline your strategic decision-making. Perfect for clear, professional presentations!

McKinsey GE Matrix Template

Related Strategy Frameworks

Using the McKinsey GE Matrix alongside other frameworks is important when developing a strategy. Here are some key strategic frameworks that complement the matrix:

• SWOT Analysis: SWOT evaluates Strengths, Weaknesses, Opportunities, and Threats. It pairs well with the GE McKinsey Matrix by providing a quick internal and external assessment for each business unit.
• PESTLE Analysis: PESTLE examines Political, Economic, Social, Technological, Legal, and Environmental factors, enriching the market attractiveness dimension by offering a macro-level view of external risks and opportunities.
• Porter Five Forces: Porter’s Five Forces looks at industry competition and helps deepen the analysis of market attractiveness by evaluating competitive intensity, supplier power, and buyer power.
• VRIO Framework: VRIO assesses whether a company’s resources are Valuable, Rare, Inimitable, and well-Organised. It complements the competitive strength axis by evaluating the sustainability of a unit’s advantages.
• BCG Matrix: The BCG Matrix uses market growth and market share to categorise business units. It provides a simpler, high-level view, which can be used for initial portfolio assessment before applying the more detailed GE McKinsey Matrix.
• Balanced Scorecard: The Balanced Scorecard tracks performance across Financial, Customer, Internal Processes, and Learning & Growth. It aligns strategic decisions with broader business objectives, offering a way to measure success after using the matrix.
• Ansoff Matrix: The Ansoff Matrix focuses on growth through market penetration, development, or diversification. It offers actionable strategies for business units in the Invest/Grow category.
• Blue Ocean Strategy: The Blue Ocean Strategy encourages businesses to create untapped market spaces, helping business units in competitive markets (low attractiveness) find new opportunities and reduce competition.