Other models that can be considered as versions or adaptations of the original GE McKinsey matrix are the Shell directional policy matrix and McDonald’s directional policy matrix. This second criticism led to the development of the Environmental Strategy Matrix. The matrix has been criticised as being too complicated and paying too little attention to the business environment. Forecasting of these factors into the future and plotting the businesses on the matrix assists with the strategic planning of a firm. Factors on both axes are weighted and rated to give the co-ordinates on the plot The matrix is divided into three general areas of invest / grow, selectivity / maintain, milk / divest.
This model ascertains that industry attractiveness and business strengths are made up of any number of varying factors and that these factors may differ from organisation to organisation. A highly attractive market implies high present or potential cash flow and similarly high business strength also implies high present or future cash flow. The model proposes that the profitability of each unit is influenced by the unit’s business strength and that the ability and incentive of a firm to maintain or improve its position in a market depends on the industry attractiveness. The matrix consists of nine boxes allowing the rating of the factors to be high, medium, low compared to the BCG’s low and high ratings. The scope of application for this model extends from a corporate level to a business level incorporating the products making up the business. The size of the circles represents the size of the industry with a wedge representing the firm’s current share of the industry. The axes of the matrix measure industry attractiveness on the x-axis and business strength on the y-axis. It is a more flexible approach to portfolio planning. It was developed in response to the limitations seen in the Boston Consulting Group’s matrix –the Growth Share Matrix.
Summary The matrix was developed by General Electric and their consultants McKinsey and Company to differentiate the potential for future profit in each of the 43 strategic business units and therefore to differentiate resources allocation priorities.General Electric, from all their own strategic planning research, objected to the two dimensional matrix which relied on market growth for industry attractiveness and relative market share for business strength They became interested in the Growth-Share matrix and liked the visual approach depicting the positioning of a firm’s businesses on the matrix. The firm was disappointed in the profits that they had made from their investments in the various businesses, which suggested flaws in GE’s approach to investment decision-making. Brief History In the late sixties and early seventies, while the Boston Consulting Group were devising the BCG or Growth Share matrix, General Electric, a leading corporation in the United States, were also looking at concepts and techniques for strategic planning.
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