The GE/McKinsey matrix is a form of analysis using a portfolio, it outlays the strategic units of the business and the position of SBU (it is a combination of product market which needs a separate business plan) in the industry. It locates the industry attractiveness on the vertical axis and the business unit strength on the horizontal axis, both in categories of high, medium and low. It was originally developed by McKinsey for the general electric company. It is indicated on the axes weigh the business options under two criteria the first is the attractiveness of the potential industry and the second is the business strength.
It is in some ways similar to the Boston Matrix another portfolio analysis technique. They both aim at future strategies by dividing it into cells each cell indicates strategy; both of these are two dimensional. Yet the McKinsey matrix has a wider scope of analysis than the Boston matrix with 9 cells compared to the 4 of Boston matrix.
When we say that McKinsey Matrix asses on bases of industry attractiveness, what we mean by it is that it weighs the attractiveness of the firm entering a new industry/market or even continuing to exist in it. The attractiveness of a certain industry is undermined by a lot of different factors such as the growth rate, profit margins, competition etc.
Now moving on to the criteria on the horizontal axis, the business unit strength. It is possible for the market to be very favorable yet the business might not have the strength to operate in that market, this is a very crucial aspect to consider. Thus before entering a market business needs to strike a fine balance between both the factors. The strength of the business can be assessed on the criteria of production capacity, cost and profitability, brand image etc.
So the firm is advised to devise a strategy based on the result of the McKinsey matrix, which will aid in smart decision making.