Aims of the GE model
This model aims to evaluate the existing portfolios of strategic business units and to develop strategies to achieve growth by addition of new products and businesses to this portfolio and further, to analyze which business units to invest in and which ones to sell off.Construction of the GE matrix
The GE matrix is constructed in a 3x3 grid with Market Attractiveness plotted on the Y-axis and business strength on the X-axis, both being measured on a high, medium, or low score. Five steps must be considered in order to formulate the matrix; * The range of products produced by the SBU (Strategic Business Unit) must be listed * Factors which make the particularMarket attractiveness
The attractiveness of a market is demonstrated by how beneficial it is for a company to enter and compete within this market. It is based on various factors; the size of the market and the rate at which it is growing, the possibility of profit, the number of competitors within the industry and their weaknesses.Business/competitive strength
This helps decide whether a company is competent enough to compete in the given markets. It can be determined by factors within the company itself such as its assets and holdings, the share it holds in the market and the development of this share, the position in the market of its brand and the loyalty of customers to this brand, its creativeness in coming up with new and improved products and in dealing with the fluctuating situations of the market, as well as keeping in mind environmental/government concerns such as energy consumption, waste disposal etc.Measuring market attractiveness and business strength
Once the factors that determine the two are identified and rated, each factor is then given a certain magnitude and a calculation is made as follows; factor 1 rating x factor 1 magnitude + factor 2 rating x factor 2 magnitude + ..... factor n rating x factor n magnitude.Plotting
SBU's in the matrix can be represented as a circle; the radius exhibits the size of the market, the SBU's holdings in the market are equated through a pie chart within the circle and an arrow outside the circle shows the standing of the SBU expected in the future. In the image attached for example, an SBU holds 45% of the market's shares. The arrow is outwards thus showing that the SBU is expected to grow and gain strength and then its tip indicates the future position of the SBU.Investment strategies
When considering investment, it must first be seen which box of the matrix an SBU falls in ; grow, selectivity, or harvest.Grow
SBUs that are classified into this category attract various company's investment as they are expected to yield high returns in the future. These investments should be split into categories such as research and development, acquisition of other SBU's, extensive advertisements and expanding production capacity.Selectivity
SBUs that hold a lot of ambiguity fall into this category. They are usually only invested in if there is any prospect of competencies in managerial and corporate capabilities and if companies have any money left after investments in 'grow' business units.Harvest
SBU' performing poorly in unattractive industries are classified into this category. Companies only invest in them if they generate enough cash to equal the investment amount, otherwise, they may be liquidated.Advantages
*Raises awareness between managers about the performance of their products in the market and aids in developing strategies to get maximum returns from the resources available. *Helps extract information about a business unit's strengths and weaknesses and to devise strategies to accelerate and improve performance. *Aids the business in growing and in providing information about potential market opportunities. *It is more complex in comparison to the BCG matrix.Limitations
*There is no set rule to 'weight' factors and this process may be subjective across different business unit's. For example, the weight given to a factor by one business may be different to the weight/importance given to it by another. *The formulation of a GE matrix is very expensive and time-consuming. *Investment strategies are often not implemented in an accurate and proper manner. *The dynamics among SBUs themselves are not taken into account.Comparison with the BCG matrix
When compared to the BCG matrix consisting of four cells, the GE matrix is more complex with its nine cells. This means it not only takes longer to construct, but also to implement. The BCG matrix is much simpler and the factors needed to construct it are accessed more easily and quickly. It takes into account a wide range of factors when determining market attractiveness and business strengths, which is replaced by market share and market growth in the BCG matrix. Also, where factors are classified in the GE matrix as high, medium and low, those in the BCG matrix are divided between high and low. Moreover, the G.E matrix overcomes many of the limitations and constraints of the BCG matrix.References
{{reflist Brand management Marketing techniques Marketing strategy Product management Portfolio theories