IFE&EFE
Internal Factor Evaluation (IFE) Matrix
The IFE Matrix is a strategic tool used to analyze internal strengths and weaknesses of a business to assess its internal strategic position.
Steps to Develop an IFE Matrix
- List Key Internal Factors: Identify 10-20 internal factors, including both strengths and weaknesses. These should be specific and backed by data (e.g., percentages, ratios) where possible.
- Assign Weights: Assign a weight between 0.0 and 1.0 to each factor, reflecting its importance in the industry. The total weight across all factors should equal 1.0.
-
Assign Ratings: Assign a 1-to-4 rating to each factor:
- 1 = Major Weakness
- 2 = Minor Weakness
- 3 = Minor Strength
- 4 = Major Strength
- Calculate Weighted Scores: Multiply each factor's weight by its rating.
- Calculate Total Weighted Score: Sum the weighted scores to determine the overall internal position of the organization.
Example IFE Matrix for a Retail Computer Store
| Key Internal Factors | Weight | Rating | Weighted Score |
|---|---|---|---|
| Strengths | |||
| 1. High inventory turnover rate | 0.05 | 3 | 0.15 |
| 2. Increase in average customer purchase | 0.07 | 4 | 0.28 |
| 3. Strong brand reputation | 0.06 | 4 | 0.24 |
| 4. Competitive pricing strategy | 0.04 | 3 | 0.12 |
| 5. Robust online sales platform | 0.05 | 4 | 0.20 |
| 6. Diverse product range | 0.03 | 3 | 0.09 |
| 7. Effective customer loyalty programs | 0.04 | 3 | 0.12 |
| 8. Strong partnerships with suppliers | 0.03 | 3 | 0.09 |
| 9. High level of customer satisfaction | 0.05 | 4 | 0.20 |
| 10. Strong financial position | 0.06 | 4 | 0.24 |
| Weaknesses | |||
| 1. Decline in software sales revenue | 0.07 | 2 | 0.14 |
| 2. Location impacted by new highway | 0.08 | 2 | 0.16 |
| 3. Limited social media presence | 0.04 | 1 | 0.04 |
| 4. High employee turnover | 0.06 | 2 | 0.12 |
| 5. Outdated physical store layout | 0.05 | 1 | 0.05 |
| 6. Dependence on third-party delivery | 0.03 | 2 | 0.06 |
| 7. Limited mobile app functionality | 0.03 | 2 | 0.06 |
| 8. High operating costs | 0.05 | 2 | 0.10 |
| 9. Low product warranty coverage | 0.03 | 1 | 0.03 |
| 10. Minimal in-house technical support | 0.04 | 1 | 0.04 |
| Total | 1.00 | 2.48 |
Interpreting the IFE Matrix
- Scores above 2.5 indicate a strong internal position.
- Scores below 2.5 indicate potential internal weaknesses.
- In this example, a 2.48 score suggests the business is close to an average internal position with room for improvement.
External Factor Evaluation (EFE) Matrix
The EFE Matrix helps summarize and evaluate the external opportunities and threats impacting an organization, providing insight into the organization’s external strategic position.
Steps to Develop an EFE Matrix
- List Key External Factors: Identify 10-20 external factors, including opportunities and threats.
- Assign Weights: Assign a weight between 0.0 and 1.0 to each factor based on its importance in the industry. The total weight should equal 1.0.
-
Assign Ratings: Assign a 1-to-4 rating to each factor based on the effectiveness of the firm’s response:
- 1 = Poor response
- 2 = Average response
- 3 = Above-average response
- 4 = Superior response
- Calculate Weighted Scores: Multiply each factor's weight by its rating.
- Calculate Total Weighted Score: Sum the weighted scores for an overall external position score.
Example EFE Matrix for a Local Cinema
| Key External Factors | Weight | Rating | Weighted Score |
|---|---|---|---|
| Opportunities | |||
| 1. Growing county population | 0.05 | 3 | 0.15 |
| 2. University expansion nearby | 0.08 | 4 | 0.32 |
| 3. Increase in local tourism | 0.06 | 3 | 0.18 |
| 4. Partnerships with local businesses | 0.04 | 3 | 0.12 |
| 5. Demand for premium cinema experience | 0.07 | 4 | 0.28 |
| 6. Growth of family-friendly events | 0.03 | 3 | 0.09 |
| 7. Rise in demand for event hosting | 0.05 | 4 | 0.20 |
| 8. Community interest in film festivals | 0.04 | 3 | 0.12 |
| 9. Increasing disposable income | 0.06 | 3 | 0.18 |
| 10. Potential for streaming partnerships | 0.05 | 4 | 0.20 |
| Threats | |||
| 1. Trend towards healthy lifestyle | 0.05 | 2 | 0.10 |
| 2. Growing demand for streaming services | 0.07 | 1 | 0.07 |
| 3. Increase in rental and overhead costs | 0.06 | 2 | 0.12 |
| 4. Seasonal fluctuations in attendance | 0.04 | 2 | 0.08 |
| 5. Rising cost of licensing films | 0.05 | 2 | 0.10 |
| 6. Increased competition from new cinemas | 0.06 | 2 | 0.12 |
| 7. Decline in physical ticket sales | 0.04 | 1 | 0.04 |
| 8. Economic uncertainty impacting spending | 0.07 | 2 | 0.14 |
| 9. Regulatory restrictions on promotions | 0.03 | 2 | 0.06 |
| 10. Potential labor shortages | 0.05 | 2 | 0.10 |
| Total | 1.00 | 2.52 |
Interpreting the EFE Matrix
- Scores above 2.5 suggest that the firm is effectively responding to external factors.
- Scores below 2.5 indicate challenges in addressing external threats or capitalizing on opportunities.
- In this example, a score of 2.52 indicates a slightly above-average response to external factors.
By using both IFE and EFE matrices, organizations can develop a well-rounded view of their strategic position. This understanding helps in formulating strategies that leverage internal strengths, address weaknesses, capitalize on external opportunities, and mitigate threats.