Business portfolio management is a promising field of strategic management in view of the today’s competitive environment. Due to the risks associated with a single business because of today’s uncertain economic gestures in the global world the firms prefer to diversify in related and unrelated fields and create business portfolios to ensure minimum required returns. The management of these portfolios become a big task and requires strategic vision to ensure the eminent performance of the components of each portfolio.

GE Matrix or McKinsey Matrix has been developed by General Electric and Mckinsey in 1970s as a strategic tool for portfolio study. Boston Consulting Group first developed the BCG Matrix for similar purpose and GE is also analogous to the BCG Matrix. One can say the GE / McKinsey Matrix is actually an extension of the BCG Matrix. GE Mckinsey is a multifactor portfolio analysis tool which compares the different businesses on basis of two variables "Competitive Strength" and "Market Attractiveness". These two variables are further divided according to their intensity level i.e. high, medium, or low.  This segregation permits the business managers to compare business or competitive strength and market attractiveness for diverse strategic business units (SBUs) or different product offerings.

The GE Matrix is an unconventional tool used in portfolio management and also called Directional Policy Matrix. It is mainly used to decide which products and business to include in the portfolio and to identify the less profitable products or SBUs needed to be divested. It also tells which brands, products, businesses have greater opportunities of investments and posses’ greater potential of return on the basis of the intensity of their competitive strength and market attractiveness.

As mentioned earlier GE Matrix is similar to the BCG Matrix, therefore, it is also plotted on a two dimensional lattice. The x-axis consists of competitive strength measures and y-axis shows market attractiveness. Competitive measures are usually represented by price, service standards, and research and development etc whereas market attractiveness is based on factors like price and profitability levels etc. 

The products and services, brands, business units, or potential products are segregated into high, medium and low according to the market / industry attractiveness and business / competitive strength and are plotted in the chart. It is assumed in the below example that a company has A, B, C, D, E, F, G, H, I products in its portfolio and want to determine the appropriate strategies to be adopted keeping in view their market attraction based on pricing and profitability and competitive strength based on service standards etc. After measuring intensity of their marketability and competitive strength these products are plotted in the GE Matrix below:
           

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The above GE Matrix reveals that the company should adopt following course of action for its portfolio of products:

• The products appearing in the top left of the GE Matrix are the potential products for the company. For example the product A shows high market attractiveness and high competitive strength. The firm should invest in the opportunities or products coming in the top left of the Matrix which are A, B, and D. The rationale behind is that the firm should exploit the opportunities which are both attractive and also show some degree of competitive advantage.

The products appearing in the bottom right of GE Matrix show very low market attractiveness and are also competitive weak. These are the best candidates for divestures. In the above Matrix products F, H, and I are potential products for divestments. The firm should not waste its resources on these products.

•The products appearing in between are decision areas for the company either it should go into more investments or redouble its efforts to make them potential products in the hopes of future benefits or consider them for portfolio cuts or divestments. In the above matrix products C, E, and G are the candidates for any such treatment.

The GE/Mckinsey Matrix has fulfilled the shortcomings of the BCG Matrix through inclusion of number of variables not treated in the BCG Matrix. It takes into account market attractiveness instead of market share and includes large range of factors other than just market growth rate. On the other hand market share in the BCG is replaced by competitive strength which enables the company to assess competitive position of each product, or SBU.

Determinants of Market Attractiveness

Several variables determine the market attractiveness for a product, service, business, brand, or SBU and mainly include:

• Market volume

• Market augmentation or growth

• Market fertility or profitability

• Pricing trends

• Rivalry or competitive strength

• Industry risk of return.

• Market Segmentation

• Distribution network

Determinants of Competitive Strength

Numerous factors establish the competitive strength for a product, service, business, brand, or SBU and primarily include:

• Potency of assets and competencies

• Relative brand strength

• Market share

• Customer loyalty and preferences

• Costing mechanism or cost composition relative to rivals

• Distribution strength

• History of technological or other advancements

• Access to financial and other investment resources

The above analysis divulges that GE / Mckinsey Matrix is basically segregated into nine cells or nine alternative positioning of any product, service, or SBU. And each SBU has a distinguished position which depends upon the competitive strength and market attractiveness. The SBUs are placed or positioned in the Matrix after a careful thought process based on analysis of various factors and variables affecting the market attractiveness and competitive strength. Any wrong position of the any SBU will result in a faulty decision. Therefore, it is pertinent to engage the key individuals capable of understanding the importance of each factor and its estimation of affects on the market attractiveness and competitive strength. Once the SBUs are carefully and thoughtfully positioned the GE Matrix enables the company to adopt alternative strategies with respect to each SBU.