GE 9 Cell Matrix: Strategic Analysis and Choice

GE Nine Cell Matrix is absolute expansion of BCG Matrix. It is more explanatory and elaborative. Like the BCG, the GE matrix helps us to determine how to allocate resources with more flexibility.

GE Nice Cell Matrix was developed by Mckinsey and Company consultancy group in the 1970s. The nine cell grid measures business unit strength against industry attractiveness and this is the key difference. Whereas BCG is limited to products, here, business units, whole produce lines, a service or even a brand can be products. We can plot these chosen units on the grid and this will help us to determine which strategy to apply.

First of all, we need to understand the strategies.

Invest/Expand
Units that land in this section of the grid generally have high market share and promise high returns in the future so should be invested in. Invest more as it provides exponential growth.


Select/Earn
Units that land in this section of the grid can be ambiguous and should only be invested in if there is money left over after investing in the profitable units. Invest only to improve its strength.


Harvest/Divest
Poor performing units in an unattractive industry end up in this section of the grid. This should only be invested in if they can make more money than is put into them. Otherwise they should be liquidated. Cease the operation.

Name the Table

Before we can plot anything on the grid, first we need to decide how we will determine both Industry Attractiveness and Business Unit Strength.

  • Industry Attractiveness
    • Porter 5 Forces
    • Economic Factors
    • Financial Norms
    • Socio Political Consideration
  • Business Unit Strength
    • Cost Position
    • Level of Differentiation
    • Financial Strength
    • Human Assets
    • Response Time
    • Public Approval

Industry Attractiveness

  1. Porter 5 Forces
    • Competitive rivalry
    • Buyer power
    • Supplier power
    • Threat of new entrants
    • Threat of substitution
  2. Economic Factors
    • How volatile is the sales? to the changes taking place in the external environment. Some products are highly volatile while some are not. Eg. Rice vs Luxury goods. Goods with high sales volatility is not regarded as attractive. Tourism industry is very volatile as due to Corona Virus, the industry has came to near 0
    • Cyclicity/Seasonality of sales : High cyclicity is not preferred. Eg. Green items in Shrawan, Khasi Boka in Dasain, Gold/ornaments in Mangsir
    • Market Growth : How our industry is growing compared to other? All of this factors are relative to other industries.
    • Capital Intensive: What is the level of capital required to operate business?
  3. Financial Norms: It is the financial norms of the industry, not our firm.
    • Average Profitability: Restaurant vs. Grossery Shop. What is the level of margin?
    • Typical Leverage: Leverage means the proportion of debt in our capital structure. Cost of debt is cheaper than equity due to tax shield benefit. So, increase in debt reduces the cost of company. But, it increase the risk of bankruptcy.
    • Credit Practices: Requirement of collateral, might depends on the riskiness of business.
  4. Socio Political Consideration
    • Government Regulations: Government regulations compared to other industries. Eg. Dance restaurant vs Colleges.
    • Community Support: How supportive the community is? Eg. Dance restaurant vs School, Liquor business or collages.
    • Ethical Standards: Not mixing stones in rice. Expectancy of ethics on Dance bar vs School. Sexual harassment in School vs Dance bars

Business Strength: Here it is our firm vs. other within the industry

  1. Cost Position
    • Economies of Scale: Breakeven Point of MoMo Mantra vs. Street Momo due to Fixed cost. Breakeven Point for Boeing or Airbus is 300 Sales per year.
    • Manufacturing Cost: Direct vs Indirect Costs
    • Overheads/scraps/wastage/reworks
    • Experience Effect/Learning Curve: Women counting bidi while packaging in Terai. As, we move upward to the learning curve, the cost is reduced but it may also decrease at a point due to seniority.
    • Labor Price: Labor price can be different from Nawalparasi and Kathmandu
  2. Level of Differentiation
    • Promotional Effectiveness: Differentiation can not only be done on product but can be done on Promotion. Ingredients of toothpaste is almost same and similar in quality. But, Close up, pepsodent and colgate are presented as different due to promotion differentiation. Close up – youths, Pepsodent – children.
    • Product Quality : Bata Means Durability
    • Company Image: Standard Chartered as a bank, Parker means high class best quality Pen.
    • Patented Products
    • Brand Awareness: Bike means Honda, Photocopy means Xerox.
  3. Financial Strengths
    • All these ratios that we have done
    • Liquidity/Solvency
    • BEP
    • Cash flows
    • Profitability
    • Growth in Revenues
    • How are our ratios in-compared to the competitors?
  4. Human Assets
    • Turnover rate, relative wages, skill level, salary, managerial commitment, morale, unionization.
  5. Response Time
    • How quickly we can adapt to the changes in environment?
    • Can we remodel ourselves ?
    • Manufacturing capability and flexibility
    • Time need to introduce new product
    • Delivery Time
    • Organizational flexibility
      • If required, do engineers can work as Sales Person?
  6. Public Approval
    • Goodwill, reputation and image of our company compared to others.
    • How people generally view us ?

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