GE Business Screen
The GE Business Screen, also known as the GE McKinsey Matrix, is a strategic management tool used to assess and prioritize a company's business units or product lines based on their market attractiveness and the company's competitive strength. Developed in the 1970s by McKinsey & Company for General Electric, the matrix provides a visual representation of the company's various business units and helps managers make informed decisions about resource allocation, investment, and divestment.
The GE Business Screen consists of a nine-cell matrix with two axes:
- Market attractiveness (vertical axis): This axis measures the overall appeal of a market or industry in which a business unit operates. Factors that can influence market attractiveness include market size, growth rate, profitability, competitive intensity, and barriers to entry. Market attractiveness is typically divided into three levels: high, medium, and low.
- Business unit competitive strength (horizontal axis): This axis evaluates the ability of a business unit to compete effectively within its market or industry. Factors that can influence competitive strength include market share, brand reputation, product quality, cost structure, and distribution network. Like market attractiveness, competitive strength is also divided into three levels: strong, average, and weak.
By plotting the company's business units or product lines on the matrix, managers can classify them into one of the nine cells, each representing a combination of market attractiveness and competitive strength. Based on their position in the matrix, business units can be grouped into the following strategic categories:
- High market attractiveness, strong competitive strength (upper-left cells): These business units have the most potential for growth and profitability. They should be prioritized for investment and resource allocation to capitalize on their opportunities and maintain a strong competitive position.
- Medium market attractiveness, average competitive strength (middle cells): These business units have moderate potential and may require a selective investment approach, focusing on specific areas where they can gain a competitive advantage or improve market attractiveness.
- Low market attractiveness, weak competitive strength (lower-right cells): These business units are less attractive and may be candidates for divestment or restructuring. Resources allocated to these units should be limited or redirected to more promising opportunities.
The GE Business Screen offers several advantages, including:
- A visual representation of the company's portfolio, making it easier for managers to understand the relative position of each business unit or product line.
- A structured approach to evaluating business units based on both market conditions and internal capabilities.
- Guidance for resource allocation, investment, and divestment decisions, helping to optimize the company's overall performance.
However, there are also some limitations to the GE Business Screen:
- The evaluation of market attractiveness and competitive strength is subjective, and different managers may have different opinions on the factors and their relative importance.
- The matrix does not provide specific recommendations on how much to invest or divest, leaving the final decision to the manager's judgment.
- The GE Business Screen assumes that market attractiveness and competitive strength are equally important, which may not always be the case.
Despite these limitations, the GE Business Screen remains a popular tool for portfolio analysis and strategic decision-making in many organizations.
To further understand the GE Business Screen and its application, let's consider an example:
Suppose a multinational consumer goods company has a diverse product portfolio that includes household cleaning products, personal care items, and packaged foods. The company's management wants to evaluate its product lines and decide where to allocate resources for growth and development.
Using the GE Business Screen, the company first identifies the factors that contribute to market attractiveness and competitive strength for each product line. For example, market attractiveness factors might include market growth rate, competitive intensity, and consumer trends, while competitive strength factors could involve brand reputation, distribution network, and cost structure.
Next, the company assigns weights and scores to each factor based on its importance and the product line's performance. By aggregating these weighted scores, the company can determine an overall score for market attractiveness and competitive strength for each product line.
Finally, the company plots each product line on the GE Business Screen matrix based on their market attractiveness and competitive strength scores. For instance:
- The household cleaning product line might have high market attractiveness due to growing consumer interest in eco-friendly cleaning solutions and strong competitive strength due to the company's established brand reputation. This product line would fall into the upper-left cells, indicating that it should be a priority for investment and resource allocation.
- The personal care product line might have medium market attractiveness due to intense competition and average competitive strength due to a limited distribution network. This product line would fall into the middle cells, suggesting that the company should selectively invest in areas where it can gain a competitive advantage or improve market attractiveness.
- The packaged foods product line might have low market attractiveness due to stagnating market growth and weak competitive strength due to a higher cost structure. This product line would fall into the lower-right cells, indicating that it may be a candidate for divestment or restructuring.
By using the GE Business Screen, the company can make informed decisions about where to focus its resources and efforts, maximizing growth opportunities and optimizing its product portfolio.
In summary, the GE Business Screen is a valuable tool for strategic management and portfolio analysis. By assessing market attractiveness and competitive strength, managers can prioritize business units or product lines for investment, resource allocation, and divestment. While there are some limitations to the matrix, such as subjectivity and the need for managerial judgment, the GE Business Screen remains widely used by organizations for strategic decision-making.