GE 9Cell

22/05/2020 1 By indiafreenotes

GE nine cell planning grid, tries to overcome some of the limitations of BCG matrix in two ways:

  1. It uses multiple factors to assess industry attractiveness and business strength in place of the single measure employed in the BCG matrix.
  2. It expanded the matrix from four cells to nine cells. It replaced the high/low axes with high/medium/low making a finer distinction between business portfolio positions.

Each business is appraised in terms of two major dimensions Market Attractiveness and Business Strength. If one of these factors is missing, then the business will not produce desired results. Neither a strong company operating in an unattractive market, nor a weak company operating in an attractive market will do very well

The vertical axis denotes

Industry attractiveness indicates how hard or easy it will be for a company to compete in the market and earn profits. The more profitable the industry is the more attractive it becomes. When evaluating the industry attractiveness, analysts should look how an industry will change in the long run rather than in the near future, because the investments needed for the product usually require long lasting commitment.

  • Long run growth rate
  • Industry size
  • Industry profitability: entry barriers, exit barriers, supplier power, buyer power, threat of substitutes and available complements (use Porter’s Five Forces analysis to determine this)
  • Industry structure (use Structure-Conduct-Performance framework to determine this)
  • Product life cycle changes
  • Changes in demand
  • Trend of prices
  • Macro environment factors (use PEST or PESTEL for this)
  • Seasonality
  • Availability of labor
  • Market segmentation

Horizontal axis represent

Along the X axis, the matrix measures how strong, in terms of competition, a particular business unit is against its rivals. In other words, managers try to determine whether a business unit has a sustainable competitive advantage (or at least temporary competitive advantage) or not.

  • Total market share
  • Market share growth compared to rivals
  • Brand strength (use brand value for this)
  • Profitability of the company
  • Customer loyalty
  • VRIO resources or capabilities (use VRIO framework to determine this)
  • Your business unit strength in meeting industry’s critical success factors (use Competitive Profile Matrix to determine this)
  • Strength of a value chain (use Value Chain Analysis and Benchmarking to determine this)
  • Level of product differentiation
  • Production flexibility

Green zone

Suggests you to ‘go ahead’, to grow and build, pushing you through expansion strategies. Businesses in the green zone attract major investment.

Yellow zone

 Cautions you to ‘wait and see’ indicating hold and maintain type of strategies aimed at stability.

Red zone

 Indicates that you have to adopt turnover strategies of divestment and liquidation or rebuilding approach.

Advantages of GE 9CELL

  • Helps to prioritize the limited resources in order to achieve the best returns.
  • The performance of products or business units becomes evident.
  • It’s more sophisticated business portfolio framework than the BCG matrix.
  • Determines the strategic steps the company needs to adopt to improve the performance of its business portfolio.

Disadvantage of GE 9CELL

  • Needs a consultant or an expert to determine industry’s attractiveness and business unit strength as accurately as possible.
  • It is expensive to conduct.
  • It doesn’t take into account the harmony that could exist between two or more business units.

The grid then does rating of each of the company’s business units on multiple sets of strategic factor within each axis of the grid.

In order to assess the industry attractiveness factors such as market growth, size of market, industry profitability, competition, seasonality and cyclical qualities, economies of scale, technology, and social/environmental/ legal/human factors are included.

For assessing business strength factors such as market share, profit margin, ability to compete, customer and market knowledge, competitive position, technology, and management caliber are identified.

The strategists then calculate “subjectively” a business’s position within the planning grid by quantifying the two dimensions of the grid.

The strategist first selects industry attractiveness factors to measure industry attractiveness and then assign each industry attractiveness factor a weight that reflects its perceived importance as compared to other attractiveness factors. Favorable to unfavorable future conditions for those factors are forecast and rated based on some scale (0 to 1 scale is illustrative).

Then a weighted composite scope is obtained for a business’s overall industry attractiveness. In order to assess business, a similar procedure is followed in selecting factors, assigning weights to them, and then rating the business on these dimensions.

Thus the GE planning grid might prove to be a useful tool for assessing a business within a corporate portfolio. Usually several managers are involved during the planning process. The inclusion and exclusion of factors and their rating and weighting are primarily matters of managerial judgment. This classifies businesses in terms of both the projected strength of the business and the projected attractiveness of the industry.

The decisions concerning the resource allocation remain quite similar to those in the BCG approach. Business classified as invest to grow would be treated like the stars in the BCG matrix. These businesses would be provided resources to pursue growth-oriented strategies.

Businesses classified in the harvest/divest category would be managed like the dogs in the BCG matrix. Businesses classified, as selectivity/ earnings would either be managed as cash cows or as question marks.

While the strategic recommendations generated by the GE planning grid are similar to those from the BCG matrix, the GE nine-cell grid improves on the BCG matrix in three fundamental ways.

  • The terminology associated with GE grid is preferable because it is less offensive and more universally understood.
  • The multiple measures associated with each dimension of the GE grid include more factors relevant to business strength and market attractiveness than simply market share and market growth.
  • The nine-cell format allows finer distinction between portfolio positions than does the four-cell BCG format.