What is the GE/McKinsey matrix and its purpose?

• A. A simple 2x2 matrix for product positioning; determine pricing strategy.
• B. A nine-cell portfolio model evaluating business units by industry attractiveness and business strength to guide resource allocation.
• C. A tool for evaluating employee performance; determine salary bands.
• D. A model for predicting merger synergies; determine integration plans.

Answer: (B)

The GE/McKinsey matrix is a portfolio analysis framework used to decide where to invest across multiple lines of business. It evaluates each business unit on two dimensions: industry attractiveness and the business unit’s competitive strength, placing them in a 3x3 grid (nine cells). Industry attractiveness captures how favorable the market is—factors like growth, profitability, competitive intensity, and regulatory environment—while business strength looks at the unit’s position in the market—market share, brand strength, product quality, distribution power, and cost position.

With a position in a specific cell, managers determine how to allocate resources: invest and grow in high-attractiveness and strong-position cells; consider selective investment or selective moves in mid-range cells; and harvest or divest from weak positions or unattractive markets. This framework offers a nuanced view beyond simpler models, helping balance a portfolio by directing funding, talent, and strategic priorities to where they’re most likely to create value.