The BCG growth share matrix is criticized for is its reliance on only two factors to position strategic business units in the matrix. A number of strategic planning portfolio techniques have been developed which use several factors to analyse strategic business units, instead of only two in BCG’s approach. Working in conjunction with McKinsey & Co. (management consultants) General Electric (GE) have developed one of the more popular of these multi-factor portfolio matrices.
In the GE matrix, SBUs are evaluated using the dimensions of ‘market attractiveness’ and ‘business position’. In contrast to the BCG approach, each of these two dimensions is, in turn, further analysed into a number of factors which underpin each dimension. In order to use this technique, the strategic planner must first determine these various factors contributing to market attractiveness and business position.
Cravens’ factor analysis
Cravens gives good examples of factors associated with market attractiveness and business position, and the relationship between them.
GE’s product/market attractiveness factors
The original GE matrix used certain factors to assess product/market attractiveness:
GE’s business strength factors
For assessing business strength, the GE matrix uses ten factors:
GE believes that these are the key factors for their business, which taken together influence return on investment (note that the BCG approach uses cash flow). This list of GE factors can be modified for each company according to its own particular circumstances, and indeed many of the alternative multiple factor matrices simply use a different checklist of attributes.
Constructing the GE matrix
The five steps in compiling the GE matrix are:
The final two factors (measuring and ranking) require that some numerical rating be given to both the relative importance of each factor used to assess market attractiveness (assuming they are not all equally important) and business strength. Multiplying these together and totalling them for each strategic business unit then gives an overall composite score which, in turn, enables the compilation of the matrix. In addition, the total market size for each SBU can be represented by the area of a circle, with the share of the company’s SBUs in each product market being indicated by a segment in the circle.
The approach typically results in a portfolio. As with BCG’s matrix, its visual presentation enables a considerable amount of complex information to be presented in an easily digestible form.
Interpreting and using the GE matrix
Having completed the matrix, as with the BCG approach, the marketing planner can then assess the balance of SBUs in the organization and determine appropriate future strategies for each. Strategy guidelines Of itself, the GE matrix does not purport to establish detailed strategies for each SBU. This is a task for company management and will require consideration of many factors. However, according to an SBU’s position in the matrix we can distinguish between three broad strategic guidelines.
Strategy guidelines in action
Clearly, those SBUs which score high/strong or medium/strong or average/high on competitive position and market attractiveness are the ones where a company should seek at least to maintain investment and preferably grow. SBUs which score a combination of low/weak or low/average or medium/weak or competitive position and market attractiveness are candidates for which, at the very least, no more investment can be warranted. Wherever possible as much cash should be harvested from them as is feasible. SBUs scoring either high/weak or medium/average or low/strong combinations on competitive position/market market attractiveness should be examined to see whether some degree of selective investment to maintain or increase earnings would be appropriate.
Strategy guidelines from the GE matrix
Criticisms and limitations of the GE matrix
Wind and Mahajam7 criticized obtaining composite scores on position and attractiveness. They pointed out that identical scores can hide key differences between products, and suggest there are limitations to the simple weighting system that is used. They preferred more custombuilt approaches. Each cell will contain several SBUs, so it is argued that because a number of different criteria have placed each SBU in the cell, that a simple singular investment strategy is insufficient.
Abell and Hammond8 suggested three distinct problems in making assessments of either industry attractiveness or business position:
Company position /industry attractiveness is less easily measured than the growth /share approach as this requires subjective judgements about where a particular business unit should be placed. This is more likely to be open to misjudgement. The value of the GE matrix much depends on having access to comparative information regarding competitors and such access is not always readily or easily available.
We see that the GE matrix is not without its limitations and problems. Nevertheless, we should not discount the fact that this particular matrix was instrumental in spawning several later multifactor matrices for strategic market planning. One of these is Shell’s directional policy matrix.
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