INTERNAL FACTOR EVALUATION

(IFE) & EXTERNAL FACTOR

EVALUATION (EFE)

Ms. Rhea Martesano, MPA

Aklan State University
 Definition

Internal Factor Evaluation (IFE) Matrix is a strategy tool

used to evaluate firms internal environment and to
reveal its strengths as well as weaknesses.

External Factor Evaluation (EFE) Matrix is a strategy

tool used to examine companys external
environment and to identify the available
opportunities and threats
 EFE Matrix. When using the EFE matrix we identify the key
external opportunities and threats that are affecting or
might affect a company. Where do we get these factors
from? Simply by analysing the external environment with
the tools like PEST analysis, Porters Five Forces or
Competitive Profile Matrix.

IFE Matrix. Strengths and weaknesses are used as the key

internal factors in the evaluation. When looking for the
strengths, ask what do you do better or have more
valuable than your competitors have? In case of the
weaknesses, ask which areas of your company you
could improve and at least catch up with your
competitors?

The general rule is to identify 10-20 key external factors

and additional 10-20 key internal factors, but you should
identify as many factors as possible.
 Weights

Each key factor should be assigned a weight ranging from 0.0

(low importance) to 1.0 (high importance). The number
indicates how important the factor is if a company wants to
succeed in an industry. If there were no weights assigned, all
the factors would be equally important, which is an impossible
scenario in the real world. The sum of all the weights must
equal 1.0. Separate factors should not be given too much
emphasis (assigning a weight of 0.30 or more) because the
success in an industry is rarely determined by one or few
factors.
 Ratings
EFE Matrix. The ratings in external matrix refer to how effectively
companys current strategy responds to the opportunities and
threats. The numbers range from 4 to 1, where 4 means a
superior response, 3 above average response, 2 average
response and 1 poor response. Ratings, as well as weights, are
assigned subjectively to each factor.

IFE Matrix. The ratings in internal matrix refer to how strong or

weak each factor is in a firm. The numbers range from 4 to 1,
where 4 means a major strength, 3 minor strength, 2 minor
weakness and 1 major weakness. Strengths can only receive
ratings 3 & 4, weaknesses 2 & 1. The process of assigning
ratings in IFE matrix can be done easier using benchmarking
tool.
 Weighted Scores & Total Weighted Scores
The score is the result of weight multiplied by rating. Each key
factor must receive a score. Total weighted score is simply the
sum of all individual weighted scores. The firm can receive the
same total score from 1 to 4 in both matrices. The total score of
2.5 is an average score. In external evaluation a low total score
indicates that companys strategies arent well designed to
meet the opportunities and defend against threats. In internal
evaluation a low score indicates that the company is weak
against its competitors.
 Using the Tool
Step 1. Identify the key external/internal factors
EFE matrix. Do the PEST analysis first. The information from the PEST analysis
reveals which factors currently affect or may affect the company in the
future. At this point, the factors can be either opportunities or threats and
your next task is to sort them into one or the other category. Try to look at
which factors could benefit the company and which ones would harm it.
You should also analyze your competitors actions and their strategies. This
way you would know what competitors are doing right and what their
strategies lack.

IFE matrix. In case you have done a SWOT analysis already, you can
gather some of the factors from there. The SWOT analysis will usually have
no more than 10 strengths and weaknesses, so youll have to do
additional analysis to identify more key internal factors for the matrix.
Look again into the companys resources, capabilities, organizational
structure, culture, functional areas and value chain analysis and
recognize the strong and weak points of the organization.
 Using the Tool
Step 2. Assign the weights and ratings

Weights and ratings are assigned subjectively. Therefore, it is a more

difficult process than identifying the key factors. We assign weights based
on industry analysts opinions. Find out what the analysts say about the
industrys success factors and then use their opinion or analysis to assign
the appropriate weights. The same process is with ratings. Although, this
time you or the members of your group will have to decide what ratings
should be assigned. Ratings from 1-4 can be assigned to each
opportunity and threat, but only the ratings from 1-2 can be assigned to
each weakness and 3-4 to each strength.

Step 3. Use the results

IFE or EFE matrices have little value on their own. You should do both
analyses and combine their results to discuss new strategies or for further
analysis. They are especially useful when building advanced SWOT
analysis, SWOT matrix for strategies or IE matrix.
 What should you include in EFE Matrix?

External factors can be grouped into the following

groups:
Social, cultural, demographic, and environmental
variables:
Economic variables
Political, government, business trends, and legal
variables
 What should you include in EFE Matrix?

Examples of factors:
Social, cultural, demographic, and environmental factors...
- Aging population
- Percentage or one race to other races
- Per-capita income
- Number and type of special interest groups
- Widening gap between rich & poor
- Number of marriages and/or divorces
- Ethnic or racial minorities
- Education
- Trends in housing, shopping, careers, business
- Number of births and/or deaths
- Immigration & emigration rates
 What should you include in EFE Matrix?
Economic factors...
- Growth of the economy
- Level of savings, investments, and capital spending
- Inflation
- Foreign exchange rates
- Stock market trends
- Level of disposable income
- Import and export factors and barriers
- Product life cycle (see the Product life cycle page)
- Government spending
- Industry properties
- Economies of scale
- Barriers to market entry
- Product differentiation
- Level of competitiveness (see the Michael Porter's Five Forces
model)
 What should you include in EFE Matrix?
Political, government, business trends & legal factors...

- Globalization trends
- Government regulations and policies
- Worldwide trend toward similar consumption patterns
- Internet and communication technologies (e-commerce)
- Protection of rights (patents, trade marks, antitrust legislation)
- Level of government subsidies
- International trade regulations
- Taxation
- Terrorism
- Elections and political situation home and abroad
EFE Matrix Example
IFE Matrix Example
 Competitive Profile Matrix (CPM)
Competitive profile matrix is an essential strategic
management tool to compare the firm with the major players
of the industry.
Competitive profile matrix show the clear picture to the firm
about their strong points and weak points relative to their
competitors.
The CPM score is measured on basis of critical success factors,
each factor is measured in same scale mean the weight
remain same for every firm only rating varies. The best thing
about CPM that it include your firm and also facilitate to add
other competitors make easier the comparative analysis.
 Competitive Profile Matrix (CPM)
Competitive profile matrix is an essential strategic
management tool to compare the firm with the major players
of the industry.
Competitive profile matrix show the clear picture to the firm
about their strong points and weak points relative to their
competitors.
The CPM score is measured on basis of critical success factors,
each factor is measured in same scale mean the weight
remain same for every firm only rating varies. The best thing
about CPM that it include your firm and also facilitate to add
other competitors make easier the comparative analysis.
 Competitive Profile Matrix (CPM)
Competitive profile matrix is an essential strategic
management tool to compare the firm with the major players
of the industry.
Competitive profile matrix show the clear picture to the firm
about their strong points and weak points relative to their
competitors.
The CPM score is measured on basis of critical success factors,
each factor is measured in same scale mean the weight
remain same for every firm only rating varies. The best thing
about CPM that it include your firm and also facilitate to add
other competitors make easier the comparative analysis.
 Critical Success Factors
Critical success factors are extracted after deep analysis of
external and internal environment of the firm.

The higher rating show that firm strategy is doing well to

support this critical success factors and lower rating means
firm strategy is lacking to support the factor.
 Rating
Rating in CPM represent the response of firm toward the
critical success factors. Highest the rating better the response
of the firm towards the critical success factor ,rating range
from 1.0 to 4.0 and can be applied to any factor.

There are some important point related to rating in CPM.

Rating is applied to each factor.

The response is poor represented by 1.0
The response is average is represented by 2.0
The response is above average represented by 3.0
The response is superior represented by 4.0
 Weight

Weight attribute in CPM indicates the relative importance of

factor to being successful in the firms industry. The weight range from
0.0 means not important and 1.0 means important, sum of all assigned
weight to factors must be equal to 1.0 otherwise the calculation would
not be consider correct.

Weighted Score

Weighted score value is the result achieved after multiplying each

factor rating with the weight.

Total Weighted Score

The sum of all weighted score is equal to the total weighted

score, final value of total weighted score should be between range 1.0
(low) to 4.0(high). The average weighted score for CPM matrix is 2.5 any
company total weighted score fall below 2.5 consider as weak. The
company total weighted score higher then 2.5 is consider as strong in
position. The other dimension of CPM is the firm with higher total
weighted score considered as the winner among the competitors.
 Example
 Sources
David, F.R. (2009). Strategic Management: Concepts and
Cases. 12th ed. FT Prentice Hall
Wikipedia (2014). IFE matrix. Available at:
http://en.wikipedia.org/wiki/IFE_matrix