What
is the McKinsey Matrix?
The McKinsey Matrix is a model to perform a business portfolio analysis
on the Strategic Business Units of a corporation. Synonyms for this method
are; GE Matrix, Business Assessment Array and GE Business
Screen.
What is a portfolio?
A business portfolio is the collection of Strategic Business Units that
together form a corporation. The optimal business portfolio is one that fits
perfectly to the company's strengths and helps to exploit the most attractive
industries or markets.
What is a Strategic Business Unit?
A Strategic Business Unit (SBU) can either be an entire medium size company
or a division of a large corporation. As long as it formulates its own business
level strategy and has separate objectives from the parent company.
The aim of portfolio analysis
- Analyze its current business portfolio and decide which SBU's should
receive more or less investment
- Develop growth strategies for adding new products and businesses to
the portfolio
- Decide which businesses or products should no longer be retained.
The BCG Matrix (Boston Consulting
Group Matrix) is the best-known portfolio planning framework. The McKinsey
Matrix is a later and more advanced form of the BCG Matrix.
The McKinsey Matrix
The McKinsey Matrix is more sophisticated than the BCG Matrix in three
aspects:
- Market (Industry) attractiveness is used as the dimension of industry
attractiveness, instead of market growth. Market Attractiveness includes
a broader range of factors other than just the market growth rate that can
determine the attractiveness of an industry / market. Compare also:
Five Forces
- Competitive strength replaces market share as the dimension by which
the competitive position of each SBU is assessed. Competitive strength likewise
includes a broader range of factors other than just the market share that
can determine the competitive strength of a Strategic Business Unit.
- Finally, the GE Matrix works with a 3*3 matrix, while the BCG Matrix
has only 2*2. This also allows more sophistication.
Typical (external) factors that affect
Market Attractiveness:
- Market size
- Market growth rate
- Market profitability
- Pricing trends
- Competitive intensity / rivalry
- Overall risk of returns in the industry
- Entry barriers
- Opportunity to differentiate products and services
- Demand variability
- Segmentation
- Distribution structure
- Technology development
|
Typical (internal) factors that affect
Competitive Strength of a Strategic Business Unit:
- Strength of assets and competencies
- Relative brand strength (marketing)
- Market share
- Market share growth
- Customer loyalty
- Relative cost position (cost structure compared with competitors)
- Relative profit margins (compared to competitors)
- Distribution strength and production capacity
- Record of technological or other innovation
- Quality
- Access to financial and other investment resources
- Management strength
|
Often, Strategic Business Units are portrayed as a circle plotted in the GE
Matrix, whereby:
- The size of the circles represent the Market Size
- The size of the pies represent the Market Share of the SBU's
- Arrows represent the direction and the movement of the SBU's in the
future
A six-step approach for the implementation of the McKinsey Matrix
- Specify drivers of each dimension. The corporation must carefully determine
those factors that are important to its overall strategy.
- Determine the weight of each driver. The corporation must assign relative
importance weights to the drivers.
- Score the SBU's on each driver.
- Multiply weights and scores for each SBU.
- View resulting graph and interpret it.
- Perform a review/sensitivity analysis. Make use of adjusted other weights
and scores (there may be no consensus).
Some limitations of the McKinsey Matrix
- The valuation of the realization of the various factors.
- Aggregation of the indicators is difficult.
- Core Competences are not represented.
- Interactions between Strategic Business Units are not considered.
Forum discussions about Strategic Portfolio Management (McKinsey Matrix). Below you can ask a question about this topic, share your experiences, report a new development, or explain something.
|
Example of McKinsey Matrix
Who can provide an example on this matrix in any industry to understand this tool practically... Please....
 8
|
|
Pitfalls of using McKinsey Matrix
Beware of the stereotypical pitfall: often the outcomes of these kind of portfolio management models / methods are based on assumptions rather than facts. Models as well as their inputs variables shou...
 7
 1 comments
|
|
|
The best, top-rated topics about Strategic Portfolio Management (McKinsey Matrix). Here you will find the most valuable ideas and practical suggestions.
|
|
Advanced insights about Strategic Portfolio Management (McKinsey Matrix). Here you will find professional advices by experts.
|
|
Various sources of information regarding Strategic Portfolio Management (McKinsey Matrix). Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.
|
GE Matrix / McKinsey Matrix Explained GE/McKinsey Matrix, Portfolia Analysis Presentation that briefly and well explains the GE/McKinsey Matrix. The presentation includes the following sections:
1...
|
|
Diversification Strategy and Portfolio Management Diversification, Corporate Strategy, Portfolio Management, Corporate Center Presentation about diversification including many graphs and figures for clarification. The presentation includes the fo...
|
|
Introduction and Summary of McKinsey Matrix Initial Understanding, Training, Workshops Introduction video on the GE / McKinsey Matrix. Made at the top of the Grand Canyon which is nice, but there are heavy w...
|
|
McKinsey Matrix Diagram Business Portfolio Analysis Download and edit the 12manage PowerPoint model for limited personal, educational and business use.
Republishing in int...
|
|
|
Jump to further research sources regarding Strategic Portfolio Management (McKinsey Matrix).
News
|
Videos
|
Presentations
|
|
Books
|
Academic
|
More
|
|
|
|
Compare with: BCG Matrix |
ADL Matrix |
Positioning |
Product/Market Grid |
Three Dimensional
Business Definition | STRATPORT
| Profit Pools |
Four Trajectories
of Industry Change |
Product Life Cycle |
Blue Ocean Strategy
Return to Management Hub: Finance & Investing | Marketing & Sales
| Strategy & Innovation
More Management Methods, Models and Theory
|
|

Do you know a lot about Strategic Portfolio Management (McKinsey Matrix)? Become our SIG Leader and gain worldwide recognition as an expert.
|
|
|
|