GE / McKinsey Matrix

Notes on the GE/McKinsey Matrix

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The GE/McKinsey Matrix is a model to perform a business portfolio analysis on the Strategic Business Units of a company. It uses a nine-cell portfolio matrix.















The GE/McKinsey Matrix uses Industry Attractiveness and Business Unit Strength as its axes.

Industry attractiveness and Business Unit Strength are calculated by identifying criteria for each, determining the value of each parameter in the criteria, and multiplying that value by a weighting factor. The result is a quantitative measure of industry attractiveness and the business unit's relative performance in the industry.

Industry Attractiveness

The vertical axis represents the Industry Attractiveness of the GE/McKinsey Matrix which is determined by factors such as the following:

• Market size
• Market growth rate
• Market profitability
• Pricing trends
• Competitive intensity/rivalry
• Overall risk of returns in the industry
• Entry barriers
• Opportunity to differentiate products and services
• Demand variability
• Segmentation
• Distribution structure
• Technology development

Business Unit Strength

The horizontal axis represents the Business Unit Strength and is defined by factors such as the following:

• Strength of assets and competencies
• Relative brand strength
• Market share
• Market share growth
• Customer loyalty
• Relative cost position
• Relative profit margins
• Distribution strength and production capacity
• Record of technological or other innovation
• Quality
• Access to financial and other investment sources
• Management strength

BCG Growth-Share Matrix

I find this BCG Growth-Share Matrix very handy at work.

Although it is a portfolio planning model (developed by Bruce Henderson of the Boston Consulting Group in the early 1970's)  used to primarily map out business units categorising them into four groups based on combinations of market growth and market share relative to the largest competitor, I find it useful on a micro level as well.

Using it on a rather smaller scale within a business unit, I have substituted 'business units' with products, as well as target segments of a product to map out growth and share and identify the Cash Cows, the Stars, the Dogs and the Question Marks.


















Here is brief textbook description of the BCG Matrix:

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This framework assumes that an increase in relative market share will result in an increase in the generation of cash. This assumption is often true because of the experience curve; increased relative market share implies that the firm is moving forward on the experience curve relative to its competitors, thus developing a cost advantage. A second assumption is that a growing market requires investment in assets to increase capacity and therefore results in the consumption of cash. Thus the position of a business on the growth-share matrix provides an indication of its cash generation and its consumption.

Henderson reasoned that the cash required by rapidly growing business units could be obtained from the firm's other business units that were at a more mature stage and generating significant cash. By investing to become the market share leader in a rapidly growing market, the business unit could move along the experience curve and develop a cost advantage. From this reasoning, the BCG Growth-Share Matrix was born.

Here are the four categories:

Dogs (low market growth, low market share)
Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash. However, dogs are cash traps because of the money tied up in a business that has little potential. Such businesses are candidates for divestiture.

• Dogs are in low growth markets and have low market share.
• Dogs should be avoided and minimized.
• Expensive turn-around plans usually do not help.

Question Marks (high market growth, low market share)
Question marks are growing rapidly and thus consume large amounts of cash, but because they have low market shares, they do not generate much cash. The result is a large net cash consumption. A question mark (also known as a "Problem Child") has the potential to gain market share and become a star, and eventually a cash cow when the market growth slows and matures. If the question mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share.

• These products are in growing markets but have low market share.
• Question marks are essentially new products where buyers have yet to discover them.
• The marketing strategy is to get markets to adopt these products.
• Question marks have high demands and low returns due to low market share.
• These products need to increase their market share quickly or they become dogs.
• The best way to handle Question marks is to either invest heavily in them to gain market share or to sell them.

Stars (high market growth, high market share)
Stars generate large amounts of cash because of their large relative market share, but also consume large amounts of cash because of their high growth rate; therefore the cash in each direction approximately nets out. If a star can maintain its large market share, it wil become a cash cow when the market growth rate declines. The portfolio of a diversified company always should have stars that will become the next cash cows and ensure future cash generation.

• Stars are defined by having high market share in a growing market.
• Stars are the leaders in the business but still need a lot of support for promotion a placement.
• If market share is kept, Stars are likely to grow into cash cows.

Cash Cows (low market growth, high market share)
As leaders in a mature market, cash cows exhibit a return on assets that is greater than the market growth rate, and thus generating more cash than they consume. Such business units should be "milked", extracting the profits and investing as little cash as possible. Cash cows provide the required to turn question marks into stars, and maintain investments required for stars to eventually become cows. Cash cows cover the administrative costs of the company, to fund research and development, to service the corporate debt, and to pay dividends to shareholders. Because the cash cow generates a relatively stable cash flow, its value can be determined with reasonable accuracy by calculating the value of its cash stream using a discounted cash flow analysis.

• Cash cows are in a position of high market share in a mature market.
• If competitive advantage has been achieved, cash cows have high profit margins and generate a lot of cash flow.
• Because of the low growth, promotion and placement investments are low.
• Investments into supporting infrastructure can improve efficiency and increase cash flow more.
• Cash cows are the products that businesses strive for.

The Fifth Marketing Element: Customer Experience

Executive Summary

Marketers should be all knowledgeable of the 4 basic Ps of marketing, namely: 1) Product, 2) Price, 3) Place, and 4) Promotion and may have even applied the extended Ps as outlined by Booms and Bitner — 5) People, 6) Process, 7) Physical Evidence. But deep reflection on this matter makes me suggest another major marketing element: Customer Experience - which is a resultant of, and encompasses all the aforementioned Ps but is still a controllable marketing variable by itself.

This idea originates from three basic perspectives:

First, we depart from the industrial and sales eras and live presently in this age of information and knowledge, of digital technology, of connectivity, of customisation, and of customer intimacy where we acknowledge that customers are the center of any business.

Due to technological developments, buying behaviours have changed as such that the market is now exposed to various channels and media and that they are now more actively searching and evaluating has become more engaged in the buying process than just a passive viewer and listener of marketing messages.

Second, that the major marketing elements or variables are not standalones but are cumulative of each other with respect to the desired results as a whole. And that a straightforward summation process of these individual elements cannot account for this whole.

Let me illustrate this. First we have a product or a service, and then we put a price on it. The price contributes to the product's character and our perception of it. The place or distribution also adds certain characteristics to a product. Promotion or communication reinforces a product's good qualities and conveys values associated with it making it a brand. At this point, depending on our marketing efforts, a product may stay as a generic commodity or a differentiated brand which emanates values that people resonate with.

And lastly, today’s technology enables us to communicate and interact with customers, perform various methods of feedback faster in richer contexts enabling us to understand them deeply from different aspects.

As customer-centric businesses, the results we seek are not just the bottom line numbers but also how our brands measure up to our customers -- which eventually translates to the bottom line. Since how our customers experience us determines what we are as a brand which has a direct effect on sales, revenues and profits.

The sphere which we call customer experience, where we would mostly derive brand success, is where formalised, disciplined, and measured efforts result to the brand’s measure of qualities with respect to the customer’s rich complex senses, thoughts, feelings and activities in the buying process.

These qualities must be experienced by the customer from the brand from various channels and media all throughout the buying process: 1) Need Recognition, 2) Awareness 3) Search 4) Interest 5) Desire 6) Evaluation 7) Decision 8) Action 9) Usage 10) Loyalty 11) Recommendation 12) Advocacy

The stages above can be addresses by controllable elements of customer experience which can be maximized to provide value to the customer based on how the customer comes in contact and interact with the brand in any way at any stage of the cycle.

Gestalt theory states that the whole is greater than the sum of its parts. The brand is the whole by which the customer is perceiving and experiencing. And that the customer experience sphere is the marketing variable by which also where the combination of elements of other marketing variables, as the customers perceive and experience the brand, are created.

Systematic activities are necessary to monitor and measure the customer experience such as 1) Simulation, 2) Immersion, 3) Brand-wide and Full-cycle Feedback Mechanisms, 4) Continuous Dialogue, 5) Interaction Monitoring, and 6) Relationship Tracking. All of these are important to effectively craft customer experience strategies.

In my view, and as common sense dictates, customer experience has always been here. It is only in this age of personal computers, the Internet, mobile devices and digital communication technologies that it has become much clearer, comprehensible and measurable as more and more businesses become more focused and intimate with the customer with the use of technologies.

Copyright ©2001 Christopher John David