| High | ||||
Medium | |||||
Low | |||||
In consulting engagements with General Electric in the 1970's, McKinsey & Company developed a nine-cell portfolio matrix as a tool for screening GE's large portfolio of strategic business units (SBU). This business screen became known as the GE/McKinsey Matrix.
Industry Attractiveness
The vertical axis of the GE / McKinsey matrix is industry attractiveness, which is determined by factors such as the following:
- Market growth rate
- Market size
- Demand variability
- Industry profitability
- Industry rivalry
- Global opportunities
- Macroenvironmental factors
Each factor is assigned a weighting that is appropriate for the industry. The industry attractiveness then is calculated as follows:
Industry attractiveness = | factor value1 x factor weighting1 | |
| + | factor value2 x factor weighting2 | |
| . . . | ||
| + | factor valueN x factor weightingN |
Business Unit Strength
The horizontal axis of the GE / McKinsey matrix is the strength of the business unit. Some factors that can be used to determine business unit strength include:
- Market share
- Growth in market share
- Brand equity
- Distribution channel access
- Production capacity
- Profit margins relative to competitors
The business unit strength index can be calculated by multiplying the estimated value of each factor by the factor's weighting, as done for industry attractiveness.
