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The Magic Matrix for Profitability

November 7th, 2003 · No Comments

HBS Working Knowledge has an article by Jonathan Byrnes, focused on bridging the gap between strategy and tactics to increase profitability. The key concept is that of the Magic Matrix:

The Magic Matrix is a spreadsheet chart with key products or services on one dimension, and key market segments or accounts on the other, both arranged in descending order by total revenues. Managers can populate the product-account cells with valuable information ranging from revenues to profitability to sales potential to differentiation. The Magic Matrix is a very powerful, intuitive, easy-to-use model of a company as it interacts with its markets. It enables a management team to look at a shared set of information on the key aspects of their company’s accounts, products, and operations, and to develop the most fruitful ways to improve performance.

The Magic Matrix shows a company’s managers where and why they are making money, and lets them identify the internal and external areas of high and low potential. They can use the Magic Matrix to frame and test different programmatic, coordinated “lines of attack” on the market. Once they agree on a direction, it provides a forum and format to align, and later adjust, their operating plans. They develop the shared viewpoints and cooperative culture that allows the company to reach its full profit potential.

The Magic Matrix gives managers a very powerful way to visualize their businesses. We favor extensive quantitative analysis because it facilitates precise fact-based decision making. But we have found that the easiest way for many groups to move into Magic Matrix-based integrated planning is with qualitative analysis.

The managers can gauge their company’s momentum relative to competitors in each cell, and denote it by an upward arrow, a blank, and a downward arrow. The team can quickly assess competitive vulnerabilities and weaknesses, with a strong sense of how the picture is changing over time. The detail is much greater than with a standard SWOT (Strengths, Weaknesses, Opportunities, and Threats) approach used by many companies.

Tags: Management

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