If you had endless amounts of money and time, there would probably be no need to figure out how best to allocate your resources.
But, in reality, we all have to prioritize our investments – particularly in difficult economic conditions.
When faced with this challenge in your organization, how do you decide which product groups to continue, which market segments to focus on, or which business units to sell? To make that decision, you must first understand your business portfolio – and you start by determining the benchmarks to define your portfolio.
In the 1970s, the Boston Consulting Group (BCG) developed the Boston Matrix which uses market growth and market share as a way of screening opportunities, so that organizations can choose the ones that are likely to give the best results. In the BCG 2x2 Matrix, the more of each dimension your product line has, the more attractive it is – and, therefore, the more you should invest in it.
General Electric (GE) liked the visual part of BCG's matrix, but not the dimensions. GE therefore asked its consulting firm, McKinsey & Company, to create a model that better suited GE's needs. The result was the 3x3 GE-McKinsey Matrix (also called the McKinsey Matrix, the Business Strength Matrix, or the Nine-Box Matrix) shown in Figure 1 below.
The original GE Matrix showed industry attractiveness on the x-axis, and business unit strength on the y-axis. Over time, it has become more common to do the opposite, which is what you see above.
The GE-McKinsey matrix uses the dimensions of industry attractiveness and business unit strength. Both of these include a wide variety of factors that the organization itself chooses. The GE matrix is considered more sophisticated than the BCG matrix because it has more flexibility and a wider scope.
By plotting the positions of various business units, product lines, or products, a company can ‘see' how best to allocate its resources. As such, you may find this quick summary approach particularly effective for developing, evaluating, and communicating strategic decisions.