Stages of construction of the Mackinsey matrix. Stages of construction of the Mckinsey matrix Comparative analysis of the matrix bcg and ge mckinsey

20.04.2023

PRACTICAL LESSON ON TOPIC No. 6

PORTFOLIO ANALYSIS OF A DIVERSIFIED COMPANY

Stages of constructing the McKinsey matrix

1. At the first stage, it is necessary to establish a list of indicators that will be used to assess the attractiveness of the market and the competitiveness of the enterprise. Criteria for determining the long-term attractiveness of an industry include market size and growth rates, technological requirements, the severity of competition, barriers to entry and exit, seasonal and cyclical factors, capital requirements, threats and opportunities that form in the industry, social, environmental factors and the degree of their regulation. Factors that are taken into account when evaluating competitiveness include market share, relative cost composition, ability to compete with competitors for product quality, knowledge of customers and markets, level of technological know-how, management skills, and profitability relative to competitors (see Table 1). Table 1).

2. Depending on the degree of influence on the final assessment, for each indicator, it is necessary to establish a coefficient of relative significance. For the convenience of selecting these coefficients, it is recommended that their sum for each group of indicators be 1.0.

3. For each indicator of the attractiveness of the market and the competitiveness of the enterprise, a rating scale is established. The most convenient scoring ranges for calculation are from 1 to 5 or from 1 to 10 points. At the same time, it is established that the lowest score for the manifestation of an individual criterion will be equal to 1, and the highest - 5 or 10 points, respectively.

4. Information that characterizes the attractiveness of the area or market, which was collected at the stages of strategic analysis, is used to conduct an expert assessment of the attractiveness of the market. The use of the total sum of significance coefficients, which is equal to 1 and the assessment range from 1 to 10 points, indicates that the maximum assessment of the attractiveness of the market can be 10 points.

Table 1

Calculation of the overall assessment of market attractiveness

Indicators	Weight factor	Evaluation of indicators	final grade
1. Market capacity	0,10	5,00	0,50
2. Market growth rate	0,05	8,00	0,40
3. Profitability of operations	0,15	10,00	1,50
4. Level of competition	0,20	5,00	1,00
5. Stability of demand	0,05	5,00	0,25
6. Amount of required investments	0,10	2,00	0,20
7. Market risk	0,15	3,00	0,45
8. Availability of raw materials, materials, components	0,05	7,00	0,35
9. Demand saturation level	0,05	9,00	0,45
10. State regulation	0,10	10,00	1,00
Total	1,00		6,10

Having received the actual final score for a particular market (in our example, 6.1 points), you can calculate the overall level of attractiveness of the market by dividing the final score by the maximum possible score: 6.1/10=0.61. Depending on the level of attractiveness, the entire range is divided into three evaluation intervals, which have the following characteristics (Table 2):

table 2

Thus, according to the results of the considered example, we come to the conclusion that the market has an average attractiveness for the strategic orientation of the enterprise.

5. The assessment of the level of competitiveness of the business unit is carried out in a similar way.

6. Based on the obtained levels of market attractiveness and competitiveness of the business unit, a strategic analysis matrix is built. The horizontal axis indicates the intervals of levels of market attractiveness, and the vertical axis indicates different levels of competitiveness of the business unit.

Depending on the indicators obtained, all strategic subdivisions of the enterprise are placed in the corresponding quadrants of the matrix.

7. For each quadrant of the matrix, the corresponding general options for marketing strategies are established, which should be detailed and specified depending on the specialization and conditions of operation of individual business units of the enterprise.

In the McKinsey matrix, the size of the industry is displayed as a circle of a certain diameter and with certain coordinates of the center, and part of the circle displays the share of the business unit (organization) in the market.

Rice. 1. Market attractiveness - competitive positions - strategies

Quadrant 1 was named "Doubt". If the business belongs to dubious types, then the following options for strategic decisions are offered:

1) the development of the organization in the direction of strengthening those of its advantages that promise to turn into strengths;

2) allocation by the organization of its niche in the market and investing in it;

3) termination of this type of business.

Quadrant 2 was named "Winner 2"."Winner 2" is characterized by a high degree of market attractiveness and an average level of relative advantages of the organization. Such an organization is a leader in its industry and at the same time does not lag far behind the leader. The strategic objective of such an organization will be to first identify its strengths and weaknesses, and then make the necessary investments to maximize the benefits of strengths and improve weak positions.

Quadrant 3 was named "Winner 1". Winner 1 is characterized by a high degree of market attractiveness and rather large advantages of organizing on it. The organization is likely to be the undisputed leader or one of the leaders. A threat to it may be the possible strengthening of the positions of individual competitors.

Quadrant 4 was named "Loser 1" is a position with medium market attractiveness and low relative market advantage. Improvements need to be sought in low-risk areas.

Quadrant 5 was named "Medium business"- an intermediate position focused on cautious development.

Quadrant 6 was named "Winner 3". The “Winner 3” position is inherent in organizations whose market attractiveness is kept at an average level, but at the same time their advantages in such a market are obvious and strong. For such organizations, it is necessary, first of all, to identify the most attractive market segments and invest in them, develop their advantages, resist the influence of competitors.

Quadrant 7 was named "Loser 3" - a position with low market attractiveness and a low level of relative advantages of the organization in this type of business. In such a state, one can only strive to make a profit. You should refrain from any investment or exit from this type of business at all. Business areas that fall into three cells located along the diagonal, going from the lower left to the upper right edge of the matrix, are called border. Such types of business can both develop (under certain conditions) and shrink.

Quadrant 8 was named "Loser 2"- a position with low market attractiveness and an average level of relative advantages in the market. This position does not have any particular strengths or opportunities. This branch of business is unattractive. The organization is not a leader, but it can and should be considered as a serious competitor.

Quadrant 9 was named "Profit Maker"- types of business of the organization, the state of which is determined by the low level of market attractiveness and the high level of relative advantages of the organization itself . In this state, it is necessary to manage investments from the point of view of obtaining an effect in the short term, since a collapse may occur in the industry at any time. At the same time, investments should be concentrated around the most attractive market segments.

Model ADL-LC

Table 1

Typical strategic refinements according to the ADL-LC model

No. p / p	Clarification name
	Direct integration
	Reverse integration
	Entering the market
	Primary market development
	Increasing production capacity
	Rationalization of the distribution system
	Development of production abroad
	Business development abroad
	Export of a traditional product
	Licensing abroad
	Caution
	New Products/Traditional Markets - Product Development
	New products/new markets - diversification
	Systematic efficiency improvement
	Actions in the nationalization of the market
	Complete business rationalization
	Improvement of the product range
	Product improvement
	Traditional Products/New Markets – Expanding Market Boundaries
	Traditional Products / Deeper Market Penetration
	Transition to efficient technology
	Traditional cost reduction
	Ensuring survival
	Business abandonment

Taking into account the presented methodological provisions, the main points of strategic analysis and development of strategies using the ADL-LC model are reduced to the following actions.

1. In accordance with the specified estimated indicators of the axes of the ADL matrix, a targeted analysis of each specific business of the organization is carried out, according to the results of which all businesses are entered in specific cells and points of the matrix.

2. For businesses that fall into certain cells of the matrix from the possible options, a choice is made of one specific strategic route, within which a typical strategy is formed from a set of TSU (Table 2).

table 2

Characteristics of positions according to the ADL-LC model

No. p / p	Position	Brief multi-aspect characteristic
	Weak - Breeding	The position is unprofitable. The cash flow is credited. Two strategic routes are possible: along the “development-survival” line with TSU: 3, 5, 6.12, 15.17.18; exit from business with TSU: 6.15 or 16.17.18, 22 or 23
	Weak - Height	The position is unprofitable. The cash flow is credited or balanced. Investing or not investing. Strategic routes are possible: along the “development-survival” line with TSU: 3, 6, 14.15, 17, 18, 21, 22 or 6, 12, 13, 15, 17, 18, 20; exit from business with TSU: 24
	Weak - Maturity	The position is unprofitable. Cash flow is credited or generated. Investing is selective or non-investing. Strategic routes are possible: along the “development-survival” line with TSU: 3, 6, 14, 15, 17, 18, 21, 22 or 6, 12, 13, 15, 17, 18, 20; exit from business with TSU: 6, 15, 17, 18, 22
	Weak - Recession	The position is unprofitable. Refusal to invest. One strategic route possible: exit from business with TSU: 24
	Durable - Breeding	The position is unprofitable. The cash flow is credited. A very selective investment. There are two possible strategic routes along the lines: "natural development" with TSU: 1,3,19; "selective development" with TSU: 1, 3.19
	Durable - Growth	The position is unprofitable. The cash flow is credited or balanced. selective investment. Three strategic routes are possible along the lines: "natural development" with TSU: 1,3,19; "selective development" with TSU: 1,3,19; "development-survival" with TSU: 3, 5, 6, 12, 15, 17.18
	Durable - Maturity	The cash flow is balanced. Refusal to invest. Two strategic routes are possible: along the line of "selective development" with TSU: 6, 7.14, 18.20; exit from business with TSU: 6, 15, 17, 18, 22
	Durable - Slump	The position is the least profitable. The cash flow is balanced. Refusal to invest. One strategic route possible: exit from business with TSU: 24
	Noticeable - Removal	Position, probably, profitable. The cash flow is credited. selective investment. One strategic route is possible: along the line of "natural development" with TSU: 1, 3, 5, 7, 8.12, 13, 19.21
	Noticeable - Growth	The position is the least profitable. The cash flow is credited. selective investment. Two strategic routes are possible along the lines: "natural development" with TSU: 2, 7.14, 20, 21, 22; "selective development" with TSU: 2, 7.14, 20, 21, 22
	Noticeable - Maturity	The position is moderately profitable. Cash flow is generated. Selective reinvestment. Two strategic routes are possible along the lines: "natural development" with TSU: 1, 2, 7, 8, 9,10,12, 14,19,20; "selective development" with TSU: 1, 2, 4.15, 17.19
	Noticeable - Recession	The position is moderately profitable. The cash flow is balanced. Minimum investment or refusal to invest. Possible strategic routes: along the line of "selective development" with TSU: 3, 7, 8, 12, 14, 19, 20, 21 or 6, 7, 14, 18, 20; exit from business with TSU: 6,15,17,18, 22
	Strong - Breeding	The position may not be profitable. The cash flow is credited. Investment intensive. One strategic route is possible: along the line of "natural development" with TSU: 1, 3, 5, 7, 8,12,13,14, 19,21
	Strong - Growth	Position, apparently profitable. The cash flow is likely to be credited. Investment intensive. Possible strategic routes: along the line of "natural development" with TSU: 2, 7.14, 20, 21, 22 or 1,3,5,7,8, 12, 13, 14, 19,21
	Strong - Maturity	The position is profitable. Cash flow is generated. Reinvestment is selective. Possible strategic routes: along the line of "natural development" with TSU: 2, 7, 14, 20, 21, 22 or 1.2, 7, 8, 9, 10, 12, 14, 19, 20
	Strong - Recession	The position is profitable. Cash flow is generated. Reinvestment is minimal. Two strategic routes are possible along the lines: "natural development" with TSU: 2, 7.14, 20, 21, 22 or 6,11,15,16,17,18,21,22; "selective development" with TSU: 6, 7, 14.18, 20
	Leading - Breeding	Position, apparently profitable. The cash flow is likely to be credited. Investment intensive. Possible strategic routes: along the line of "natural development" with TSU: 3, 4, 5 or 1.3, 5.7.8, 12, 13, 14, 19.21
	Host - Growth	The position is profitable. Cash flow is likely to be generated. Investment intensive. One strategic route is possible: along the line of "natural development" with TSU: 2, 7, 14, 20, 21, 22
	Host - Maturity	The position is profitable. Cash flow is generated. Reinvestment is selective. Possible strategic routes: along the line of "natural development" with TSU: 2, 7.14, 20, 21, 22 or 1, 2, 7, 8, 9, 10, 12, 14, 19, 20
	Host - Recession	The position is profitable. Cash flow is generated. Reinvestment is selective. One strategic route is possible: along the line of "natural development" with TSU: 2, 7, 14, 20, 21, 22

3. Through special procedures, strategic balancing (optimization) of the entire business portfolio of the organization is carried out. This is carried out according to the following criteria: the stage of the life cycle, the size of the total cash flow, the weighted average rate of return on net assets.

GE matrix, or McKinsey matrix is used in assessing the attractiveness of individual strategic economic units based on two coordinates: the X axis characterizes the strength of the position of a strategic economic unit in the industry, the Y axis - the attractiveness of the industry. Each of these coordinates is determined taking into account several parameters.

McKinsey matrix (McKinsey) was developed for General Electric. The X-axis is the competitive position (relative advantage) of the strategic business unit, the Y-axis is the attractiveness of the industry in which the strategic business unit operates. Each axis is divided into three parts. The matrix has a dimension of 3 * 3. Unlike BCG, in this matrix, each coordinate axis is considered as an axis of a multivariate measurement. The McKinsey matrix is more realistic. Indicators along the Y axis are practically beyond the control of the company, along the X axis - on the contrary, they can be changed (Table 6.1).

Table 6.1 X-Axis and Y-Axis Scores for the McKinsey Matrix

Characteristics of strengths (competitive advantages) of the business unit (X-axis)

Industry Attractiveness Feature (Y-Axis)

Relative market share

Market share growth

Distributor network coverage

Distribution network efficiency

Personnel qualification

Customer loyalty to the company's products

Technological advantages

Patents, know-how

Marketing Benefits

Flexibility

Market Growth Rate

Product differentiation

Peculiarities competition

Industry rate of return

Consumer value

Consumer brand loyalty

For X axis- competitive advantages of the business area.

Let's define the key success factors for each business area.

Specific weight (relative importance) of each factor.

We rate each factor. 5 - if the product has a very strong competitive position in a similar industry, 1 - if a very weak competitive position.

For Y axis- the attractiveness of the business area as an industry.

The algorithm is similar.

We will choose the parameters by which the attractiveness of the industry will be assessed.

As a result of the analysis using the McKinsey matrix, a good analysis of the product portfolio is given.

The analyzed business units are reflected in the form of circles with centers at the intersection of their respective values. Each circle corresponds to the total sales in some market (Fig. 6.2).

There are three areas:

winners;

losers;

middle area (diagonally).

Rice. 6.2. McKinsey matrix

The basic principle of the method- increase investments in business areas in attractive industries if the company has competitive advantages in them, and, conversely, reduce investments if the positions of the product market itself or the company on it turn out to be weak. You can evaluate the contribution of the product to the profitability of the company.

For winners- additional investment, get profit, protection of benefits. For the losers - to limit investment until the stop, additional investment will not bring profit. For border areas- either grow or shrink until liquidation.

Position strength index is based on the indicator of the relative market share, the dynamics of its change, the amount of profit received, the image, the degree of price competitiveness, product quality, sales efficiency, geographical advantages of the market, and the efficiency of employees. It is possible to weigh the indicators used. Three levels of gradation of this index are accepted: strong, medium, weak. The Industry Attractiveness Index is determined by taking into account the size and diversity of markets, market growth rate, number of competitors, industry average earnings, demand cycles, industry cost structure, pricing policy, legislation, and labor resources. Three levels of gradation of this index are used: high, medium and low. The intersection of the lines characterizing the different levels of values of these two levels forms a grid, which is divided into three zones: the zone in which the organization must invest; the zone in which the organization must maintain investment at the same level, and the zone in which it is necessary to obtain the maximum possible profit, after which it should be left.

1. Preservation and strengthening of the market position by:

investing to ensure growth at the highest possible rate;

concentration of efforts to maintain strengths business.

2. Investing in the struggle for leadership; selectively investing in the strengths of the activity; strengthening the most vulnerable aspects of activity.

3. Ensuring selective growth by:

specialization based on the strengths of the activity;

search for ways to overcome the weaknesses of the activity;

withdrawal from the market if there is no indication of an acceptable increase in sales volume.

4. Large investment in the most attractive market segments; maintaining the ability to counter competitors; ensuring high profitability by increasing performance.

5. Protection of existing market activity programs; concentration of investments in segments where profitability is high and risk is relatively low.

6. Limited expansion, or "harvesting", is achieved by finding ways to expand activities that are not associated with high risk, while minimizing investment and rationalizing all production and marketing operations.

7. Maintain position refocusing activities by:

shifting the focus to earning current money;

concentration on attractive segments;

protecting the strengths of the activity.

8. The main focus is on making money by:

protection of positions in the most profitable segments;

product line upgrades;

investment minimization.

9. Care with market. In this case, it is necessary:

sell goods on time at a bargain price;

drastically reduce fixed costs while avoiding investment.

The success that accompanied the Boston Consulting Group's strategic analysis and business planning model stimulated methodological research in this area. Analytical models began to appear one after another, bearing a similar meaning to BCG and even very similar to it in the fundamental idea, but at the same time, in some ways different, and in some ways, undoubtedly, superior to it.

In the early 1970s, an analytical model emerged jointly proposed by the General Electric Corporation and the consulting company McKinsey & Co. and dubbed the GE/McKinsey model. By 1980, it had become the most popular multivariate model for analyzing the strategic positions of a business. At one time in the mid-1980s, it was estimated that approximately 36% of Fortune 1000 organizations and 45% of Fortune 500 organizations adopted this analysis and planning methodology.

The GE/McKinsey model is a 9-cell matrix for displaying and comparing the strategic positions of an organization's business lines. The main feature of this model was that for the first time in it, for comparing types of business, not only “physical” factors (such as sales volume, profit, return on investment, etc.) were considered, but also subjective characteristics of the business, such as market share volatility, technology, staffing status, etc.

This model can be found in the specialized literature on strategic management and planning under various names. Some names reflect some historical aspect. For example, the name “GE/McKinsey model” indicates who developed and proposed the model for use. Other names may indicate its purpose. For example, “matrix of market attractiveness and competitive positions”. The third names emphasize the form of this model more than its content, as, for example, the name “bubble chart”.

The matrix was originally developed by the General Electric Corporation in an attempt to solve the problem of benchmarking its 43 distinctly important businesses. The developed structure of the matrix itself was already seen as a kind of methodological achievement, because. it provided a partial solution to the problem of establishing a common comparative basis for analyzing the strategic positions of businesses that were very different in nature. By quantifying subjective factors and including them in the analysis, the model provided the decision maker with more relevant information. It goes without saying that the final strategic decision was made not only on the basis of the results of positioning types of business on the proposed matrix. However, now with the help of such a model, the manager was able to better organize and compare individual types of business. At the time, there was even a common phrase among GE's executives: "Our model is the only way to compare apples and oranges." And even when non-numerical factors were not weighted, the end result of using the matrix was a quasi-quantitative positioning of business types.

One of the main advantages of the GE/McKinsey model is that different factors (X and Y axes) can be given different weights depending on their relative importance for a particular type of business in a particular industry, which, of course, makes the valuation of each business more accurate.

Structure of the GE/McKinsey Model

The focus of the GE/McKinsey model is on the future earnings or future return on investment that can be earned by organizations. In other words, the focus is on analyzing what impact additional investment in a particular type of business can have on earnings in the short term.

Thus, all considered types of business of the organization are ranked as candidates in terms of obtaining additional investments, both in terms of quantitative and qualitative parameters. In order for a particular type of business to “win” a good investment in the future, not only current sales volumes, profits and return on capital (i.e. strictly quantitative parameters) are considered, but also various other factors, such as variability in market share and technology. , staff loyalty, level of competition, social need (i.e., parameters that are rather difficult to quantify).

The GE/McKinsey matrix has a dimension of 3x3 (Fig. 1). On the Y and X axes, integral assessments are given, respectively, of the attractiveness of the market (or business sector) and the relative advantage of the organization in the corresponding market (or the strengths of the organization's corresponding business). Unlike the BCG matrix, in the GE/McKinsey model each axis of coordinates is treated as an axis of a multifactorial, multidimensional dimension. And this makes this model richer in analytical terms compared to the BCG matrix and, at the same time, more realistic in terms of positioning business types.

The parameters by which the position of the business on the Y-axis is assessed are practically beyond the control of the organization. Their value can only be fixed, but it is almost impossible to influence their value. The positioning of the organization's business along the X axis is under the control of the organization itself and can be changed if desired.

Compared to the BCG model, which used a 2x2 strategic positioning matrix, the GE/McKinsey model increased the dimension of this matrix to 3x3. This made it possible not only to give a more detailed classification of the compared types of business, but also to consider wider opportunities for strategic choice.

The analyzed types of business are displayed on the grid of the matrix in the form of circles, or "bubbles", the centers of which are uniquely set by the estimates of the attractiveness of the market (Y-axis) and the relative advantage of the organization in the market (X-axis). Each circle corresponds to the total sales in some market, and the share of the organization's business in this volume of sales is shown by a segment in this circle.

Both the Y-axis and the X-axis are conditionally divided into three parts: the top, middle and bottom rows. Thus, the grid turns out to consist of nine cells. The strategic position of the business improves as it moves on the matrix from right to left from bottom to top.

Three areas of strategic positions are distinguished in the matrix: 1) the area of winners, 2) the area of losers, 3) the average area, which includes positions in which business profits are consistently generated, average business positions and questionable types of business.

Types of business that, when positioned, fall into the “winners” area have better or average values of market attractiveness factors and organizational advantages in the market compared to the rest. With regard to such types of business, a positive decision regarding additional investments can most likely be made. Such types of business, as a rule, promise further development and growth in the near future.

Rice. 1. GE/McKinsey matrix structure

For a position that is conventionally named Winner 1, characterized by the highest degree of attractiveness of the market and the relatively strong advantages of the organization on it. The organization is likely to be the undisputed leader or one of the leaders in this market. It can only be threatened by the possible strengthening of the positions of individual competitors. Therefore, the strategy of an organization in such a position should be aimed at protecting its position primarily through additional investment.

For a position with a conditional name Winner 2 characterized by the highest degree of attractiveness of the market and the average level of relative advantages of the organization. Such an organization is clearly not a leader in its industry, but at the same time it does not lag too far behind. The strategic task of such an organization is, first of all, to identify its strengths and weaknesses, and then make the necessary investments in order to maximize the benefits of its strengths and improve the weaknesses.

Position Winner 3 engages in organizations with those types of businesses whose market attractiveness is kept at an average level, but at the same time, the advantages of the organization in such a market are obvious and strong. For such an organization, it is necessary, first of all: to determine the most attractive market segments and invest in them; develop their ability to withstand the influence of competitors; increase production volumes and through this achieve an increase in the profitability of their organization.

Types of business that fall into the three boxes in the lower right corner of the matrix are called Losers. These are species that have at least one of the lower and do not have any of the higher parameters plotted on the x and y axes.

Additional investment by the organization in these types of businesses should generally be limited or stopped altogether, as there is no link between such investment and the mass of the organization's profits.

For Loser 1 characterized by an average market attractiveness and a low level of relative advantages in the market (middle cell in the right row).

For the type of business in this position, it is advisable to recommend that you try to find opportunities for improvement in areas with a low level of risk, develop those areas in which this business has a clearly low level of risk, strive to turn individual business strengths into profit if possible, and if none of this is possible then simply leave the business area.

For Loser 2 characterized by low market attractiveness and an average level of relative advantages in the market (middle cell in the bottom row). There are no special strengths or opportunities for this position. The business sector is rather unattractive. The organization is clearly not a leader in this type of business, although it can be seen as a serious competitor for the rest. In this position, it is advisable for the organization to focus on reducing risk, protecting its business in the most profitable areas of the market, and if competitors are seeking to buy out this business and offer a good price, then it is better to agree.

Positions Loser 3 are determined by the low attractiveness of the market and the low level of relative advantages of the organization in this type of business. In such a position, one can only strive to make a profit that can be obtained, refrain from any investment at all, or exit this type of business altogether.

Types of business that fall into three cells located along the diagonal, going from the lower left to the upper right edge of the matrix, are called “ border“. These are types of businesses that can both grow under certain conditions, and, conversely, decline.

If the business is in questionable species business (upper left corner), which, as a rule, is associated with relatively insignificant competitive advantages of an organization involved in a very attractive and promising business in terms of the state of the market, the following strategic decisions are possible:

1) the development of the organization in the direction of strengthening those of its advantages that promise to turn into strengths;

2) allocation by the organization of its niche in the market and investing in its development;

3) if neither 1) nor 2) is possible, then it is better to leave this type of business.

Business related to medium positions, is characterized by the absence of any special qualities: the average level of market attractiveness, the average level of relative advantages of the organization in this type of business. This situation also determines a cautious strategic course of conduct: to invest selectively and only in very profitable and least risky activities.

The types of business of an organization whose position is determined by a low level of market attractiveness and a high level of relative advantages of the organization itself in this industry are called Profit Producers. In this situation, investments should be managed from the point of view of obtaining an effect in the short term, because the collapse of the industry can occur at any time. At the same time, investments should be concentrated around the most attractive market segments.

Strengths and weaknesses of the GE/McKinsey model

Initially, 40 variables for any type of business were used to build the GE/McKinsey model. Later, their number decreased, and by 1980 there were only 15 such variables left. Six of these 15 variables were used to assess market attractiveness (y-axis), and the remaining 9 were grouped by two factors - market position and competitive strength - to describe relative advantage organizations in the relevant market (X-axis). These variables included the following (Table 2).

Table 2 Characteristics of variable organizational strengths and market attractiveness used in the GE/McKinsey model

Characteristics of the strengths of the organization (X axis)	Characteristics of market attractiveness (y-axis)
Relative market share Market share growth Distributor network coverage Distribution network efficiency Personnel qualification Customer loyalty to the organization's products Technological advantages Patents, know-how Marketing Benefits Flexibility	Market Growth Rate Product differentiation Features of competition Industry rate of return Consumer value Consumer brand loyalty

The focus of the GE/McKinsey model is on balancing investments. Determining the positions of each individual type of business in the space of strategic positions of the GE / McKinsey matrix, the expected contribution of each of them to the economic efficiency of the organization as a whole in the near future is revealed.

This model does not provide an intelligible answer to the question of how to restructure the organization's business portfolio. The search for an answer to this question lies beyond the limits of the analytical capabilities of this model. In most cases, the model can offer certain strategic guides in the form of general strategies.

The general strategic principle advocated by the GE/McKinsey model is as follows: increase the amount of resources allocated to develop and maintain businesses in attractive industries, if the organization has certain advantages in the market, and, conversely, reduce the resources allocated to this type of business if the positions of the market itself or the organization on it are weak. For any type of business that falls between these two positions, the strategy will be selective.

Naylor, for example, suggests the following strategies for various GE/McKinsey matrix positions:

Although Naylor's proposals seem too broad, they do not answer the question of how to implement such strategies. The manager must be aware of potential problems. For example, there is a danger that the growth orientation of the Winners' businesses will one day overburden those areas with investment resources that will no longer deliver the expected results. Moreover, in the short term it is very difficult to assess the correctness of investments in the types of businesses related to the Winners, since the effect may appear much later. Therefore, if the organization becomes too Winner-centric, the resources needed in the short term can be completely depleted, leading to cash flow problems. Naylor's proposals regarding the diagonal positions of the matrix can be subjected to similar criticism.

The GE/McKinsey model assumes a number of methodological assumptions about the positioning matrix axes and their constituent variables. The relative advantage of an organization in a particular industry (x-axis) is determined by comparing the level of profitability of the organization's relevant business compared to its position among competitors. Although it is believed that competitive position will deteriorate over time unless new sources of competitive advantage are found. Therefore, it would be wiser to position the organization's business in accordance with its prospects, and not only with its current status.

The assessment of market attractiveness (y-axis) is based on the assumption that it is necessarily reflected in the average long-term profit potential for all participants in this industry.

The GE/McKinsey model recommends using strategies that, to put it mildly, look naive and very superficial. Rather, they can be taken into service as a guide for further in-depth analysis, but in no way can be considered as a management decision.

The breakdown of the axes of the GE/McKinsey matrix is also highly controversial. First, it does not change in any way when the set of estimated factors changes. Secondly, the rational grain of multifactoriality is lost as soon as one assessment is added from several assessments, which determines the coordinate of business positions on the corresponding axis.

Variations on the GE/McKinsey Model

Today there are various variations of the GE/McKinsey model. All of them are based, as a rule, on the desire to increase the number and variety of factors taken into account during the analysis or to offer more options for strategic decisions for a particular position. Below are variations on the GE/McKinsey model proposed by Day and Monieson, respectively.

Day's variation on the GE/McKinsey model

Market attractiveness	Defend your position	Invest in development	Develop Selectively
strong	Invest in development to the maximum Focus your efforts on maintaining strengths	Fight for the lead Develop selectively in the areas in which you are strong Strengthen your weak spots	Focus around a small number of strengths Look for ways to overcome weaknesses Quit the business if there are no signs of sustainable growth
	Develop Selectively	Generate income	small extension
Medium	Invest heavily in attractive industries Focus on increasing profitability through increased productivity	Protect an existing program Concentrate investments in those segments where there is a good rate of return and relatively little risk	Look for ways to develop without high risk; otherwise, minimize investment and improve the organization at the operations level
	Defend and change direction	Generate income	Get out of business
Weak	Try to make money today Focus on attractive segments Protect your strengths	Protect your positions in the most profitable segments Update your range Minimize your investment	Sell the business when you can get the highest price Cut fixed costs and avoid investments for a while
	Strong	Medium	Weak
	Competitive positions

	Invest in development: This strategy is chosen when a highly attractive market offers opportunities for growth that may not be available at market maturity. Substantial investment will be required to build on its strengths and then sustain the high growth rates that characterize such markets.
	Generate revenue: This strategy involves strengthening the organization's position in segments with good profits and where barriers to entry of competitors can remain even when the position shifts to those segments where costs exceed income.
	Grow selectively or leave the business: With a weak position in an attractive market, it is usually desirable to look for protected niches in which to specialize. If this is not feasible or too costly and/or risky, then exiting the business should be considered.
	Generate Revenue: It is intended to change the position of the business in order to extract "real" money with little investment and rationalization at the level of operations. Small investments can be made to add value to the business if the need arises.

Day suggested choosing from the standard GE/McKinsey list only those factors that are determinants of industry profitability or relative profitability.

Business Attractiveness	Strengths of the competitive position
A. Market factors size (in value and physical terms) size of the product market growth rates of the market stage of the life cycle market diversity price elasticity purchasing power cyclical (seasonal) demand	A. Market position relative market share rate of change in share fluctuations in share by segment perceived differentiation in quality, price and service assortment image of the organization
B. Economic and technological factors intensity of investment nature of investment (conditions, working capital, leases) ability to resist inflation capacity of the industry level and duration of technology use barriers to entry and exit in the industry access to sources of raw materials	B. Economic and technological position relative cost position level of capacity utilization technological position patented technology, products, processes
B. Competitive factors Type of competitors Structure of competition Threat of substitute products Perceived changes among competitors	B. Ability strengths of the management system strengths of the marketing system distribution system labor relations

Monieson's variation on the GE/McKinsey model:

Industry Position	Invest in growth	Invest selectively in growth	Invest for income
strong	Ensure maximum investment Global diversification Consolidate positions Settle for even a modest rate of return	Invest heavily in select segments only Maximize your market share Find new attractive segments to apply your abilities	Protect your strengths Refocus on an attractive segment Assess the recovery of the industry Control your income or put your investment on hold
	Invest in growth	Selectively invest for income	Generate income or go out of business
Medium	Develop selectively based on your strengths Develop the ability to resist competition	Segment the market Have contingency plans	Do not engage in financial support for non-essential operations Prepare an option in case of going out of business or Move to a more attractive segment
	Selectively invest in getting "live" money	Protect your income generation system	Make a profit or go out of business
Weak	Manage the market Find your niches (specialization) Try to develop your strengths	Act to save and increase cash Consider selling your business or Consider business rationalization opportunities to develop strengths	Leave the market or reduce the range Build work plans to maximize value
	strong	Medium	Weak
	Market attractiveness

As factors for assessing the attractiveness of the market and the attractiveness of the industry, Monieson suggested using the following:

Market attractiveness

Industry attractiveness

Market share index
Market share
Relative market share
Relative product quality
Relative price
Relative direct costs
Patents for technology or products
Relative consumer size range
Labor productivity
Relative average salary level of employees
Equipment used on a shared basis

Real sector growth rates
Share of production associations
Share of sales of new products in total sales
The ratio of research and development costs to sales volume
Retail price growth rates
The ratio of marketing costs to sales
Purchasing power of the average consumer
The ratio of income to investment
The ratio of the cost of raw materials and work in progress to value added
Are items made to order?
Production concentration level
Investment Intensity Index Ratio of investment to sales Ratio of investment to value added
Capacity utilization level
The ratio of the total book value of the organization to the volume of investments
Level of vertical integration
Share of investment per employee

Literature:

Naylor, Thomas H. The Corporate Strategy Matrix. New York: Basic Books, 1986.
Day G.S. Analysis for Strategic Marketing Decisions. West Publishing Company, 1986.
Monison. D.D. Effective Marketing Planning: An Overview. 1986.

This analysis appeared at General Electric when it became necessary to evaluate the future profitability of various projects. Since the lines of business were different, some kind of universal assessment tool was required so that the right marketing strategy could be built on the basis of the data received. This method of analysis was proposed by GE consulting firm McKinsey & Co - hence the name of the matrix. Such a matrix can be used at various business levels: both when evaluating a specific product, and for evaluating the profitability of investment portfolios.

The study is based on the profit that can be obtained from the project. The attractiveness of a particular market segment is evaluated on two scales: the attractiveness of the industry and the strength of the business (brand) - this helps to take into account both internal and external factors affecting the project. Each scale is conditionally divided into three sectors - high, medium and low. Thus, we get a 3x3 matrix containing 9 sectors, for each of which you can select your own optimal strategy. The closer to the end of the scale the sector is, the higher the profit from it can be obtained.

To compile the matrix, both objective and measurable factors and subjective ones can be used. Subjective factors should be assessed by competent people, for example, company experts, both in management positions and functional specialists.

For each project, it is necessary to define its own evaluation criteria - there is no universal list. To select the evaluation criteria, you can refer to the SWOT analysis, since many factors for these analyzes will be common.

SWOT Analysis

SWOT stands for S - Strengths or strengths; W - Weaknesses - weaknesses; O - Opportunities - company opportunities; T - Threats - threats.

The first paragraph "Strengths" allows you to identify the main advantages in the competition. Here it is necessary to highlight those areas in which the positions of the analyzed object are better than those of competitors. It is necessary to pay attention to these advantages and try to develop and strengthen them.

Next, you should pay attention to the weaknesses of the object. It is very important to be as impartial as possible, otherwise the results of the analysis will be incorrect. Weaknesses need to be constantly worked on, because they directly affect the decline in profits and prevent the product or company from being a leader in its field. If it is not possible to get rid of the weakness, then it is necessary to minimize the risks associated with it.

Next, we turn to the influence of the external environment. Opportunities are factors in the company's environment that favorably affect the company's profits and image. Such factors can be seen as opportunities for growth and development.

Threats, on the contrary, have a negative impact on business and lead to a decrease in competitiveness. It is very important to assess the likelihood of their occurrence and the degree of threat. It is also necessary to draw up an action plan to neutralize the threat, if it arises.

Based on the strengths identified in the process of SWOT analysis, it is possible to single out the main competitive advantage of a product or company, it is in it that it is necessary to invest efforts and develop it in every possible way. Pay attention to benefits that the consumer may not be aware of.

Further, all data is summarized in a SWOT analysis matrix. Be sure to rank the factors in it in order of importance for the company. Two areas can be distinguished in the matrix: positive and negative influence. An analysis of these areas will show the most important aspects of both the external and internal environment. For analysis, it is necessary to compile a table describing each of the factors. For internal factors, it is necessary to determine the strength of influence, for external factors, the probability and timing of implementation. You also need to determine exactly how the factor affects the company's profit.

Thanks to the "opportunities - strengths" cell, you can build a strategy for the growth and development of the company. It is important to analyze how, for each opportunity, all available strengths can be used to the maximum.

The "opportunities - weaknesses" cell contains solutions for the company's defense strategy and writing a plan for internal transformation. This cell shows how the company can be changed to eliminate weaknesses or reduce their impact. It is also necessary to assess whether any weakness can prevent the use of this or that opportunity.

The combination of "threats - strengths" forms the basis of the strategy of potential advantages. Using this cell, you can strategize protective actions in the event of threats.

The combination of "threats - weaknesses" shows the limitations of strategic development. It is very important to analyze how to strengthen weaknesses in order to minimize losses in case of threats.

Attractive factors according to McKinsey, which can be criteria in assessing the attractiveness of a market or market sector:

Potential sales volumes
Easy market entry for new players
Possibility to earn profit for a long time
Low risk/market stability
High chances of winning customer loyalty
Large market segment/large customer base.
The growth rate of the segment is higher than the growth rate of the market
Limited number of players
High market growth potential
Low level of loyalty to competitors
The existence of unmet consumer needs.
Favorable trends in society

Business strengths can be:

Market share
Market share growth rate
Developed distribution network
Consumer loyalty
Registered trademark
Patents
Staff professionalism
Product quality
Quality positioning
High recognition

And much more. Each business will have its own list of factors.

Each selected assessment factor must be assigned a weight based on its significance, the total weight of all factors is 100%. Next, you need to evaluate how strong the factor is. It is best to use the assessments of several experts for this. To get the final assessment, it is necessary to multiply the arithmetic mean of expert assessments by the weight of the factor. The final scores are added up. Thus we obtain the two required estimates.

Having assessed the attractiveness of a market segment (or a specific product), it is necessary to place it in the matrix in order to determine its potential and further strategy of action.

All segments of the matrix can be divided into three categories: with high potential, with low potential, and those in the middle. Let's consider them in more detail.

#1 Bad segment, strong brand

It is better to wait for more favorable conditions, and then enter the market. Business development should be carried out prudently, when market conditions change, it is necessary to quickly reorganize to a different strategy (2,3)

#2 Average conditions in the segment, strong brand

The segment has good business potential. Try to become a leader or its main competitor. It is necessary to invest in building a loyal customer base and promotion (especially in communicating competitive advantages), but not to use expensive channels. Pay attention to the creation of a protection strategy.

#3 Good segment, strong brand

The most desired segment. In this segment, it is necessary to try to become the absolute leader. Focus your resources on this project and invest in growth as much as possible. Pay attention to protecting your positions now and in the future, strengthen your competitive advantage. Do not forget about the legal protection of the brand. Pay attention to increasing customer loyalty.

Protect yourself from new players, create artificial barriers.

#4 Bad segment, average brand positions

Cut back on investments, don't invest in building positions, better focus on protecting existing sales levels, use low-cost communication channels.

No. 5 Average conditions in the segment, average brand positions

Entering the market makes sense if you expect the market conditions to improve or the business to strengthen its position. For an existing business or product, define a strategy that clearly defines which competitor you will win the market from so that you can conduct targeted attacks without spraying on the market as a whole. Investments should be moderate, and in promotion it is worth giving preference to those methods that have the best price / efficiency ratio.

No. 6 Good segment, average brand positions

This segment has good potential. Strengthen competitive advantages, talk about them through all communication channels. Identify what can be a source of growth. Attack only clearly weaker opponents, avoid conflicts with market leaders.

#7 Bad segment, weak brand

#8 Average conditions in the segment, weak brand

It is better to postpone the entrance to the segment. If you are already in the market, then try to get the maximum income by minimizing investments, save your strength, do not attack.

#9 Good segment, weak brand

It is necessary to strengthen the business before entering the market, otherwise the project is not feasible. If you're already in the market, focus on defending your position, don't aim for growth. Increase your competitive advantage wherever possible.

SWOT analysis

SWOT analysis is an analysis of the external and internal environment of an enterprise in the current market situation. This is a simple and convenient tool for analyzing what is happening, allowing you to draw conclusions about the competitiveness of the company. Often this analysis is carried out before drawing up the marketing strategy of the enterprise, which allows you to avoid many mistakes when promoting the brand.

This analysis can be carried out not only for any enterprise or product, but also for the market, industry or even country. You can also conduct a personality analysis, including self-analysis. Sometimes, a good solution may be to conduct a SWOT analysis of competitors - this will help to systematize data about them. Equally important are the results of SWOT analysis for making strategic decisions in enterprise management. Based on it, you can draw up an action plan, as well as clearly define the necessary resources and timeframes to obtain the desired result. SWOT analysis is best done at least once a year, when planning future actions, as well as when crises arise in the external or internal environment.

MINISTRY OF CULTURE AND TOURISM OF UKRAINE

KHARKOV STATE ACADEMY OF CULTURE

Faculty of Management

MATRIX Mc KINCEY- GENERAL ELECTRIC

Prepared

5th year student

Groups 5MO

Climate Angelica

Kharkiv 2009

Introduction

In the early 1970s, an analytical model appeared, proposed by the consulting company McKinsey & Co for the General Electric Corporation. and dubbed the "GE/McKinsey model". Like many other strategic matrices, the GE/McKinsey matrix is a modified BCG matrix (BCG). The matrix is one of the most popular modern portfolio analysis tools.

Matrix General Electric & McKinsey (GE/MCKINSEY): industry attractiveness - business sustainability. This matrix was developed by the Mc Kinsey consulting group in conjunction with the General Electric Corporation and was called the "business screen". The matrix was originally developed to address the problem of benchmarking the expected future profitability of the 43 strategic business units of the General Electric Corporation. It provided a partial solution to the problem of establishing a common comparative basis for analyzing the strategic positions of businesses that were very different in nature. The focus of the GE/McKinsey model is on the future earnings or future return on investment that can be earned by organizations. In other words, the focus is on analyzing what impact additional investment in a particular type of business can have on earnings in the short term. Unlike the BCG matrix, in the GE/McKinsey model each axis of coordinates is treated as an axis of a multifactorial, multidimensional dimension. And this makes this model richer in analytical terms compared to the BCG matrix and, at the same time, more realistic in terms of positioning business types.

GE/McKinsey Matrix Structure

The matrix is a square formed along two axes: Business Strength and Industry Attractiveness. Each axis is conditionally divided into three parts: low, medium and high. Accordingly, the matrix consists of 9 quadrants (3x3): vertical axis Y - Business Strength (Business Sterngth), horizontal axis X - Industry Attractiveness

The model is based on the assumption that the long-term profitability of a strategic business unit depends on the unit's competitive strength, as well as the ability and motivation to strengthen its market position, which are determined by the attractiveness of the industry. An attractive market implies large actual or potential cash flows. Likewise, high competitive strength also means the ability to generate large cash flows.

The size of the circle representing the strategic business unit corresponds to the size of its market, and the sector allocated on it is equal to the share of this strategic business unit in its market.

Criteria used in the GE/McKinsey matrix

Business strength:

Relative size

Market share

Comparative profitability

net income

Technological state

Image, image of the enterprise

Management and people

Industry attractiveness

Absolute size

Market Growth

Market breadth

Pricing

Structure of competition

Industry rate of return

social role

Environmental impact

Legal restrictions

The GE/McKinsey matrix is based on a combination of both objectively measurable parameters (market size, profitability, market share, etc.) and subjectively assessed ones.

Immeasurable criteria should be assessed by experts - the most qualified employees of the company (including managers at all levels: top and functional) and third-party experts. In this case, either a normalized scale is used (from zero to one), or a scale from 1 to 5 (1 and 2 - "low", 3 - "medium", 4 and 5 - "high"). The higher the weight of the factor, the greater the numerical value assigned to it.” Summing up the final assessment of all the selected factors for the strategic business unit, we obtain its position on each axis.

GE/McKinsey Matrix Quadrant Values

The position strength index is determined taking into account the indicator of the relative market share, the dynamics of its change, the amount of profit received, the image, the degree of competition, price, product quality, sales efficiency, geographical advantages of the market, and the efficiency of employees. It is possible to weigh the indicators used. Three levels of gradation of this index are accepted: strong, medium, weak. The Industry Attractiveness Index is determined by taking into account the size and diversity of markets, market growth rate, number of competitors, industry average earnings, demand cycles, industry cost structure, pricing policy, legislation, and labor resources. Three levels of gradation of this index are used: high, medium and low. The intersections of the lines characterizing the different levels of values of these two levels form a grid, which is divided into three zones: the zone in which the organization must invest; the zone in which the organization must maintain investments at the same level; and a zone in which it is necessary to get the maximum possible profit, after which it should be left.

Three quadrants at the top left of the matrix are the most promising in terms of future investment returns. It is necessary to work in these markets and invest in the growth of these business units. They are usually marked in green.

1. Preservation and strengthening of the market position (Grow/Penetrate):

These business units should be the main target of investments, they are strong and operate in attractive markets - so they must necessarily generate a high return on investment. Recommendations:

maintaining leadership in this market;

investing to ensure growth at the highest possible rate.

2. Invest for Growth:

These business units operate in very attractive markets, but the strength of these businesses is currently low. They should be the object of investment to strengthen their position in the market. Recommendations:

concentration of efforts to maintain and enhance strengths and competitive advantages;

identification and elimination of weaknesses.

3. Selective Harvest or Investment:

These business units have good strength, but the market is already losing its appeal. Recommendations:

search for growing segments;

investing in growth in these segments to grow faster than the market;

strengthen its market leadership.

Three diagonal quadrants (left to right and bottom to top) are of medium attractiveness. Investing in these businesses should be, but it should be careful and selective. The main strategy for these types of businesses is to extract the maximum income now. These quadrants are usually marked in yellow.

4. Selective investment or exit from the market (Selective Investment / Divestment):

These businesses operate in very attractive markets, but their market power is low. Investments should be aimed at strengthening their competitive advantages. If these business units can improve their market position, then they should be invested in. Otherwise, it is necessary to prepare for leaving this market. Recommendations:

niche search;

narrow specialization;

consider offers to sell this business.

5. Segmentation & Selective Investment Strategy:

These business units are average in the middle markets. They can improve their results only through a competent differentiation strategy (competitive strategies according to M. Porter) - creating and developing profitable segments, as well as creating barriers for competitors to enter these segments. Recommendations:

search for growing segments;

specialization and differentiation;

selective investment.

6. Strategy "gathering harvest "(Harvest for Cash Generation):

Strong business in a dying market. The focus needs to be on maximizing the current profitability of this business because there are no more growth opportunities for this business. Limited investment in keeping the business competitive in the short term is possible, but long-term investment is not desirable. It is necessary to carefully watch competitors trying to revive this market. Recommendations:

maintain a leading position;

maximize current income;

invest only in maintaining competitiveness.

Three quadrants bottom right the least attractive, these businesses need to squeeze the most revenue now and refrain from investing. Even the sale or liquidation of these business units is possible. They are usually highlighted in red.

7. Controlled Exit or Disinvestment:

Weak businesses in the middle markets. Trying to increase their competitiveness and market share may be too costly to pay off in such a market. Investing in this business should be extremely careful. Recommendations:

specialization;

search for narrow niches;

8. Harvest under constant control (Controlled Harvest):

In this position, it makes sense for an organization to focus on reducing risk and protecting its business in the most profitable segments. Recommendations:

protection of positions in the most profitable segments;

minimization of investments;

planned withdrawal from this market.

9. Quick exit from the market or attack of competitors (Rapid Exit or Attack).

These business units are prime candidates for closure. The only, and far more difficult, alternative to winding down these businesses is to use them to attack the cash cows of competitors in order to reduce their profitability.