A composite portfolio model: the gec matrix

The limitations of the BCG matrix have given rise to a number of other models that are intended to take a greater number of factors into account and to be more flexible in use. A leading example is the GEC matrix, developed by McKinsey and company in conjunction with the General Electric Company in the USA. It is mainly applied to strategic business units such as the subsidiaries of a holding com­pany. The model rates market attractiveness as high, medium or low, and competitive strength as strong, medium or weak. Strategic business units are placed in the appropriate category and, although there is no automatic strategic prescription, the position is used to help devise an appropriate strategy.

Market attractiveness criteria will be set by the user, and could include factors such as market growth, profitability, strength of com­petition, entry/exit barriers, legal regulation etc. Competitive strength could include technological capability, brand image, distribution channel links, production capability and financial strength. The flexibility to include as many variables as required is useful, but could lead to over-subjectivity. Most users of the model recommend that the variables be given a weighting to establish their relative importance which will, in turn, reduce the potential for bias. In practice, managers tend to be aware that the tool is likely to be used as a basis for resource allocation and, consequently, they may attempt to influence the analysis in the favour of their own product or strategic business unit. The analysis gives rise to a three-by-three matrix (Figure 3.3).

Market attractiveness	High	A	B	C
	Medium	D	E	F
	Low	G	H	I
		High	Medium	Low
		Competitive strength

Figure 3.3. The gec matrix

For products in cell A, the company would invest strongly, as this is potentially in an attractive strategic position, where distinctive competences can he harnessed to good opportunities. In B, the company could be aggressive and attempt to build strength in order to chal­lenge, or it could build selectively. In C, there are real dilemmas, in that there is the difficulty of competing well against stronger compe­titors – most plausible options would be to divest, as the opportunity might be attractive to others, or to specialize around niches where some strength could be built. D would indicate investment and main­tenance of competitive ability. E and F would indicate risk minimiza­tion and prudent choices for expansion. G and H would indicate management for earnings, whereas cell I would require divestment or minimizing investment.

Extreme care is required in the judgements that would place pro­ducts or strategic business units into any one category, and the model does not take directly into account synergies between different pro­ducts or business. The astute reader will recognize that the model represents a means of relating competences to the external environ­ment and that it is also a means of taking SWOT a stage further.