Question: Examine the argument that in order to derive the fullest benefit

from the Attractiveness/Advantage (GE/McKinsey) Matrix, one should

simultaneously employ the Growth/Share (BCG) Matrix

Intro

The business portfolio is the collection of businesses and products that make up the
company. The best business portfolio is one that fits the company's strengths and helps
exploit the most attractive opportunities.

The company must:

1. Analyse its current business portfolio and decide which businesses should receive
more or less investment

2. Develop growth strategies for adding new products and businesses to the portfolio,
whilst at the same time deciding when products and businesses should no longer be
retained.

The first step in planning is to identify the various Strategic Business Units ("SBU's") in a
company portfolio. An SBU is a unit of the company that has a separate mission and
objectives and that can be planned independently from the other businesses. An SBU can be a
company division, a product line or even individual brands - it all depends on how the
company is organised.

GE/McKinsey Advantage/Attractiveness Matrix

This tool was created by the consulting firm McKinsey when working on a project for
General Electric in the 1970s (?). It was derived from the BCG matrix but attempted to
correct the deficiencies the BCG matrix had. It’s a framework that evaluates business
portfolio, provides further strategic implications and helps to prioritise the investment needed
for each business unit.

The nine-box matrix is a strategy tool that offers a systematic approach for the multi-business
corporation to prioritise its investments among its business units. The fields in the upper left
corner (three in number) are the best markets that the company should enter. The three fields
from the diagonal form the average attractive markets and, in the future, they can climb in the
category of best markets. Therefore, the firm must maintain the level of investment in these
markets. The last three fields located in the lower right corner represent the weakest markets
in terms of attractiveness. The firms must consider not to invest in these markets.

(Evans, 2014)

 This tool helps you:

o Reveal your strategic position
o Decide whether to invest, hold onto or exit your current business segments or
enter new ones
o Unveil the same findings for SBU’s in a multi-business company
 Used to conduct a portfolio analysis of main business segments.
 It will show how competitive the firm is in different market segments ranked by
attractiveness.
 Invest in what you are strongest in/ what is the most attractive.
 Look at withdrawing from segments you are weaker in/ where your competitive
position is untenable.
 How to define an attractive market? No two strategists will have the same criteria, but
the 5 basic indicators are:
o Market Size – relative to other segments
o Market Demand Growth
o Competitive Intensity – Porters 5 Forces
o Industry Profitability
o Market Risk

The greater the first, second and fourth indicators, the more attractive the market and the
greater the third and fifth the less attractive the market is.

(McKinsey.com, 2008)

 The nine-box matrix offers a systematic approach for the decentralized corporation to
determine where best to invest its cash. Rather than rely on each business unit's
projections of its future prospects, the company can judge a unit by two factors that
will determine whether it's going to do well in the future: the attractiveness of the
relevant industry and the unit’s competitive strength within that industry.
 Placement of business units within the matrix provides an analytic map for managing
them. With units above the diagonal, a company may pursue strategies of investment
 and growth; those along the diagonal may be candidates for selective investment;
those below the diagonal might be best sold, liquidated, or run purely for cash.
 Sorting units into these three categories is an essential starting point for the analysis,
but judgment is required to weigh the trade-offs involved. For example, a strong unit
in a weak industry is in a very different situation than a weak unit in a highly
attractive industry.
 In one of a series of interactive presentations, McKinsey alumnus Kevin Coyne
describes the GE–McKinsey nine-box matrix, a framework that offers a systematic
approach for the multi-business corporation to prioritize its investments among its
business units.

(Madsen, 2017)

 The conglomerate General Electric (GE) hired McKinsey to help with planning and
management of their portfolio of business units (Russell-Walling, 2008, p. 22). As a
result of this collaboration, the BCG Matrix was developed and refined into a new
matrix. This new matrix became known as the GE McKinsey Matrix.
 The GE McKinsey Matrix was a nine-cell matrix and an extension of the BCG Matrix
(Sood, 2010) and the “what is probably the best-known alternative” (Morrison &
Wensley, 1991, p. 112). Proctor (2014, p. 29) traces it back to a Business Horizons
article in 1975.
 In other contributions, it has been referred to as the directional policy matrix (Johnson
et al., 2008, p. 280) or the GE Business Screen (Griffin, 2016, p. 82).
 Instead of using market growth and market share as the two dimensions, McKinsey
used industry attractiveness and business strength (Ghemawat, 2002). The GE Matrix
is arguably more detailed and sophisticated than the BCG Matrix (Russell-Walling,
2008), and it has been called an “improvement” on the BCG Matrix (Proctor &
Hassard, 1990).

Criticisms

 No proven relationship between market attractiveness and business position.

 The relationships between different units are not taken into account.
 The core-competencies that lead to value creation are not taken into consideration.
 The approach requires extensive data gathering  BCG does not
  Scoring is personal and subjective (risk of bias)  BCG format ensures that bias
cannot be an influencing factor. Uses objective data of the company vs competitors
 There is no hard and fast rule on how to weight elements  Bias, can make the
company look better than it really is  BCG “products are classified according to
their ability to either generate or to consume cash.” (Doyle, 2001)

The GE/McKinsey Matrix offers a broad strategy and does not indicate how best to
implement it. For the above limitations and issues, the GE/McKinsey Matrix can serve more
as a quick strategic visual framework rather than as a resource allocation tool.

BCG Matrix – (Source BCG website unless otherwise stated)

 The growth share matrix was created in 1968 by BCG’s founder, Bruce Henderson. It
was published in one of BCG’s short, provocative essays, called Perspectives. At the
height of its success, the growth share matrix was used by about half of all Fortune
500 companies; today, it is still central in business school teachings on strategy.
 The growth share matrix is, put simply, a portfolio management framework that helps
companies decide how to prioritize their different businesses. It is a table, split into
four quadrants, each with its own unique symbol that represents a certain degree of
profitability: question marks, stars, pets (often represented by a dog), and cash cows.
By assigning each business to one of these four categories, executives could then
decide where to focus their resources and capital to generate the most value, as well as
where to cut their losses.
 The growth share matrix was built on the logic that market leadership results in
sustainable superior returns. Ultimately, the market leader obtains a self-reinforcing
cost advantage that competitors find difficult to replicate. These high growth rates
then signal which markets have the most growth potential.
 The matrix reveals two factors that companies should consider when deciding where
to invest—company competitiveness, and market attractiveness—with relative market
share and growth rate as the underlying drivers of these factors.
 Low Growth, High Share. Companies should milk these “cash cows” for cash to
reinvest.
 High Growth, High Share. Companies should significantly invest in these “stars” as
they have high future potential.
  High Growth, Low Share. Companies should invest in or discard these “question
marks,” depending on their chances of becoming stars.
 Low Share, Low Growth. Companies should liquidate, divest, or reposition these
“dogs.”
 As can be seen, product value depends entirely on whether or not a company is able to
obtain a leading share of its market before growth slows. All products will eventually
become either cash cows or pets. Pets are unnecessary; they are evidence of failure to
either obtain a leadership position or to get out and cut the losses.

(Doyle, 2011)

 It is focused on the cash flows generated by products' and businesses' portfolios as a

result of relative market share and growth. Market share is measured relative to the
product's largest competitor. This technique became a staple of market strategies in
the 1980s. In the Boston matrix products are classified according to their ability to
either generate or to consume cash.
 The matrix is not static and the interrelationship between the various classifications
makes the model very useful, particularly for developing market strategies. For
example: stars are businesses or products with outstanding opportunities that do not
generate excess cash because they are still growing market share in face of
competition. They may well be self-financing. Stars of today may become the cash
cows of the future.
 Cash cows are assumed to enjoy lower cost, economies of scale, and high profit
margins.
 Dogs, by contrast, have low market shares in low-growth markets and tend to
generate either a loss or a relatively low profit. They typically take up more
management time than warranted and, unless they can be strategically justified, such
as contributing to overheads, are potential candidates for divestment.
 Problem children (or question marks) need considerable cash investment because they
have a low relative share but high growth prospects. They are therefore cash users and
could become stars of the future.
 Management must choose between further speculative investment and even
withdrawal, depending on their prospects in their target markets.
How do the following distinguish from GE/McKinsey? How can the GE/McKinsey
eradicate them if used together?

 The main criticism levelled at the matrix is the assumption that all of a company's
products and business units work in an interconnected life cycle. In this life cycle, the
mature and profitable funds and fuels the new and growing while the old falters and
eventually is terminated.
 Another one of the problems that practitioners have with the BCG matrix is that it is
difficult to delineate and define what a ‘market’ is, and, consequently, to measure
market share precisely. It does not take into account technological discontinuities that
can alter the entire shape and dynamics of a marketplace within a very short space of
time.
 Beyond that, some critics have also pointed out the underlying assumption that cash
generation is always organic with a company and does not take into account many
other ‘inorganic’ or external cash generating instruments that are available which
could affect a portfolio and market position
 Also, one would have to be careful in its uses—particularly using it as a guide to
divestments and product withdrawals—as it offers an overly simplistic formula to
determine ‘dog’ status.
 General Electric Corporation developed a more sophisticated analytical matrix model
(known as the GE matrix) that used industry attractiveness and business strengths as
the main axes of analysis

(Morrison & Wensley, 1991)

 We argue that much of the academic criticism has been misplaced. In many cases it
treats the box as if it were a "comprehensive" theory of markets and company
performance or cites problems which would be true of any comparable technique.
 Stars: high growth and share means significant investment and return. On balance a
small negative or positive cash flow. Strategy—invest for the future when market
growth slows, and the products become;
 Cash Cows: market leadership and relatively low costs have been achieved and the
slowing of the market growth requires less investment. Strategy—"harvest" for cash.
 Question Marks: products in growth markets (i.e. requiring investment) but not in
leadership position. This in tum means lower returns and higher need for investment
 from headquarters (i.e. significantly negative cash flow). The portfolio cannot support
too many of these. Strategy—divest or invest heavily to achieve leadership (Star)
status
 Pets/Dog: a pet is something which may be nice to have, is a constant, though
modest, drain on funds (or small contributor), and is unlikely ever to develop into a
star or cash cow. Strategy; divest and cut the losses, unless there are strategic reasons
for doing otherwise (e.g. interdependence with other SBUs).
 By 1973 it has assumed the familiar form used in current literature.
 "Such a single chart, with a projected position for five years out, is sufficient alone to
tell a company's profitability, debt capacity, growth potential and competitive
strength". (Henderson 1973)
 The BGG matrix is ostensibly a simplifying tool. It selects one parameter, relative
market share, as the key indicator of the strength of the SBUs competitive position
and one parameter, growth, as indicating the potential and attractiveness of the
market.
 GE produced what is probably the best-known alternative. GE were well advanced in
corporate planning techniques, at the time of the launch of the BCG matrix, and
developed Portfolio planning in parallel with BCG (Schoeffler et al. 1974). The GE
matrix, as illustrated in Figure 4, involved a nine-box model which used composite
parameters of industry attractiveness and business strength. Each of these parameters
is constructed from factors selected and weighted by management, as relevant to the
particular SBU.
 Haspslagh's study of the use of the technique by major US corporations concluded
that its adoption could properly be considered a breakthrough rather than a fad. A
breakthrough which gave "permanent added capacity for strategic control" (Haspslagh
1982, p. 73).
 It gives a start point or springboard for strategic thinking, particularly in companies
where this is new. It can be seen therefore as initiating management development; as
providing a "simple" and conceptually appealing framework/rom which to start out on
the long hard road of strategic planning
 It introduces the idea of the role of strategy in resource allocation. The technique can
(and perhaps should) be customized to meet the individual market circumstances of
the user. In these cases, portfolio planning can represent the "creation of a pattern of
 influence that corresponds to the nature of the business, its competitive position and
its strategic mission." (Haspslagh 1982)
 It is a real worry that the original matrix is so seductively simple, and the temptations
and risk of using it "off the shelf" are real. If the market is simply taken as the trade
association figures, the competition as the trade association members, the cost savings
as materializing automatically from experience, and (probably worst of all) the SBU
as the existing operating unit (thereby forestalling possible discussions of
restructuring), the use of the technique would be at best unhelpful and at worst
positively damaging.
 The overall conclusion may be then that the BGG matrix is a useful tool in initiating
corporate planning and strategic change, in organizations where this skill is
underdeveloped, and where the main pitfalls of its use can be avoided by wise central
management. The main danger in use depends on whether “the positioning of the
concept is as a diagnostic aid or a prescriptive guide". (Armstrong et al., 1988)
 Bruce Henderson says he would now see it more as: "a milestone on the search for
insight into business system dynamics, but certainly not the end of the road."

Criticisms

 Assumptions: The principal assumptions of giving priority to growth (of markets or

share) resonates with the values of the age; growth is wonderful, growth is desirable,
growth is a measure of the success and importance of a corporation and its executives.
 For the most part, the academic criticisms point to the limitations resulting from the
fact that the correlation of ROl with market share is much less than 100%. Markets
are not all the same; gaining share may be difficult, costly, undesirable and not
necessarily easier in growth markets. Experience doesn't guarantee cost advantage,
neither does scale.
 Definitions/classifications: These criticisms are, in practice, a catalogue of the
difficulties of working with the technique. They show the "arbitrary" nature of the
scales, the criteria and the variability of the resultant classifications.
 Here is where the thoughtfulness of the applications needs to be in evidence. The
identification (or formulation) of strategically meaningful markets and product/SBUs
cannot be taken as "given" but probably the major determinant of the success or
failure of the planning process.
  Henderson himself was well aware of these difficulties and admitted that errors had
been made where companies improperly identified product-markets, i.e. where the
share measured was not of the relevant market (Henderson 1973)

Source:
http://ew5mz7jl6k.search.serialssolutions.com.tudublin.idm.oclc.org/?ctx_ver=Z39.88-
2004&ctx_enc=info%3Aofi%2Fenc%3AUTF-
8&rfr_id=info%3Asid%2Fsummon.serialssolutions.com&rft_val_fmt=info%3Aofi%2Ff
mt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.atitle=Boxing+up+or+Boxed+in%
3F%3A+A+Short+History+of+the+Boston+Consulting+Group+Share%2F+Growth+Mat
rix&rft.jtitle=Journal+of+Marketing+Management&rft.au=Morrison%2C+Alan&rft.au=
Wensley%2C+Robin&rft.date=1991-01-01&rft.issn=0267-257X&rft.eissn=1472-
1376&rft.volume=7&rft.issue=2&rft.spage=105&rft.epage=129&rft_id=info:doi/10.1080
%2F0267257X.1991.9964145&rft.externalDBID=n%2Fa&rft.externalDocID=10_1080_
0267257X_1991_9964145&paramdict=en-US

(Madsen, 2017)

 The Boston Consulting Group’s Growth-Share Matrix (BCG Matrix) is a strategic

planning technique that helps diversified corporations to allocate resources, using the
framework and simplicity of a 2x2 matrix.
 BCG Matrix is a highly prescriptive management technique, offering clear and
memorable recommendations (e.g., milk the cows, invest in the stars, divest the dogs
and solve the question marks)
 The BCG Matrix has been referred to as “one of the most iconic strategy frameworks
of all time” (Whitehead, 2015)
 In 2011, it was selected by Harvard Business Review as one of the five charts that
“changed the world” (Ovans, 2011)

Criticisms

 Firstly, the BCG Matrix has been criticized for being reductionist (Mintzberg,
Ahlstrand & Lampel, 2005, pp. 96-97). Critics point that the BCG Matrix builds on
the so-called “design school model” that emphasizes the firm’s external environment
and internal capabilities. However, it has been noted that the BCG Matrix only
 utilizes only one key dimension for each of these two categories, and the 2x2 matrix,
therefore, results in only four generic strategies and prescriptions.
 Related to this reductionism critique, researchers have also pointed out that the BCG
Matrix may be too simple. Brindle and Stearns (2001, p. 119) referred to the BCG
Matrix as “a simple tool for a pretty tall order”. In the same vein, Hambrick and
MacMillan (1982, p. 84) wrote that “the simplicity of the matrix and its edicts is
alluring, but some argue that it all seems too simple”. Seeger (1984) argues that this
may lead to “oversimplified prescriptions for action which students and managers
may attach to the images: we should kick the dogs, cloister the cows, and throw our
money at the stars”.
 The BCG Matrix has also been criticized for being mechanistic (Wilson, 1994).
Some argue that using a single management technique such as the BCG Matrix may
not be sufficient in increasingly “dynamic” and turbulent business environments (cf.
Hamel & Prahalad, 1994; Kaarbøe, Gooderham & Nørreklit, 2013).
 The BCG Matrix is also arguably too generic. This line of criticism is the related to
the notion of universality discussed in subsection 2.3.4. In the words of Wright,
Paroutis and Blettner (2013, p. 110), the BCG Matrix is “too generic/cannot help
users to focus on the problem, do not provide a clear picture of different areas, do not
guide users to form good thinking path, do not help users to think about the
company’s value, and are considered too broad”.
 Finally, the BCG Matrix is frequently misapplied in practice (Knott, 2006). As
Johnson, Scholes and Whittington (2008) point out, it can be hard to determine what
constitutes high or low market share or high or low market growth. This makes it
difficult to place businesses/products in the four quadrants.

Comparison

BASIS FOR
BCG MATRIX GE MATRIX
COMPARISON

Meaning BCG Matrix, is a growth share GE Matrix implies multifactor

model, representing growth of portfolio matrix, that assist firm in
business and the market share making strategic choices for product
enjoyed by the firm. lines based on their position in the
grid.
 BASIS FOR
BCG MATRIX GE MATRIX
COMPARISON

Number of cells Four Nine

Factors Market share and Market Industry attractiveness and Business

growth strengths

Objective To help companies deploy To prioritize investment among

their resources among various various business units.
business units.

Measures used Single measure is used. Multiple measures are used.

Classification Classified into two degrees Classified into three degrees

BCG Matrix GE Matrix

1. BCG matrix consists of four cells 1. GE matrix consists of nine cells

2. The business unit is rated against relative 2. The business unit is rated against business
market share and industry growth rate strength and industry attractiveness

3. The matrix uses single measure to assess 3. The matrix used multiple measures to
growth and market share assess business strength and industry
attractiveness

4. The matrix uses two types of classification 4. The matrix uses three types of
i.e high and low classification i.e high/medium/low and
strong/average/weak

5. Has many limitations 5. Overcomes many limitations of BCG and is

an improvement over it

 Source - https://www.bms.co.in/difference-between-bcg-and-ge-matrices/
The points depicted below, elaborate the fundamental differences between BCG and GE
matrices:

 BCG matrix can be understood as the growth-share model, that reflects a growth of
business and the market share possessed by the firm. On the other hand, GE matrix is
also termed as multifactor portfolio matrix, which businesses use in making strategic
choices for product lines or business units based on their position in the grid.
 BCG matrix is simpler in comparison to GE matrix, as the former is easy to draw and
consist of only four cells, while the latter consist of nine cells.
 The two dimensions on which BCG matrix is based are market growth and market
share. Conversely, industry attractiveness and business strengths are two factors of
GE matrix.
 BCG matrix is used by the companies to deploy their resources among various
business units. On the contrary, firms use GE matrix to prioritize investment among
various business units.
 In BCG matrix only a single measure is used, whereas in GE matrix multiple
measures are used.
 BCG matrix represents two degrees of market growth and market share, i.e. high and
low. In contrast, in GE matrix there are three degrees of business strength, i.e. strong,
average and weak, and industry attractiveness, are high, medium and low.

Source: https://keydifferences.com/difference-between-bcg-and-ge-matrices.html

Websites

https://mbamart.wordpress.com/2016/01/25/bcg-matrix-ge-matrix/

https://keydifferences.com/difference-between-bcg-and-ge-matrices.html  Compared the

two

https://www.cleverism.com/ge-mckinsey-matrix-how-to-apply-it-to-your-business/ 
GE/McKinsey

https://www.studocu.com/en-ie/document/dublin-institute-of-technology/strategic-
management/lecture-notes/attractiveness-vs-growth-share-matrix/1781121/view