Enduring ideas: The GE–McKinsey nine-box matrix

Enduring ideas: The GE–McKinsey nine-box matrix

In one of a series of interactive presentations, McKinsey alumnus Kevin Coyne describes the GE–McKinsey nine-box matrix, a framework that offers a systematic approach for the multibusiness corporation to prioritize its investments among its business units.

September 2008---From Kckinsey Quarterly

With the rise of multibusiness enterprises in the 20th century, companies began to struggle with managing a number of business units profitably. In response, management thinkers developed frameworks to address this new complexity. One that arose in the early 1970s was the GE–McKinsey nine-box framework, following on the heels of the Boston Consulting Group’s well-known growth share matrix.

The nine-box matrix offers a systematic approach for the decentralized corporation to determine where best to invest its cash. Rather than rely on each business unit's projections of its future prospects, the company can judge a unit by two factors that will determine whether it's going to do well in the future: the attractiveness of the relevant industry and the unit’s competitive strength within that industry.

Placement of business units within the matrix provides an analytic map for managing them. With units above the diagonal, a company may pursue strategies of investment and growth; those along the diagonal may be candidates for selective investment; those below the diagonal might be best sold, liquidated, or run purely for cash. Sorting units into these three categories is an essential starting point for the analysis, but judgment is required to weigh the trade-offs involved. For example, a strong unit in a weak industry is in a very different situation than a weak unit in a highly attractive industry.

The nine-box matrix is the forerunner of a number of portfolio models, including MACS¹ and the portfolio of initiatives.² The criteria for assessing industry attractiveness and competitive strength have grown more sophisticated over the years. To this day, most large companies with a formal approach to modeling their businesses refer to the nine-box matrix or some descendant of it.

In one of a series of interactive presentations, McKinsey alumnus Kevin Coyne describes the GE–McKinsey nine-box matrix, a framework that offers a systematic approach for the multibusiness corporation to prioritize its investments among its business units. Click here to explore this framework in a new window.

Notes

¹Market-activated corporate strategy; see Frederick W. Gluck, Stephen P. Kaufman, A. Steven Walleck, Ken McLeod, and John Stuckey, “Thinking strategically,” mckinseyquarterly.com, June 2000.

²See Lowell L. Bryan, “Just-in-time strategy for a turbulent world,” mckinseyquarterly.com, June 2002.