G.E. multi factoral analysis is a technique used in brand marketing and product management to help a company decide what product(s) to add to its product portfolio and which opportunities in the market they should continue to invest in. The G.E matrix is constructed in a 3x3 grid with Market Attractiveness plotted on the Y-axis and Business Strength on the X-axis, both being measured on a high,medium,or low score (Wikipedia). It is conceptually similar to B.C.G. analysis, but somewhat more complicated.
The GE matrix is constructed in a 3x3 grid with Market Attractiveness plotted on the Y-axis and business strength on the X-axis, both being measured on a high, medium, or low score. Five steps must be considered in order to formulate the matrix;
The attractiveness of a market is demonstrated by how beneficial it is for a company to enter and compete within this market. It is based on various factors; the size of the market and the rate at which it is growing, the possibility of profit, the number of competitors within the industry and their weaknesses.
This helps decide whether a company is competent enough to compete in the given market(s). It can be determined by factors within the company itself such as its assets and holdings, the share it holds in the market and the development of this share, the position in the market of its brand and the loyalty of customers to this brand, its creativeness in coming up with new and improved products and in dealing with the fluctuating situations of the market, as well as keeping in mind environmental/government concerns such as energy consumption, waste disposal etc.
Once the factors that determine the two are identified and rated, each factor is then given a certain magnitude and a calculation is made as follows; factor 1 rating x factor 1 magnitude + factor 2 rating x factor 2 magnitude + ..... factor n rating x factor n magnitude.
SBU's in the matrix can be represented as a circle; the radius exhibits the size of the market, the SBU's holdings in the market are equated through a pie chart within the circle and an arrow outside the circle shows the standing of the SBU expected in the future. In the image attached for example, an SBU holds 45% of the market's shares. The arrow is outwards thus showing that the SBU is expected to grow and gain strength and then its tip indicates the future position of the SBU.
When considering investment, it must first be seen which box of the matrix an SBU falls in ; grow, selectivity, or harvest.
SBUs that are classified into this category attract various company's investment as they are expected to yield high returns in the future. These investments should be split into categories such as research and development, acquisition of other SBU's, extensive advertisements and expanding production capacity.
SBUs that hold a lot of ambiguity fall into this category. They are usually only invested in if there is any prospect of competencies in managerial and corporate capabilities and if companies have any money left after investments in 'grow' business units.
SBU' performing poorly in unattractive industries are classified into this category. Companies only invest in them if they generate enough cash to equal the investment amount, otherwise, they may be liquidated.