G.E. Multi Factoral Analysis Explained with Examples

Introduction To GE Multifactoral Analysis

GE multifactorial analysis that is used by professionals involved in brand marketing and product management which then assists the company to decide which products needs to be added into the portfolio and the investability of the market they currently operate under. The GE Multifactorial analysis is similar to the BCG analysis in terms of concept but it is more complicated than the BCG analysis. In the GE multifactorial analysis a two-dimensional portfolio matrix is created which is similar to the BCG analysis but the dimensions are multi factorial which is different from the BCG analysis. One dimension is made up of nine industry attractiveness measurements, while the other is made up of twelve internal business strength metrics. The GE matrix can be used by a key business unit to evaluate its overall strength. Product, brand, services and potential product of a company is then mapped according to the industry’s attractiveness and business strength space. The model was the brainchild of Mckinsey and it was developed for general electric in the year 1970s. The primary purpose of the GE model was to evaluate the portfolio that a company currently holds which are related to business units strategically. The model also aims to develop strategies which are focused towards strengthening the growth rate by adding new products and services to the portfolio. The model helps the company to understand which are the portfolios of products it needs to continue investing into and which ones of the portfolio it should sell off.

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Advantages Of The Model

The following are the factors that explains the advantages of the model in detail:

The model helps to create a sense of understanding between managers and the performance of the products in the market and it aids in developing the strategies to get the returns to the maximum amount which is beneficial to the company.
The model helps the company to extract information which are focused towards the strength of the unit and weaknesses of the units which are essential to formulate strategies which are needed to improve and accelerate upon the performance.
The model provides opportunities to the company to understand the market dynamics and grow to the utmost potential of the company.
The model though complex than the BCG analysis offers great insights and help the company to better position itself in the market.

Limitations Of The Model

The following section highlights the weaknesses of the model in detail:

There aren’t any defined rules which is used to weigh the factor which makes the whole process very subjective in nature. For instance, the weight given to a factor may be different from the weight given to it by different models.
The construction of the GE matrix is very time consuming and involves a lot of amount of cash to prepare which is a deal breaker for various companies with poor financials.
The strategies for investment are not properly formulated and are often wrongly implemented. The strategies are also executed into an improper manner.

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Construction Of The GE Matrix

The construction of the GE matrix is carried in a 3x3 grid where the attractiveness of the market is plotted on the y axis whereas the business strength is again plotted on the X axis. Both the information is measured on the basis of high, medium and low scores. There are five primary steps that needs to be undertaken to complete the matrix:

The range of the products used by the company should be listed appropriately.
The factors which are responsible for the particular market must be recognized and identified.
The evaluation of the stage or the place that the company holds in the market.
Methods for calculating the strength of a firm and the attractiveness of the market.
The category which defines the stage that the company lies in.

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Market Attractiveness

How advantageous it is for a firm to enter and compete in a market demonstrates its attractiveness. It depends on a variety of variables, including the market's size and growth rate, the likelihood of profit, the number of rivals in the business and their strengths.

Business Strength

This helps assess if a company has the competencies required to compete in the desired markets. Internal company factors like assets and holdings, market share and growth of that share, brand position in the market and customer loyalty to that brand, creativity in developing new and improved products and managing the changing market conditions, as well as keeping in mind external environmental and governmental concerns like energy use, waste disposal, and other issues, can all contribute to determining this.

Plotting

The SBUs in the matrix can be represented as a circle, with the radius denoting the size of the market, a pie chart within denoting the SBUs' market holdings, and an arrow outside denoting the SBU's predicted future position. The accompanying graph demonstrates that an SBU holds 45% of the market's shares. The arrow's tip designates the SBU's predicted position in the future, while the arrowhead indicates that the SBU is expected to grow and get stronger.

Investment Strategies

Before making an investment decision, one must determine which box of the matrix a firm occupies: grow, selectivity, or harvest.

Grow

Businesses from a range of industries invest in these companies because substantial profits are expected from them in the future. These investments should be divided into a variety of categories, including R&D, acquisition of new businesses, aggressive marketing, and boosting production capacity.

Selectivity

These are the companies that operate in an unpredictable environment. When organizations invest in business units that will "grow," they frequently do so only if there is a prospect that management and corporate competencies will develop.

Harvest

This group includes businesses that perform badly in unappealing sectors. Companies only invest in them if they can produce as much cash as the investment, or otherwise they risk having to liquidate them.

The GE matrix has nine cells, making it more complicated than the BCG matrix, which has four cells. This indicates that both the construction and implementation processes take longer. The elements required to build the BCG matrix are easier and quicker to obtain because to its much simplified design. When calculating market attractiveness and company strengths, which are swapped out for market share and market growth in the BCG matrix, it takes into account a wide variety of variables.