Page 176 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes The GE matrix has been developed to overcome the obvious limitations of BCG matrix. This
matrix consists of nine cells (3 × 3) based on two key variables:
1. Business strength; and

2. Industry attractiveness.
The horizontal axis represents “business strength” and the “vertical axis represents“, “industry
attractiveness”.

The business strength is measured by considering such factors as:
1. Relative market share
2. Profit margins
3. Ability to compete on price and quality

4. Knowledge of customer and market
5. Competitive strengths and weaknesses
6. Technological capacity
7. Calibre of management

Industry attractiveness is measured considering such factors as:
1. Market size and growth rate
2. Industry profit margin
3. Competitive intensity

4. Economies of scale
5. Technology
6. Social, environmental, legal and human aspects
The individual product-lines or business units are plotted as circles. The area of each circle is
proportionate to industry sales. The pie within the circles represents the market share of the
product line or business unit.

The nine cells of the GE matrix represent various degrees of industry attractiveness (high,
medium or low) and business strength (strong, average and weak). After plotting each product
line or business unit on the nine cell matrix, strategic choices are made depending on their
position in the matrix.
In Figure 9.5, business ‘A’ has strong business strength and has high industry attractiveness.
Such a business has high potential for growth. It deserves expansion strategies through large
investments. Business B has strong business strength, but medium/low industry attractiveness.
Such a business needs a cautious approach. Business C is weak in business strength though its
industry attractiveness is high. Business D is weak in business strength and also low in
attractiveness. Broadly considered, the company should build business A, maintain business B
and make some hard decisions on what to do with businesses C and D.

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