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Are you planning to base your company's revenue on a single product? You may think the answer to this question is too obvious, because no company has a single business unit. In fact, it's very good to have several products. The problem is that sometimes there are too many that are not always profitable. There is a very practical tool, the McKinsey matrix that can be developed for this purpose.
What is the McKinsey Matrix (McKinsey Model, General Electric Matrix)?
The McKinsey Matrix (McKinsey Model, General Electric Matrix) is the primary method of comparative analysis used by scientists and marketers. It also represents a matrix of the attractiveness of the industry in relation to its competitiveness. The model under consideration is defined by a matrix structure of 9 cells, which determine the direction of business development of the enterprise. This model was born in the 1970 as part of the suggestion of the manufacturing company General Electric and the consulting firm McKinsey, which then influenced its name.
How is the McKinsey Matrix useful?
The objective of such an analysis is to identify the factors that influence product management. This in turn gives an idea of whether or not the product needs in the market, based on the entire matrix and product range of the company. The McKinsey matrix is also referred to as the “competitiveness matrix” by marketers.
This matrix helps the company analyze its business units and understand which business units have the most potential for development, in order to define investment priorities. Among the benefits, we certainly include the ability of the matrix to prioritize the allocation of resources to invest. The matrix also helps management understand which business units are best performing.
Finally, the McKinsey matrix is much more complete than the BCG matrix. Indeed, it is much more thorough and takes into account a series of factors that the BCG matrix does not calculate.
When to use McKinsey's matrix?
Two events always occur simultaneously in the business world:
- Numerous initiatives to invest on
- Very few resources to be allocated to investment
In this case, the problem of the company becomes that of having to prioritize projects to be developed, products to launch, machines to buy, etc.
Investment decisions concern all departments of the company. Marketing would like to have more resources for communication activities. The plant would like to have some of these resources to modernize production machinery.
For a company that manufactures unique products, this problem is felt a lot, but imagine what could happen in companies like Nestlé that produce goods also very different from each other. From milk drinks for infants to dietary supplements, etc.
Everyone is fighting to get the means to move things forward. Products or business units differ in what they do, in their performance or in their future prospects. Therefore, it is very difficult to decide which products the company should invest in. Under these conditions, an analysis tool such as the McKinsey matrix is required.