G. E. Multifactor Analysis Strategic Analysis – Portfolio

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BY CHARLIE

What ? G.E. multi-factor analysis is a technique used in brand marketing and

product management to help a company decide what product(s) to add to its product portfolio and which opportunities in the market they should continue to invest in.

It is conceptually similar to B.C.G. analysis, but somewhat more complicated. Like in BCG Analysis, a two-dimensional portfolio matrix is created. However, with the GE model the dimensions are multi-factoral.

One dimension comprises nine industry attractiveness measures; the other comprises twelve internal business strength measures. The G.E matrix helps a strategic business unit evaluate its overall strength.

Each product, brand, service, or potential product is mapped in this industry attractiveness/business strength space. The GE multi factoral was first developed by Mckinsey for General Electric in the 1970s.

It analyzes market attractiveness and competitive strength to determine the overall strength of an SBU.

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How ?The G.E matrix is constructed in a 3x3 grid with Market Attractiveness plotted on the Y-axis and Business Strength on the X-axis, both being measured on a high , medium or low score.

Five steps must be considered in order to formulate the matrix

The range of products produced by the SBU must be listed

Factors which make the particular market attractive must be identified

Evaluating where the SBU stands in this market

Processes through which calculations about business strength and market attractiveness can be made

Determining which category an SBU lies in; high, medium, or low.

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What Basis ? Market Attractiveness

Market attractiveness deals with different external factors. These factors can include such things as market size, market growth rate, and market profitability. External factors that can affect market attractiveness also include pricing trends, competitive intensity, overall risk, and entry barriers.

Other considerations regarding market attractiveness include what if any opportunities there are to differentiate products and services, demand variability, segmentation, distribution structure, and technology development.

Competitive Strength

Competitive strength focuses on internal factors and the ability of the SBU to overcome specific issues with the market and competitors. Different internal factors that need to be considered include assets and competencies, brand strength, market share, market share growth, and customer loyalty. Other factors that should be considered include relative cost position, profit margins, innovation, quality, financial resources, and management strength.

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Sample Copy

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Final Copy

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Strategic Implications Resource allocation recommendations can be made to grow, hold, or harvest a strategic business unit based on its position on the matrix as follows:

Grow strong business units in attractive industries, average business units in attractive industries, and strong business units in average industries.

Hold average businesses in average industries, strong businesses in weak industries, and weak business in attractive industries.

Harvest weak business units in unattractive industries, average business units in unattractive industries, and weak business units in average industries.

There are strategy variations within these three groups. For example, within the harvest group the firm would be inclined to quickly divest itself of a weak business in an unattractive industry, whereas it might perform a phased harvest of an average business unit in the same industry.

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Strategy Plot

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Advantages

Raises awareness between managers about the performance of their products in the market and aids in developing strategies to get maximum returns from the resources available.

Helps extract information about a business unit's strengths and weaknesses and to devise strategies to accelerate and improve performance.

Aids the business in growing and in providing information about potential market opportunities.

It is more complex in comparison to the BCG matrix.

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Limitations

There is no set rule to 'weight' factors and this process may be subjective across different business unit's. For example, the weight given to a factor by one business may be different to the weight/importance given to it by another.

The formulation of a G.E. matrix is very expensive and time consuming.

Investment strategies are often not implemented in an accurate and proper manner.

The dynamics among SBU's themselves are not taken into account.

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Summary

The GE matrix analyzes market attractiveness and competitive strength to determine the overall strength of an SBU.

External factors of market attractiveness that affect a business include market size, market growth, entry barriers, segmentation, and overall risk.

Internal factors of competitive strength include assets, competencies, brand strength, profit margins, innovation, and quality.

The GE matrix can also be used to determine if an organization should enter a market or if it should reposition a product line or brand within a market.

SBU--A mid-sized business or a division of a corporation that has different strategies and objectives than its parent company.

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ADD- Comparison with BCG

When compared to the BCG matrix consisting of four cells, the GE matrix is more complex with its nine cells.

This means it not only takes longer to construct, but also to implement. The BCG matrix is a lot more simpler and the factors needed to construct it are accessed more easily and quickly

It takes into account a wide range of factors when determining market attractiveness and business strengths, which is replaced by market share and market growth in the BCG matrix.

Also, where factors are classified in the G.E matrix as high, medium and low, those in the BCG matrix are divided between high and low.

Moreover, the G.E matrix overcomes many of the limitations and constraints of the BCG matrix.

BY CHARLIE

THANKYOU

BY CHARLIE