The attractiveness/advantage matrix (GE/McKinsey)

The Attractiveness/Advantage Matrix helps a diversified business compare its principal segments and decide where to invest, hold, harvest, enter or withdraw.

When to use it

Use it whenever the organisation must evaluate and rebalance a portfolio of product-market segments.

Origins

The matrix emerged from General Electric’s portfolio-planning work with McKinsey and other advisers during the late nineteen-sixties. That programme also advanced the strategic-business-unit concept and the PIMS database, which ultimately represented ‘25,000 years of business experience’. Unlike simpler growth-share tools, the GE/McKinsey matrix combines several measures of market attractiveness with several measures of competitive strength.

What it is

The model answers two linked questions: how attractive is each segment, and how strong is the organisation’s position within it? Attractive segments in which the company holds a strong advantage are natural investment candidates. Weak positions in unattractive markets suggest harvesting or exit. Possible new segments deserve attention only if they are attractive and the company has a credible path to advantage.

The two dimensions are composites rather than single statistics. This makes the analysis richer, but also introduces judgement about criteria, scoring and weights.

How to use it

First define market attractiveness. Criteria should reflect the sector, but a useful starting set is: