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    Key External Factors: EFE Matrix

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    Aditya Chitaliya
    The EFE Matrix is a strategic management tool used to assess external factors impacting a business. It identifies key external opportunities and threats, assigns each a weight based on importance, rates the company's response to each, and calculates a weighted score. This allows companies to evaluate how well their strategies respond to external conditions. The document provides details on the four components of the EFE Matrix - key external factors, weights, ratings, and weighted score. It also lists examples of important external factors that should be included related to social/cultural, economic, and political/legal areas.

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    Key External Factors: EFE Matrix

    Uploaded by

    Aditya Chitaliya
    54 views3 pages
    The EFE Matrix is a strategic management tool used to assess external factors impacting a business. It identifies key external opportunities and threats, assigns each a weight based on importance, rates the company's response to each, and calculates a weighted score. This allows companies to evaluate how well their strategies respond to external conditions. The document provides details on the four components of the EFE Matrix - key external factors, weights, ratings, and weighted score. It also lists examples of important external factors that should be included related to social/cultural, economic, and political/legal areas.

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    EFE Matrix

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    The EFE Matrix is a strategic management tool used to assess external factors impacting a business. It identifies key external opportunities and threats, assigns each a weight based on importance, rates the company's response to each, and calculates a weighted score. This allows companies to evaluate how well their strategies respond to external conditions. The document provides details on the four components of the EFE Matrix - key external factors, weights, ratings, and weighted score. It also lists examples of important external factors that should be included related to social/cultural, economic, and political/legal areas.

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    © All Rights Reserved
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    54 views3 pages

    Key External Factors: EFE Matrix

    Uploaded by

    Aditya Chitaliya
    The EFE Matrix is a strategic management tool used to assess external factors impacting a business. It identifies key external opportunities and threats, assigns each a weight based on importance, rates the company's response to each, and calculates a weighted score. This allows companies to evaluate how well their strategies respond to external conditions. The document provides details on the four components of the EFE Matrix - key external factors, weights, ratings, and weighted score. It also lists examples of important external factors that should be included related to social/cultural, economic, and political/legal areas.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 3

    EFE Matrix

    External Factor Evaluation (EFE) matrix method is a strategic-management tool often


    used for assessment of current business conditions. The EFE matrix is very similar to the IFE
    matrix. The major difference between the EFE matrix and the IFE matrix is the type of
    factors that are included in the model. While the IFE matrix deals with internal factors, the
    EFE matrix is concerned solely with external factors. The 4 Components of EFE matrix are:

    Key External Factors


    When using the EFE matrix we identify the key external opportunities and
    threats that are affecting or might affect a company. By analysing the
    external environment with the tools like PESTLE analysis, Porter’s Five
    Forces or Profile Matrix, the key external factors can be identified.

    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.

    Ratings
    The ratings in external matrix refer to how effectively company’s 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.

    Weighted Score
    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 company’s strategies aren’t well
    designed to meet the opportunities and defend against threats.
    Here is the example of EFE matrix for Computer Industry. 6 threats and 6 opportunities are
    given and the total weighted score is calculated which Is 3.24. It means the score of the
    industry is above average
    The 3 most important things which should be included in EFE Matrix are:
    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

    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)

    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

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