The business world is becoming increasingly complex and fast-paced. Companies face the challenge of optimally allocating their limited resources and making strategic decisions that lead to long-term success. This is where the GE-McKinsey Matrix comes into play – a powerful tool for strategic corporate planning that has been helping executives set the right priorities for decades.
Whether a start-up or an established company: the right portfolio analysis can make the difference between success and failure. In this article, you will learn how the GE-McKinsey Matrix works, how to apply it successfully, and which common pitfalls to avoid.
What is the GE-McKinsey Matrix and why is it crucial?
The GE-McKinsey Matrix, also known as the Nine-Box Matrix or Industry Attractiveness-Business Strength Matrix, was developed in the 1970s by the consulting firm McKinsey & Company in collaboration with General Electric. It is an advancement of the BCG Matrix and offers a more differentiated tool for strategic portfolio analysis.
The GE-McKinsey Matrix helps companies evaluate their business units based on two critical dimensions: industry attractiveness and their own competitive strength.
Why is the GE-McKinsey Matrix so important?
Strategic clarity: It provides executives with a systematic overview of all business areas and helps make objective decisions.
Resource allocation: The matrix shows where investments yield the highest return and where divestments might be sensible.
Risk minimization: By analyzing market attractiveness and internal strengths, companies can identify risks early and respond accordingly.
Long-term planning: The matrix supports the development of sustainable growth strategies and helps balance the corporate portfolio.
The core elements of the GE-McKinsey Matrix
Dimension 1: Industry Attractiveness
Industry attractiveness assesses the external environment and the potential of a market. Various factors are considered:
Market size and growth: How large is the market currently and how is it expected to develop?
Profitability: What margins are typical in the industry and how sustainable are they?
Competitive intensity: How fiercely contested is the market and how high are the barriers to entry?
Technological development: Which technological trends shape the industry and how fast is it changing?
Regulatory environment: How stable are the legal frameworks and what changes are expected?
Dimension 2: Competitive Strength
Competitive strength analyzes the company’s internal position relative to competitors:
Market share: How strong is the position in the respective market segment?
Product quality: How good are the company’s products or services compared to the competition?
Cost structure: Does the company have cost advantages over competitors?
Financial resources: How strong is the financial base for investments and growth?
Management and organization: How effective are internal processes and structures?
The nine strategic fields
The matrix divides the portfolio into nine fields, each suggesting different strategic recommendations:
Invest/Grow: Business units with high industry attractiveness and strong competitive position
Selective/Maintain: Medium attractiveness and/or medium competitive strength
Harvest/Divest: Low industry attractiveness and weak competitive position
Step-by-step guide to application
Step 1: Define business units
Start by clearly delineating your business areas. These can be defined by product lines, geographic markets, or customer groups.
Important: Each business unit should be independently assessable and have its own resources and market positions.
Step 2: Set evaluation criteria
Define concrete, measurable criteria for both dimensions. These should be:
- Relevant to your business
- Objectively measurable
- Current and future-oriented
- Able to have different weightings
Step 3: Data collection and evaluation
Systematically collect data for each criterion and business unit. Use:
- Market research data
- Internal key figures
- Competitive analyses
- Expert estimates
Step 4: Weighting of factors
Not all factors are equally important. Weight the different criteria according to their significance for your company.
Example weighting for industry attractiveness:
- Market size: 25%
- Market growth: 30%
- Profitability: 20%
- Competitive intensity: 15%
- Technological development: 10%
Step 5: Calculation and positioning
Calculate the total scores for each business unit for both dimensions and position them accordingly in the matrix.
Formula for industry attractiveness:
IA = Σ(Rating factor i × Weight factor i)Formula for competitive strength:
CS = Σ(Rating factor i × Weight factor i)Step 6: Strategic derivation
Develop concrete recommendations for action for each business unit based on their positioning.
Practical example: Sock subscription service
Let’s take an innovative sock subscription service as an example, targeting style-conscious, sustainability-oriented customers. This service delivers unique, trendy socks directly to customers’ homes every month.
Evaluation of industry attractiveness
Market size and growth (Rating: 8/10, Weighting: 30%)
The e-commerce market for textiles is continuously growing, especially subscription models are gaining popularity. The trend toward sustainable fashion strengthens growth potential.
Profitability (Rating: 7/10, Weighting: 25%)
Subscription models offer predictable revenues and high customer retention. Margins in textiles can be attractive through direct sales and private labels.
Competitive intensity (Rating: 6/10, Weighting: 20%)
The sock market is generally competitive, but niche positions through design and sustainability offer differentiation opportunities.
Technological development (Rating: 7/10, Weighting: 15%)
E-commerce platforms and AI-driven personalization provide innovative ways to engage and retain customers.
Regulatory environment (Rating: 8/10, Weighting: 10%)
Stable legal frameworks in e-commerce, increasing support for sustainable business models.
Industry attractiveness calculation: IA = (8×0.30) + (7×0.25) + (6×0.20) + (7×0.15) + (8×0.10) = 7.1/10
Evaluation of competitive strength
Market share (Rating: 4/10, Weighting: 25%)
As a start-up, still a small market share but clear niche positioning.
Product quality (Rating: 9/10, Weighting: 30%)
Focus on high-quality, sustainable materials and unique designs creates clear differentiation.
Cost structure (Rating: 6/10, Weighting: 20%)
Direct sales and subscription model enable efficient cost structures, but scaling effects still need to be achieved.
Financial resources (Rating: 5/10, Weighting: 15%)
Typical start-up situation with limited but sufficient initial resources.
Management and organization (Rating: 7/10, Weighting: 10%)
Lean, agile structure with clear focus on the target group.
Competitive strength calculation: CS = (4×0.25) + (9×0.30) + (6×0.20) + (5×0.15) + (7×0.10) = 6.2/10
Strategic positioning and recommendation
With an industry attractiveness of 7.1 and a competitive strength of 6.2, the sock subscription service positions itself in the upper middle area of the matrix.
Strategic recommendation: “Selective Investment” – selective investments to strengthen and penetrate the market. Focus on improving competitive position through scaling and brand building.
Concrete measures:
- Investment in marketing and customer acquisition
- Building partnerships with sustainable producers
- Developing a strong online presence and community
- Optimizing logistics processes for scaling
Common mistakes in application
Mistake 1: Too subjective evaluations
Problem: Ratings are based on gut feeling rather than objective data.
Solution: Use measurable KPIs and external data sources. Gather multiple opinions and document the evaluation basis.
Mistake 2: Static view
Problem: The matrix is created once and not regularly updated.
Solution: Establish a regular review process (e.g., quarterly) and continuously monitor market changes.
Mistake 3: Incorrect weighting of factors
Problem: All factors are weighted equally or weighting does not reflect reality.
Solution: Discuss weightings within the leadership team and regularly validate them based on business development.
Mistake 4: Neglecting interdependencies
Problem: Business units are viewed in isolation without considering synergies or dependencies.
Solution: Consciously analyze interactions between different business areas and include them in strategic planning.
Mistake 5: No consistent implementation
Problem: Analysis is conducted but strategic recommendations are not consistently implemented.
Solution: Develop concrete action plans with clear responsibilities and milestones. Monitor implementation regularly.
Mistake 6: Over-/underestimation in evaluation
Problem: Systematically too optimistic or pessimistic assessments distort the result.
Solution: Use external benchmarks and have evaluations validated by independent experts.
Integration into the strategic planning process
Timeframe
The GE-McKinsey Matrix should not be viewed in isolation but as part of a comprehensive strategic planning process:
Quarter 1: Data collection and market analysis
Quarter 2: Evaluation and positioning
Quarter 3: Strategy development and planning
Quarter 4: Implementation and initial adjustments
Linking with other tools
The GE-McKinsey Matrix can be excellently combined with other strategic instruments such as SWOT analysis, Porter’s Five Forces, or the Balanced Scorecard.
Change management
Implementing new strategic directions often requires organizational changes. Prepare your team for possible restructuring and communicate the reasons for strategic decisions transparently.
Digitalization and modern application
Technological support
Modern business intelligence tools can significantly simplify the use of the GE-McKinsey Matrix:
- Automated data collection from various sources
- Dynamic visualizations and dashboards
- Scenario analyses and simulations
- Collaborative evaluation processes
Agile adaptation
In today’s fast-paced business world, agility is crucial. The matrix should be understood as a living document that continuously evolves with market conditions.
Conclusion
The GE-McKinsey Matrix is a proven and powerful instrument for strategic corporate management. It offers a structured approach to evaluating business areas and helps make objective decisions about resource allocation and strategic direction.
Success lies in consistent and systematic application: from carefully defining evaluation criteria through objective data collection to consistent implementation of derived strategies. It is especially important not to see the matrix as a static tool but as a dynamic instrument that is regularly updated and adapted to changing market conditions.
Companies that successfully use the GE-McKinsey Matrix can strengthen their competitive position, minimize risks, and achieve sustainable growth.
But we also know that this process can take time and effort. This is exactly where Foundor.ai comes in. Our intelligent business plan software systematically analyzes your input and transforms your initial concepts into professional business plans. You receive not only a tailor-made business plan template but also concrete, actionable strategies for maximum efficiency improvement in all areas of your company.
Start now and bring your business idea to the point faster and more precisely with our AI-powered Business Plan Generator!
