Tool: GE Matrix

Description:

The GE Matrix is a multi-factor portfolio matrix that allows a company or business or division to evaluate
its different investment opportunities based on the attractiveness of an Opportunity against its own
Business Strength.

How to use it:

Given that this set of tools is designed to drive external growth, the focus of this exercise will be to
further explore the attractiveness of different Opportunities identified as high potential (Introductory
and/or Growth phase) in the Life Cycle..

The GE Matrix allows the business to identify and define the key criteria that make up the factors that
determine the attractiveness of the Opportunity, as well as a firm’s internal Strength. Once the criteria have
been agreed upon, they will be applied uniformly across the Opportunities to enable direct comparisons of
the options available to a firm.

The overall Opportunity Attractiveness factor is determined by a range of criteria. These criteria will be
chosen by the business, and then weighted according to their importance in determining the
attractiveness of a given Opportunity. Once these criteria and weights are set, they will be used
throughout the exercise for each Opportunity under consideration. Following is a sample of factors that
could be used:

• Overall market size

• Annual market growth
• Growth potential
• Historical profit margin
• Competitive intensity
• Competitive structure
• Distribution complexity
• Channel evolution
• Market diversity
• Technological requirement (barriers to entry)
• Inflationary vulnerability
• Substitution trends
• Energy requirements
• Environmental impact
• Social/political/legal

The overall Business Strength factor is also derived from a selected number of criteria. Business Strength
is a reflection of how a business unit views success. The business should consider how it evaluates
business strength today, possibly taking in to consideration future areas of strength if they are certain.
Following is a sample of criteria that could be used to build the Business Strength factor:

• Market share
• Share growth
• Profitability
• Margins
• Image
• Product quality
• Brand reputation
• Distribution network
 • Productive capacity
• Productive efficiency
• Unit costs
• Material supplies
• R&D performance
• Technology position

NOTE:
It is recommended that no more than 4 or 5 criteria be used for each Opportunity Attractiveness and
Business Strength factors. Using more than 5 dilutes the relative impact of each criteria.

Each criteria will also need to be defined - what does the business mean by "Growth Potential" or
"Profitability" - what is good, what is bad?

Each of the selected criteria are then weighted according to their relative importance in building the
factor, with the total being 1.

EXAMPLE:
A business could decide to evaluate opportunities based on the following criteria, with each criteria
weighted according to importance:

Opportunity Attractiveness
Ranking
Weighting 1 3 5
Overall market size .30 <$200 mil. $500 mil $1 bill +
Historical profit margin .20 <12% 15% 20%+
Growth potential .30 <10% 15% 20%+
Technology requirements .20 Not Very
important important
TOTAL: 1.00
Internal Business Strength
Ranking
1 3 5
Technological position .40 Not a Differentiatin
differentiating g factor
factor
Profitability .30 <12% 15% 20%+
Distribution network .20 None Strong
Brand reputation .10 Not important V. important
in buying in buying
decision decision
TOTAL: 1.00

An Opportunity would then be assessed on this scale. The Rankings below are what Opportunity "A"
merited:

Opportunity Attractiveness Rank Value

Overall market size .30 4 1.20
Historical profit margin .20 3 .60
Growth potential .30 5 1.50
Technology requirements .20 2 .40
TOTAL: 1.00 3.70
 Internal Business Strength Rank Value
Technological position .40 5 2.00
Profitability .30 3 .90
Distribution network .20 1 .20
Brand reputation .10 2 .20
TOTAL: 100 3.30

Opportunity "A" would then be plotted on the following chart, with a bubble proportional to sales, and an
arrow indicating which direction it is heading. Plotting all of the different Opportunities will give the
business an idea of which segments are the most attractive for its investment - as well as those
segments it may want to consider divesting.

The Red A on the chart below illustrates where Opportunity "A" falls for the firm. Further work would
be done to demonstrate how large the opportunity is in dollar terms, as well as the firm’s current share.
Opportunities "B" and "C" are also plotted. Clearly, "B" is the best opportunity, and "C" would probably
be removed from consideration.

BUSINESS STRENGTH
Strong Medium Weak
Strong Protect Position Invest to Build Build Selectively 5
• Invest to grow • Challenge for leadership • Specialize around
OPPORTUNITY ATRACTIVENESS

• Maintain strength • Build selectively limited strengths

• Reinforce vulnerable • Overcome weaknesses
areas • Withdraw if indications
B of sustainable growth
A are lacking
Medium Build Selectively Selectivity/Manage for Limited Expansion or
• Invest heavily in most Earnings Harvest
attractive segments • Protect existing programs • Look for ways to
3
• Build up ability to • Concentrate investments expand without high
counter competition in segments with good risk, otherwise minimize
• Raise profits by raising profits and low risk investment and
productivity C rationalize operations
Weak Protect and Refocus Manage for Earnings Divest
• Manage for current • Protect position in most • Sell at time that will
earnings profitable segments maximize cash value
• Concentrate on • Upgrade product line • Cut fixed costs and
attractive segments • Minimize investment avoid investment
• Define strengths meanwhile
1

5 3 1

No shading - Invest/grow
10% shading - Selectivity/earnings
20% shading - Harvest/divest