CIPS Exam L6M2 Topic 1 Question 15 Discussion

Analysis of the GE McKinsey Matrix as a Tool to Influence Directional Policy

Introduction

The GE McKinsey Matrix is a strategic tool used by businesses to prioritize investments, allocate resources, and influence directional policy. It expands on the BCG Matrix by evaluating business units or product portfolios based on two dimensions:

Industry Attractiveness (external factors such as market growth, competition, and profitability).

Business Unit Strength (internal factors such as brand strength, financial performance, and operational efficiency).

The matrix helps organizations decide where to invest, grow, or divest, making it a valuable tool for influencing long-term strategic direction.

1. Explanation of the GE McKinsey Matrix

The GE McKinsey Matrix categorizes business units into nine strategic zones, guiding investment decisions:

| Industry Attractiveness

Example:

Apple's iPhone (High Industry, Strong Business Unit) Invest & Grow

Microsoft's Bing Search Engine (Low Industry, Weak Business Unit) Divest or Harvest

2. How the GE McKinsey Matrix Influences Directional Policy

1. Investment Prioritization

Identifies which business units deserve more investment.

Helps companies allocate resources to high-potential markets.

Example: Amazon invests heavily in AWS (Cloud Computing) due to high industry growth and strong business positioning.

2. Market Entry and Expansion Decisions

Assists in geographical and market expansion decisions.

Helps assess whether to enter emerging industries.

Example: Tesla entered renewable energy (solar panels, batteries) due to high industry potential.

3. Strategic Exit or Divestment Decisions

Identifies low-performing divisions that should be divested.

Prevents financial losses by exiting declining markets.

Example: GE sold its financial services division (GE Capital) to refocus on industrial manufacturing.

4. Balancing Risk and Portfolio Diversification

Encourages a balanced portfolio of high-growth and stable businesses.

Ensures companies avoid over-reliance on a single product or market.

Example: Google (Alphabet) maintains a diverse portfolio of AI, search, and cloud businesses to balance risk.

3. Advantages and Limitations of the GE McKinsey Matrix

Advantages

More detailed than the BCG Matrix -- Considers multiple industry and business factors.

Helps with long-term strategic planning -- Guides investment, expansion, and divestment.

Balances risk and growth -- Prevents over-reliance on a single revenue source.

Limitations

Subjective analysis -- Industry attractiveness and business strength are difficult to quantify.

Complex implementation -- Requires detailed data collection and industry research.

No direct action plan -- Only provides guidance on resource allocation, not execution strategies.

4. Conclusion

The GE McKinsey Matrix is a powerful tool for influencing directional policy by helping companies prioritize investments, expand into attractive markets, and exit underperforming businesses. However, it should be used alongside financial analysis and market research to ensure strategic success.