General Electric Matrix

General Electric Matrix [“Stop-Light” Strategy Model]

The GE Portfolio Matrix

This model has been used by General Electric Company (developed by GE with the assistance of the consulting firm McKinsey & Company). This model is also known as Business Planning Matrix, GE Nine-Cell Matrix and GE Model. The strategic planning approach, in this model, has been inspired from traffic control lights. The lights that are used at crossings to manage traffic are: green for go, amber or yellow for caution, and red for stop. This model uses two factors while taking strategic decisions: Business Strength and Market Attractiveness. The vertical axis indicates market attractiveness and the horizontal axis shows the business strength in the industry.

The market attractiveness is measured by a number of factors like:

M-Market size

M-Market growth rate

A -Effect of Competitive intensity

R- Return or Profitability of industry pricing trends

K- Key Industry trends

E- Estimated Overall risk of returns in the industry

T-Technology availability

T-Transportation

O-Opportunity for differentiation of products and service

D-Demand variability

D-Distribution structure (e.g. direct marketing, retail, wholesale) etc.

S-Segmentation

Business strength is measured by considering the typical drivers like:

C- Calibre of management

C-Cost position of company

A- Ability to compete on price and quality

P- Profit margin

P-Production capacity

B- Brand image

I- Image of in competitor

L- Loyalty of customers

I-Impactful research and development

T Technological capability

I-intensity of competition

E- Efficiency of Distribution

S- Share of Market

S-Share of Market growth rate

Conclusion

If a product falls in the green section, the business is at advantageous position. To reap the benefits, the strategic decision can be to expand, to invest and grow. If a product is in the amber or yellow zone, it needs caution and managerial discretion is called for making the strategic choices. If a product is in the red zone, it will eventually lead to losses that would make things difficult for organizations. In such cases, the appropriate strategy should be retrenchment, divestment or liquidation.

This model is similar to the BCG growth-share matrix. However, there are differences.

Firstly, market attractiveness replaces market growth as the dimension of industry attractiveness, and includes a broader range of factors other than just the market growth rate.

Secondly, competitive strength replaces the market-share as the dimension by which the competitive position of each SBU is assessed.