The General Electronic (GE) Matrix was developed by Mckinsey and Company Consultancy Group in the 1970s. Whereas BCG is limited to products, business units can be products, whole product lines, a service or even a brand.
The GE matrix is plotted in a 3 x 3 grid i.e. it includes nine cells based on:
- long term industry attractiveness and
- business strength and competitive position.
So each business is appraised in terms of two major dimensions – Market Attractiveness and Business Strength.
If one of these factors is missing, then the business will not produce desired results. Neither a strong company operating in an unattractive market, nor a weak company operating in an attractive market will do very well.
Green Zone
Suggests to ‘go ahead’, to grow and build, pushing through expansion strategies. Businesses in the green zone attract major investment.
Yellow Zone
Cautions to ‘wait and see’ indicating hold and maintain type of strategies aimed at stability.
Red Zone
Indicates that you have to adopt turnover strategies of divestment and liquidation or rebuilding approach.
Strategic Decisions
1. INVEST – On the basis of existing market attractiveness in terms of growth. It is also affected by the respective market share of the organization.
2. PROTECT – Protect Condition refers to the situation where a business does not want fresh investment rather it is willing to have the security of the given investment so that it does not result in losses.
3. HARVEST – Situation where the business wants to generate cash out of the given investment.
4. DIVEST – Condition where a business organization has finally decided to sell an undertaking or a part of undertaking.
ADVANTAGES of GE PLANNING GRID
It is a more sophisticated matrix, uses 9 cells instead of 4 cells of BCG. It considers many variables and does not lead to simplistic conclusions.
High/medium/low and strong/average/low classification enables a finer distinction among business portfolio.
It uses multiple factors to assess industry attractiveness and business strength, which allow users to select criteria appropriate to their situation.
LIMITATIONS of GE PLANNING GRID
The GE Planning can get quite complicated and cumbersome with the increase in businesses.
Though industry attractiveness and business strength appear to be objective, they are in reality subjective judgments that may vary from one person to another.
It cannot effectively depict the position of new business units in developing industry. It only provides broad strategic prescriptions rather than specifics of business policy.
BATheories.com is managed by a group of educators from Mumbai. We also manage the website StudyMumbai.com. Our panel includes experienced professionals and lecturers with a background in management. BATheories is where we talk about the various business theories and models for BA (Business Administration) students.