General Electric Model.ppt

The General Electric Model Company can rate its different businesses on the basis of two main parameters – Market Attractiveness and Business Strength Companies must enter attractive markets and possess the required business strengths to succeed in those markets If one of these factors is missing, the business will not produce outstanding results Neither a strong company operating in an unattractive market nor a weak company operating in an attractive market will do very well

FACTORS UNDERLYING GE PORTFOLIO MODEL

1. MARKET ATTRACTIVENESS – Overall market size – Annual market growth rate – Historical profit margin – Competitive intensity – Technological requirements – Environmental impact – Social-political legal

FACTORS UNDERLYING GE PORTFOLIO MODEL

2. BUSINESS STRENGTH

Market share Share growth Product quality Brand reputation Distribution network Promotional effectiveness Productive capacity Unit costs

WEIGHT

RATING VALUE

(FROM 1)

(1-5)

WXR

The axes Both axes are divided into 3 segments, yielding 9 cells Green Zone – Favourable position with relatively attractive growth opportunities – This indicates a “green light” to invest in this product/service

Yellow Zone – Medium attractiveness. Organisation must therefore exercise caution when making additional investments in this product/service – The suggested strategy is to seek to maintain share rather than growing or reducing share

Red Zone – A position in the red zone is not attractive. – The suggested strategy is that management should begin to make plans to exit the industry.

5.00

3.67

2.33

1.00 1.00

2.33

3.67

5.00

Investment strategies as per GE model Build Selectively 1. Specialize around limited strengths 2. Seek ways to overcome weaknesses 3. Withdraw if sustainable growth is not possible

Invest to Build 1. Challenge for leadership 2. Build selectively on strengths 3. Reinforce vulnerable areas

Protect Position 1. Invest to grow at maximum rate 2. Concentrate efforts on maintaining strength

Limited expansion or Harvest 1. Look for ways to expand without high risk; otherwise minimize investment and rationalize operations

Selectivity / Manage for earnings 1. Protect existing program 2. Concentrate investments in segments where profitability is good and risks are relatively low

Build selectively 1. Invest heavily in most attractive segments 2. Build up ability to counter competition 3. Emphasize profitability by raising productivity

Divest 1. Sell at a time that will maximize cash value 2. Cut fixed costs and meanwhile avoid investments

Manage for Earnings 1. Protect position in most profitable segments 2. Upgrade product line 3. Minimize investment

Protect and Refocus 1. Manage for current earnings 2. Concentrate on attractive segments 3. Defend strengths