GE Nine Cell Matrix Explained: Benefits and Challenges

Introduction of GE Nine Cell Matrix

GE Nine Cell Matrix is also known as GE McKinsey Matrix. This matrix was developed in1970s by the General Electric company with the assistance of the consulting firm, McKinsey Co, USA. This is also called GE multifactor portfolio matrix. The GE matrix has been developed to overcome the obvious limitations of BCG matrix. This matrix consists of nine cells (3X3) based on two key variables: 

1. Industry attractiveness
2. Business strength.

GE Nine Cell Matrix

This corporate portfolio analysis technique is based on the pioneering efforts of the General Electric Company of the United States, supported by the consulting firm of McKinsey& company. The vertical axis represents industry attractiveness, which is a weighted composite rating based on eight different factors. These factors are: market size and growth rate, Industry profit margin, competitive intensity, seasonality, cyclicality, economies of scale, technology and social, environmental, legal and human impacts. The horizontal axis represents business strength competitive position, which is again a weighted composite rating based on seven factors. These factors are: relative market share, profit margins, ability to compete on price and quality, knowledge of customer and market, competitive strengths and weaknesses, technological capability and caliber of management.

In the figure below, three possible values of each of these two dimensions are plotted, resulting in a nine cell 3 x 3 matrix. The horizontal axis represents business strength and the vertical axis represents industry attractiveness.

The nine cells of the GE matrix represent various degrees of industry attractiveness (high, medium or low) and business strength (strong, average and weak). After plotting each product line or business unit on the nine-cell matrix, strategic choices are made depending on their position in the matrix. GE matrix is also called “Stoplight” strategy matrix because the three zones are like green, yellow and red of traffic lights.

1. Green indicates invest/expand – if the product falls in green zone, the business strength is strong and industry is at least medium in attractiveness, the strategic decision should be to expand, to invest and to grow.
2. Yellow indicates select/earn – if the product falls in yellow zone, the business strength is low but industry attractiveness is high, it needs caution and managerial discretion for making the strategic choice
3. Red indicates harvest/divest – if the product falls in the red zone, the business strength is average or weak and attractiveness is also low or medium, the appropriate strategy should be divestment.

Benefits and Challenges GE Nine-cell matrix 

Benefits of GE Nine-cell matrix

1. It used 9 cells instead of 4 cells of BCG
2. It considers many variables and does not lead to simplistic conclusions
3. High/medium/low and strong/average/low classification enables a finer distinction among business portfolio
4. It uses multiple factors to assess industry attractiveness and business strength, which allow users to select criteria appropriate to their situation

Challenges of GE Nine-cell matrix 

1. It can get quite complicated and cumbersome with the increase in businesses
2. Though industry attractiveness and business strength appear to be objective, they are in reality subjective judgements that may vary from one person to another
3. It cannot effectively depict the position of new business units in developing industry
4. It only provides broad strategic prescriptions rather than specifics of business policy

Difference Between BCG Matrix and GE Matrix 

BCG Matrix	GE Matrix
BCG matrix consists four cells	GE matrix consists nine cells
The business unit is rated against relative market share and industry growth rate	The business unit is rated against business strength and industry attractiveness
The matrix uses single measure to assess growth and market share	The matrix uses multiple measure to assess business strength and industry attractiveness
The matrix uses two types of classification i.e., high and low	The matrix uses three types of classification i.e. high /medium/ low and strong/average/weak
It has many Limitation	Overcome many Limitations of BCG and is an improvement over it

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