The McKinsey Matrix is a strategic decision-making tool for companies. The more a decision has important consequences for a company, the more difficult it is to make. > Download: Sales Development Report” align=”middle”/>This is why it is recommended to include each strategic reflection in a well-defined process. The McKinsey Matrix uses a scientific approach method to support informed and rational decision-making.
What is the McKinsey Matrix?
Also called the attractions/assets matrix, the McKinsey matrix is a strategic decision-making tool for business development. Designed in the 1970s by the consulting firm McKinsey & Company, the matrix is presented in the form of a table integrating two dimensions: market attractiveness and competitive advantages. These are defined by numerous criteria corresponding to the strategic business areas (DAS).
What is a Strategic Business Area (DAS)?
A company brings together a range of different activities and professions. When it is positioned in several markets, it can group its activities into strategic business areas (DAS). This set of activities share identical resources. They have common means of production, products and customers. The DAS serve as an element of analysis in the McKinsey matrix.
A concrete example could be that of the electronic equipment sector. It is possible to consider it as a DAS in an office supply company. In this case, this subset shares the same production lines as well as common competitors.
To complete the attractions/assets matrix, a company must identify the different DAS inherent in its organization.
What is the purpose of the McKinsey Matrix?
The purpose of the McKinsey matrix is to measure the attractiveness of an activity, its value and its advantages for the development of a company. It is therefore a very relevant support for building a business strategy. Investing in an activity or divesting from it has strong consequences on the future of a company. This is why the matrix offers a clear vision on the opportunities concerning:
- The creation of a new activity.
- The sustainability of a project already started, but about which doubts have emerged.
- The possible withdrawal of an activity which does not bring the expected results, but which seems to be able to work.
This tool helps companies to engage or not in new market niches:
- It estimates the attractiveness of a particular market.
- It assesses the maturity of a company on the market that corresponds to its field of activity.
- It integrates the differentiating assets of the company compared to those of the competition.
The matrix is built inside a table that integrates the different DAS of a company. It must be understood that any project is a set of activities. It is these activities that need to be organized into strategic areas of activity. This is the reason why building the McKinsey matrix effectively requires following several steps.
How to build the McKinsey matrix?
- Assess the need to use the McKinsey Matrix.
- Convert the circumstance into a strategic area of activity.
- Indicate the key success criteria for each area of activity in the cells of the matrix.
- Multiply the weights and points for each DAS.
Assess the need to use the McKinsey Matrix
The in-depth and methodical analysis of this tool implies deploying numerous resources. This is why the McKinsey matrix is used in the context of decision-making concerning major changes in a company’s strategy.
Convert the circumstance into a strategic business area
To identify the DAS intrinsic to a company, it is necessary to identify common criteria. They concern :
- means of production and technology.
- resources and skills.
- The clientele.
The more value a DAS creates, the greater the means and resources will be.
Indicate the key success criteria for each activity area in the cells of the matrix
The key success criteria correspond to the competitive advantages that allow a company to stand out in the market. Also called key success factors (CSF), these elements have a technological or commercial quality.
To determine them, it is often necessary to conduct customer surveys and market research. Indeed, a key criterion of success is perceived through the eyes of the customer (or the market).
Thus, in the case of the sale of electronic equipment, the technical knowledge of the sellers constitutes an FCS. To canvass new companies wishing to equip themselves, it is important to have precise and up-to-date information on products and the evolution of technologies.
The key criteria also correspond to the attractiveness of the market. Are they weak, medium or strong? To determine this, several elements must be evaluated:
- Her size.
- His growth.
- its profitability.
- The intensity of competition.
- Technology development.
Multiply the weights and points for each DAS
On the matrix, a DAS is represented by a larger or smaller circle depending on its weight in the company. The wider the circle, the more the DAS is linked to a profitable activity for the company.
Inside each circle, the weight of the company on the market is also represented. In other words, the market share held by the company is visible inside each DAS.
The points of each DAS will then be calculated according to their position on the matrix.
The matrix is built around two entries, themselves cut in three dimensions:
- Competitive position: strong, average or weak.
- Market attractiveness: high, medium or low.
How to interpret the McKinsey matrix?
Interpreting the matrix gives future directions for investments. More specifically, it offers a clear view of the DAS on which the company should focus.
Zone 1: reinforcement and development
Zone 1 of the strategic grid corresponds to strong and moderately strong positions. When the DAS is in this zone, it is part of a buoyant market for the company. It is then in his advantage to invest to strengthen his position on the market or to develop a new activity.
Zone 2: maintenance and profitability
Zone 2 corresponds to the average positions in the strategic grid. When the DAS is in this zone, the market is weak. In this case, a company has every interest in focusing on the profitability of its activity. Investments will therefore be selective. They will help maintain the market position and profitability of the business.
Zone 3: partial withdrawal and abandonment
Zone 3 corresponds to weak and moderately weak positions in the strategic grid. When the DAS is in this zone, the market is unattractive. If the company holds a strategic competitive position, the withdrawal will only be partial. If, on the contrary, it does not have competitive advantages, the withdrawal of activities may be total.
The advantages and limitations of the McKinsey matrix
This tool offers the advantage of providing a great analytical richness to companies. It helps to have a clear vision of the strategic positioning within a market. It goes even further by proposing prospects for action to be implemented.
The matrix also has limitations. It is cumbersome to use for small and medium-sized enterprises (SMEs). Moreover, it represents a great investment of resources and time in order to carry out research and analysis. However, it remains a valuable decision support tool for companies.
To go further in the search for strategic tools, the BCG matrix is one of the solutions to know.
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