When your business has to operate on limited resources, it is important to make careful decisions about how to allocate time, capital, labour, and focus. To be truly focused and efficient, your business should have clear direction about what it does and why it does it and have confidence in the process through which the projects and products are managed.
One of the most famous methods for organizing process and purpose is the GE-McKinsey Matrix. It is designed to help businesses optimize their activities and assets to align with the company’s strengths and the market sectors it may best exploit.
Introduction to the Nine-Box Matrix
The GE-McKinsey Matrix uses a distinct visual framework. The framework is made up of a series of nine connected rectangles (arranged three-by-three) upon which the company’s strategic business units are placed.
Strategic business units are flexible organizational units that can undertake specific tasks themselves. Each unit is ranked in terms of its strengths, including proficiency, access to distribution channels, resources, ingenuity, and size.
The nine boxes in the matrix are divided into low, medium, and high categories. The vertical axis represents the attractiveness of the industry or project area to which a unit might be dedicated, ranked in terms of how easy it is to compete in the market and earn a profit. The horizontal axis represents the strength of the unit. Thus, the top right corner of the matrix is reserved for only highly capable strategic business units that can pursue highly attractive targets.
Applying the GE-McKinsey Matrix to Your Small Business
As initially conceived, the GE-McKinsey Matrix was set up to resolve the enormous portfolio of complicated tasks and products for General Electric. GE is one of the largest and most recognizable brands in the world, but the matrix is elegant and effective enough that nearly any enterprise can adopt it successfully.
At its roots, the matrix is a tool for organizing, ordering, and understanding the limitations of scarce resources as it applies to your business. If you implement it, you’ll likely become more aware of the trade-offs you need to make to be more successful. The matrix clarifies the areas of focus that are the most valuable to your organization.
Some practitioners of the GE-McKinsey Matrix advocate a third tier of structure, which is known as resource allocation recommendations. This structure categorizes each strategic business unit based on whether it should be grown, held as-is, or harvested and moved elsewhere.
Limitations of this Method
The simplicity and universality of the GE-McKinsey Matrix comes with some disadvantages. For example, abstract concepts such as “industry attractiveness” can be difficult to define or qualify in relationship with other opportunities.
Some managers and team leaders may struggle to objectively assess which units are strongest in any given area. Each unit is only viewed independently; synergies between groups are challenging to incorporate into the model.