GE McKinsey Matrix

This model is a framework which can be used to categorize or prioritize strategical business units
(SBU’s)according to their business strength and industry attractiveness. This categorization is
necessary to decide and prioritize the investments into the SBU’s. It is a 3 x 3 matrix with 2 axes –
Industry attractiveness and Business strength. The matrix is shown below.

Industry attractiveness means the ability of the industry(companies in the industry) to make
profits in the long run or that whether the industry has potential for having a great growth
compared to other industries in the future.

Business Strength refers to the strength of the SBU’s in the industry of their operation. How much
market share the SBU owns out of the total market and whether they have any competitive
advantage over the competitors etc.

Mainly the matrix consists of 3 areas- Investment/Growth, Selectivity and Harvest/divest.

Investment/Growth- The SBU’s have good industry attractiveness and good business strength
falls in these areas. It means that the SBU’s industry has a good growth potential and they have
good advantage over the competitors. So, more investments can be given to these areas to
support and take advantage of this growth potential.
Selectivity- SBU’s with a low to moderate business strength in an attractive industry or companies
with an extremely high business strength in a less attractive industry falls in these areas. Investing
in these SBU’s depends on the expectations on these SBU’s i.e. improving the business strength or
potential for market attractiveness to grow/fall. The investments will be done carefully as major
focus and priority will be for the investment/growth section of matrix.

Harvest/Divest- The SBU’s which are in un attractive industry and with medium to low business
strength falls into this bottom part of matrix. The strategy here will be to sell of the SBU’s if good
price is offered or else only minimum or less investments will be assigned just to keep it running.

Example : GE McKinsey Matrix For LG

Air Conditioning Television

Water Purifier Normal Vacuum Cleaner

Growth/Investment -Air conditioning, refrigerator, washing machine and television have good
market share in India(30-40%). This shows their strength in Indian Market. And this industry has
high to medium attractiveness so these fall into Growth/Invest area of matrix.

Selectivity- Water purifier, air purifier and Mobile phones have great industry attractiveness
(growth rate of approx. 28% CAGR during 2021-2027) But LG has moderate to low business
strength in these products. So these falls into the Selectivity or the middle area of the matrix.

Harvest/Divest- Microwaves, Fans and normal vacuum cleaners have medium to low industry
attractiveness and medium to low business strength for LG. So these falls into the harvest/divest
area of the matrix.

Porters Generic Strategic Matrix

This generic strategic matrix describes how a company follows their competitive advantage across
the market they chose. This is a 2 x 2 matrix. It has Competitive advantage and competitive Scope
as its two axes.
A company can create competitive advantage by two methods- Cost reduction or by
differentiating the products from their competitors.

The scope of competition can be either broad market or a narrow(niche) market.

Based on these scope and competitive advantage there are four quadrants. They are Cost
Leadership, Differentiation, Cost Focus and Differentiation Focus.

Cost Leadership quadrant will have business units which follows the cost reduction or low-price
strategy for a broad market to obtain a competitive advantage. The SBU in this quadrant will be
leading the market in terms of lowest cost producer.

Differentiation quadrant will contain those SBU’s which gains market share by offering
differentiated products compared to the products offered by its competitors and to a broad target
market. SBU’s adopt differentiation when they won’t be able to reduce their cost. So to get a
competitive advantage they have to go for differentiation strategy by offering new and better
features than the competitors.

When the low-cost strategy and differentiation strategy is used to serve a narrow target market to
obtain the competitive strategy , then it forms the 3 rd and 4rth quadrant i.e. Cost focus and
Differentiation focus strategies.

Companies tries to maintain balance between these four quadrants and moves forward with one
strategy only(in long run). If a company focus on more than one quadrant at the same time there
is always a possibility that they focus on neither or gets stuck in the middle. When a company gets
stuck In middle the products wont be cost effective to become the lowest cost and wont be
differentiated enough to win over the competitors.

Tesla’s Generic Strategy

Tesla follows the generic competitive strategy of differentiation. Tesla is not the low-cost car
manufacturers in the market, But they created competitive advantage by offering differentiated
cars compared to their competitors. They had used advanced environmentally friendly technology
for manufacturing and powering their cars. They offered electric powered automobiles compared
to the internal combustion engines powered vehicles provided by the competitors.

At the initial stages Tesla used Differentiation focus generic strategy to attract potential customers
who were focused on environmentally friendly aspects in an automobile and also those people
who were attracted to advanced and latest technology and features in vehicles. As the company
became popular and more and more people were attracted to the environmentally friendly and
technology powered tesla vehicles the sales went up the production cost went down and thus
Tesla was able to target a broad market. In this way Tesla changed from differentiation focus
strategy to differentiation strategy.