Therefore, GE consulted the McKinsey & Company and as a result the nine-box framework was designed. At the time, companies usually relied on projections of future cash flows, future market growth or some other future projections to make investment decisions, which was an unreliable method to allocate the resources. In 1970s, General Electric was managing a huge and complex portfolio of unrelated products and was unsatisfied about the returns from its investments in the products.
These tools solved the problem by comparing the business units and assigning them to the groups that are worth investing in or the groups that should be harvested or divested. At least, it was hard until the BCG matrix and its improved version GE-McKinsey matrix came to help. This makes it very hard to make a decision in which products the company should invest. The products or business units differ in what they do, how well they perform or in their future prospects. How does this affect the diversified businesses? Multi business companies manage complex business portfolios, often, with as much as 50, 60 or 100 products and services. The question of where and how much to invest is an ever going headache for those who allocate the resources. The fight for investments takes place in every level of the company: between teams, functional departments, divisions or business units. With limited resources, but many opportunities of using them, the businesses need to choose how to use their cash best. In the business world, much like anywhere else, the problem of resource scarcity is affecting the decisions the companies make.
GE-McKinsey is a framework that evaluates business portfolio, provides further strategic implications and helps to prioritize the investment needed for each business unit (BU).
GE-McKinsey nine-box matrix is a strategy tool that offers a systematic approach for the multi business corporation to prioritize its investments among its business units.
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