GE Nine-Cell Planning Grid: Corporate Strategy Analysis Technique
GE Nine-Cell Planning Grid
GE nine cell planning grid, tries to overcome some of the limitations of BCG matrix in two ways:
- It uses multiple factors to assess industry attractiveness and business strength in place of the single measure employed in the BCG matrix.
- 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.
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 cither 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.
iii. The nine-cell format allows finer distinction between portfolio positions than does the four-cell BCG format.
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