The industry attractiveness matrix is a strategic tool used to evaluate the potential of different industries for profitability and growth. It assesses industries based on factors such as market size, competitive intensity, and market growth rate to determine their attractiveness and suitability for investment.
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The industry attractiveness matrix, also known as the industry attractiveness-competitive strength matrix or portfolio matrix, is a strategic tool that helps evaluate the potential of different industries for profitability and growth. It assesses industries based on various factors such as market size, competitive intensity, and market growth rate to determine their attractiveness and suitability for investment. This matrix is commonly used in strategic management to assist in making informed decisions about resource allocation and investment strategies.
The industry attractiveness matrix typically consists of two dimensions: industry attractiveness and competitive strength. The industry attractiveness dimension evaluates the overall attractiveness of an industry, while the competitive strength dimension assesses the competitive position of a company within that industry. By plotting industries on this matrix, businesses can gain insights into which industries offer the greatest potential for success and where they should focus their resources. Each quadrant in the matrix represents a different strategic stance for businesses to consider:
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High Attractiveness, High Competitive Strength: Industries falling in this quadrant are highly attractive and offer a strong competitive position. These industries present excellent opportunities for growth and profitability. Businesses in this quadrant should focus on investment and expansion to capitalize on their advantages.
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High Attractiveness, Low Competitive Strength: This quadrant represents industries that are attractive but where businesses have a weak competitive position. Companies in this quadrant may need to consider strategies to strengthen their competitive position, such as improving product differentiation or achieving cost leadership.
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Low Attractiveness, High Competitive Strength: Industries in this quadrant have a strong competitive position, but they may not be highly attractive in terms of market growth or profitability. Businesses occupying this quadrant may need to evaluate their long-term viability or explore diversification strategies into more attractive industries.
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Low Attractiveness, Low Competitive Strength: Industries falling in this quadrant are neither attractive nor offer a strong competitive position. Companies in this quadrant may need to reconsider their presence in such industries or explore exit strategies.
A notable quote from renowned management consultant Michael Porter provides an insightful perspective on industry attractiveness: “The essence of strategy is choosing what not to do.”
Interesting facts about the industry attractiveness matrix:
- The industry attractiveness matrix finds its roots in Michael Porter’s Five Forces framework, which examines the competitive forces within an industry.
- The matrix helps businesses identify the potential risks and rewards associated with investing resources in particular industries.
- The industry attractiveness matrix encourages businesses to assess their competitive strengths relative to other players in the industry.
- By analyzing the matrix, companies can identify opportunities for strategic partnerships, mergers, or acquisitions.
- The matrix is a dynamic tool that requires continuous updates and adjustments as market conditions and industry dynamics change.
The following table provides an example of how an industry attractiveness matrix could be structured:
| Industry Attractiveness / Competitive Strength | High | Medium | Low |
|---|---|---|---|
| High | X | ||
| Medium | X | ||
| Low | X |
Note: X represents the respective industries plotted on the matrix based on their attractiveness and competitive strength.
Remember, the industry attractiveness matrix is just one of many tools that support strategic decision-making. It should be used in conjunction with other analytical frameworks and considerations to develop robust and effective strategies.
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The vertical axis of this matrix – Industry Attractiveness – is divided into High, Medium and Low. Industry attractiveness represents the profit potential of the industry for a business to enter and compete in that industry. The higher the profit potential, the more attractive is the industry.
The level of industry attractiveness is compared with an assessment of the competitive advantage of the business on the x-axis. The other axis contrasts financial strength and environmental stability. A strong rating on the Industry Attractiveness / Competitive Advantage axis points to an aggressive strategy or a competitive strategy.
On the vertical axis of the GE Mckinsey Matrix, we find the variable Industry Attractiveness which can be divided into High, Medium and Low. Industry attractiveness is demonstrated by how beneficial it is for a company to enter and compete within a certain industry based on the profit potential of that specific industry.
Customer loyalty. Industry: growth rate and size, current and projected. Competitors in the targeted industry. Product unique differentiation. The threat of horizontal integration. Level of advertising expense. Ability to source substitute materials. Switch cost to alternative product materials.
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The GE McKinsey Matrix is a portfolio analysis framework that helps companies assess and allocate their investments by comparing different strategic business units (SBUs) based on their competitive power and market attractiveness. The matrix categorizes SBUs into growth, protect, or harvest strategies, guiding companies on how to strategically focus their resources. Growth strategies include investing in successful units and leveraging company strengths to face competition effectively.