What is it?
Use a GE Matrix to decide which opportunities to invest in. We can use it to plot our new opportunities as well as allocate resources across our existing businesses.
The principle behind the GE Matrix is that we will get the highest returns from investing in attractive opportunities AND where we have a competitive advantage.
The GE Matrix has two axes which are assessed independently. We have some discretion in the criteria compared to the BCG Matrix which is just growth and market share.
- Market Attractiveness – based on the size, growth and potential future profitability of the business
- Competitive Position – based on our market share, differentiation, competitive advantage, cost structure and capabilities
Once we have the GE Matrix plotted, we can use it to drive decisions:We should fully invest in opportunities in the top right boxes, extending out until we reach the limits of our discretionary resources
- We should consider experimenting with opportunities in the top left if we can test them cheaply
- We should disinvest or exit from opportunities in the bottom left boxes
When is it useful?
The GE Matrix is a very flexible tool – use it whenever you have to prioritise across opportunities
The SME market is fragmented and notoriously hard to target effectively. There may be order-of-magnitude differences in profit per customer. It cries out for segmentation and then prioritisation of the segments.
For a logistics service like Fedex, This might highlight the Professional service segment (lawyers, accountants, consultants, designers) as an attractive size, growth and margins. Fedex is also highly competitive for this segment, since they are not very price sensitive and place a premium on the “absolutely guaranteed service Fedex promises.
Having identified this segment as a priority, Fedex can mobilise their sales and marketing team to target them through packaging a solution for them, targeted communications, marketing partners and dedicated salesforce time.
How do you do the analysis?
The GE Matrix works best if it is created through rigorous analysis:
STEP 1) Create a list of all the opportunities to evaluate.
STEP 2) Assess the vertical axis “Market Attractiveness” by estimating the “Size of the Prize” of each opportunity. Pick a specific time period – for example in 5 years time. Extrapolate the likely market size based on existing market size and growth rates. Estimate net/operating profit margins% to give a “profit pool” target for each opportunity. Your estimate may be +/- 50%, but this can often be enough to separate opportunities
STEP 3) Understand your own competitive advantages. What do we bring to the party?
STEP 4) Identify the Key Success Factors for each opportunity. What are the assets/capabilities/relationships needed to win?
STEP 5) Compare our own competitive advantages against the Key Success Factors for each opportunity to identify the advantages that will help us win and the remaining gaps – our Competitive Position on the horizontal axis.
STEP 6) Plot the results from Step 2 and 5 to create the GE Matrix with quantified backup
STEP 7) Use the gap analysis to determine how we would need to target this opportunity.
- If the gaps are minor, we can attack this opportunity on our own?
- If there a few specific gaps, what partners would help us overcome them?
- If the gaps and advantages are equally balanced, would a JV be the best way to capture it?
- The there are too many gaps, would an acquisition make sense?