Generic Strategies1. The three cells at the top left hand side of the matrix are the most attractive in which to operate and require a policy of investment for growth – these are usually coloured green.
2. The three cells running diagonally from left to right have a medium attractiveness, are coloured yellow and the management of businesses within this category should be more cautious and with a greater emphasis being placed on selective investment and earning retention.
3. The three cells at the bottom right hand side are the least attractive, therefore coloured red and management should follow a policy of harvesting and / or divesting unless the relative strengths can be improved.
Channon and McCosh devised a set of generic investment strategies for the GE McKinsey matrix as labelled in the previous diagram. A. T. Kearney also put forward guidelines for strategies in the different boxes and where these have not been incorporated they are mentioned below. (ATK = A.T. Kearny)
Grow / Penetrate – These businesses are a target for investment, they have strong business strengths, are in attractive markets and they should therefore have high returns on investment and competitive advantage. They should receive financial and managerial support to maintain their strong position and to continue contributing to long-term profitability.
ATK – Seek dominance
Grow
Maximise investment
Invest for Growth – Businesses here are in very attractive industries but have average business strength. They should be invested in to improve their long-term competitive position.
ATK – Evaluate potential for leadership via segmentation
Identify weaknesses
Build strengths
Selective Investment or Divestment - These businesses are in very attractive markets but their business strength is weak. Investment must be aimed at improving the business strengths. These businesses will probably have to be funded by other businesses in the group as they are not self-funding. Only businesses that can improve their strengths should be retained – if not they should be divested.
ATK – Specialise
Seek niches
Consider acquisitions
Selective Harvest or Investment – Businesses in this box have good business strength in an industry that is losing its attractiveness. They should be supported if necessary but they may be self-supporting in cash flow terms. Selective harvesting is an option to extract cash flow but this should be done with caution so as not to run down the business prematurely.
ATK – Identify growth segments
Invest strongly
Maintain position elsewhere
Segment and Selective Investment – Businesses with average business strengths and in average industries can improve their positions by creative segmentation to create profitable segments and by selective investment to support the segmentation strategy. The business needs to create superior returns by concentrating on building segment barriers to differentiate themselves.
ATK – Identify growth segments
Specialise
Invest selectively
Controlled Exit or Harvest – Businesses with weak business strengths in moderately attractive industries are candidates for a controlled exit or divestment. Attempts to gain market share by increasing business strengths could prove to be very expensive and must be done with caution
ATK – Specialise
Seek niches
Consider exit
Harvest for Cash Generation – Strong businesses in unattractive markets should be net cash generators and could provide funds for use throughout the rest of the portfolio. Investment should be aimed at keeping these businesses in a dominant position of strength but over investment can be disastrous especially in a mature market. Be aware of competitors trying to revitalise mature industries
ATK – Maintain overall position
Seek cash flow
Invest at maintenance level
Controlled Harvest – They have average business strengths in an unattractive market and the strategy should be to harvest the business in a controlled way to prevent a defeat or the business could be used to upset a competitor.
ATK – Prune lines
Minimise investment
Position to divest
Rapid Exit or Attack Business – These businesses have neither strengths nor an attractive industry and should be exited. Investments made should only be done to fund the exit.
ATK – Trust leaders statesmanship
Go after competitors cash generators
Time exit and divest