IFE Matrix

A summary step in conducting an internal

strategic management audit is to construct
an Internal Factor Evaluation (IFE) Matrix.
This strategy formulation tool summarizes
and evaluates the major strengths and
weaknesses in the functional areas of a
business, and it also provides a basis for
identifying and evaluating relationships
among those areas. Intuitive judgments are
required in developing an IFE Matrix.
1.List key internal factors as identified in the internal audit
process. Use a total of from ten to twenty internal factors,
including both strengths and weaknesses. List strengths first
and then weaknesses. Be as specific as possible, using
percentages, ratios, and comparative numbers.

2. Assign a weight that ranges from 0.0 (not important) to 1.0

(all important) to each factor. The weight assigned to a given
factor indicates the relative importance of the factor to being
successful in the firm’s industry. Regardless of whether a key
factor is an internal strength or weakness, factors considered to
have the greatest effect on organizational performance should
be assigned the highest weights. The sum of all weights must
equal 1.0.
3. Assign a 1 to 4 rating to each factor to indicate
whether that factor represents a major weakness (rating
= 1), a minor weakness (rating = 2), a minor strength
(rating = 3), or a major strength (rating = 4). Note that,
strengths must receive a 4 or 3 rating and weaknesses
must receive a 1 or 2 rating. Ratings are thus company
based, whereas the weights in Step 2 are industry based.

4. Multiply each factor’s weight by its rating to

determine a weighted score for each variable.

5. Sum the weighted scores for each variable to

determine the total weighted score for the organization.
Regardless of how many factors are
included in an IFE Matrix, the total
weighted score can range from a low of 1.0
to a high of 4.0, with the average score
being 2.5. Total weighted scores well below
2.5 characterize organizations that are weak
internally, whereas scores significantly
above 2.5 indicate a strong internal position.
Introduction
• Background:

Founded: 1955, Franchising since: 1955

Largest fast-food company

Operating in over 121 countries, over 35000 locations with

1.5 million employees
Key Internal Factors Weigh Rating Weighted Internal Factor
In
t Score uation ((IIFE)
Evallu
Matrix
Strengths
Strong brand name, image and reputation. 0.12 4 0.48

orming
cDonaalldds peerrffo
•McD
Strong global presence. 0.12 3 0.36 well on strengths and
Specialized training for managers known as the 0.10 3 0.30 eaknesseess
wea
Hamburger University.
etiittiivve
ompet
• Taking cco
ges.
advantage
McDonalds Plan to Win focuses on people, 0.12 4 0.48
•Being the icon of fast-
products, place, price and promotion food worldwide by
franchising.
Introduction of new products 0.06 4 0.24
Customer focus 0.06 4 0.24 •Catching the current
nd
market trends aan
Strong performance in the global marketplace. 0.12 4 0.48
hanging.
cch
 or
Internal Factto
(IFE)
luation (I
Evalu
Weaknesses weight Matrix
Unhealthy food image 0.08 1 0.08
High Staff Turnover including 0.04 1 0.04
Top management
•McDonaalldds performing
nd
weellll on strengths aan
Sued multiple times for serving 0.04 2 0.08 eaknes
wea esssees
unhealthy food
mpetitive
• Taking coom
Weak in analyzing the needs 0.04 2 0.08
advantaggees.
of customers
st--
•Being the icon of fast
Ignoring breakfast from the 0.06 1 0.06
food worldwide by
menu.
chising.
franch
McDonald's uses HCFC-22 to 0.04 1 0.04
nt
urreen
•Catching the ccu
make polystyrene that is
market trends and
contributing to ozone depletion
changing.
Total 1.00 2.96
CPM Matrix
POLYSTYRENE PRODUCTS
 The Competitive Profile
Matrix (CPM)
• Function:
- to identifies a firm’s major competitor and its particular
strength & weakness in relation to a sample firm’s strategies position.
• Critical success factors include internal & external issues.
• Ratings:
4 = major strength, 3 = minor strength,
2 = minor weakness, 1 = major weakness
• The ratings and total weighted scores for rival firms can be compared to the
sample firm .
CPM matrix of Coca-Cola, Pepsi and Cadbury Schweppes
In the above matrix, CPM demonstrates that Coca-Cola is
the market leader and dominates its rivals with highest
points of 3.74.Pepsi is the runner up with 3.42 points and
Cadbury Schweppes is the weakest rival among these
three with the score of 2.80.This matrix also shows that
Coco-Cola is strong in all the aspects of rivalry and has
strong position in the market place.
EFE Matrix
 EFE Matrix
Strategies to summarize and evaluate:

Economic
Social
Cultural
Demographic
Environmental
Political
Governmental
Legal
Technological
Competitive information
Steps To Develop EFE
Matrix

• Step 1 : (List Key External Factors as Identified in The

External Audit Process).
-list 15 to 20 factors including
opportunities and threats that affect the firm.
-can be in percentage, ratios or number.
• Step 2 : Assign To Each Factor a Weight That Ranges From
0.0 (Not Important) to 1.0 (Very Important)
- the sum of all weights assigned to the factors
must equal 1.0.

• Step 3 : Assign a Rating Between 1 and 4 To Each Key

External Factor
- Ratings are based on effectiveness of the
firm’s strategies.
4 = superior, 3 = above average, 2 = average,
1 = poor
• Step 4 : Multiply Each Factor’s Weight By Its Rating To
Determine a Weighted Score.

• Step 5 : Sum The Weighted Scores For Each Variable To

Determine The Total Weighted Score For the
Organization.
- highest possible total weighted score is 4.0,
lowest possible score is 1.0 and the average
total weighted is 2.5.
- score of 4.0 indicates that an organization is
responding in an outstanding way to existing
opportunities and threats in its industry.
Key External Factors Weig Ratin Weighted External Factor
ht g Score Evaluation
Opportunities (EFE) Matrix:
Low-Price Menu that will attract low- 0.15 3 0.45
•Increasing sales by
income consumers Low price menu &
Demand for healthier and more creative 0.05 3 0.15 McCafé.
products •Creating more
Competitors lack of McCafe service 0.15 4 0.6 diversified menu with
low price.
Expansion in other countries ( China, India) 0.07 2 0.14
•Having more
competitive advantage
Brand loyalty 0.05 2 0.1
and opportunity
Demand for free Wi-Fi versus competitor 0.09 3 0.27
charges •Biggest weaknesses i
healthier issue and
Demand for more salad choices on menu 0.09 3 0.27 lawsuit issue.
Threats
Having negative heath issues for 0.06 3 0.18
consumers such as obesity and heart
attack
Having negative attention from media 0.04 2 0.08
because of marketing toward children.
Price wars between competitors will 0.07 2 0.14
cause McDonald lose customers.
High turnover rate 0.03 2 0.06
Rising costs 0.06 2 0.12
Calorie counts & nutritional value posted 0.09 2 0.18
 EFE Matrix of Walmart

Walmart, is an American multinational

retail corporation that operates a chain of
discount department stores and warehouse
stores.

Headquartered in Bentonville, Arkansas,

United States, the company was founded
by Sam Walton in 1962 and incorporated
on October 31, 1969. It has over 11,000
stores in 28 countries.
Walmart
 SWOT ANALYSIS
Underlying any successful selection of strategies is an
analysis of the firm’s internal strengths and weaknesses and
the opportunities and threats that are posed by the external
environment. This process of examining the firm and its
environment is termed S.W.O.T. analysis (i.e., strengths,
weaknesses, opportunities, and threats).
 
SWOT analysis is a useful tool for analyzing an organization's
overall situation. A SWOT Analysis is a strategic planning
tool used to evaluate the Threats, Opportunities and
Strengths, Weaknesses, involved in a project or in a
business venture or in any other situation requiring a
decision. This approach attempts to balance the internal
strength and weakness of an organization with the
opportunities and threats that the external environment
presents.
 SWOT ANALYSIS
Matching information about the environment with knowledge of
the organization's capabilities enables management to
formulate realistic strategies for attaining its goals.

The SWOT matrix illustrates how management can match the

external opportunities and threats facing the particular
corporation with its internal strengths and weakness to yield in
four sets of possible strategic alternatives.
 
SWOT is an important tool in order to formulate strategy. This
SWOT Matrix is an important matching tool that helps
managers develops four types of strategies:
•SO Strategies (strength-opportunities),
•WO Strategies (weakness- opportunities),
•ST Strategies (strength-threats), and
•WT Strategies (weakness-threats).
 SWOT ANALYSIS
SO Strategies: Every firm desires to obtain benefit from its
resources. Such benefit can only be obtained if they utilize its
strength to take external opportunity. Resources (Assets) an
important firm’s strength to get opportunity for external
resources.
For example, the firm enjoying a good financial position
which is strength for a firm and externally opportunity to
expand business. The strong financial position provides an
opportunity to expand the business. The matched strategy is
known as SO strategy.
WO Strategies: WO Strategies developed to match weakness
with opportunities of the firm. WO strategy is very useful if the
firm take advantage to external resources in order to
overcome the weakness.
For example, the firm is in the critical financial problems that
is weakness and firm is availing merger with Multinational
Corporation.
 SWOT ANALYSIS
ST Strategies: ST Strategies is an important strategy to
overcome external threats. This does not mean that a strong
organization should always meet threats in the external
environment head-on.
Example, This strategy is adopted by various colleges by
opening new branches in order to overcome competitive threat.

WT Strategies: Every firm has a desire to overcome its

weakness and reducing threats. This type of strategy helpful
when weaknesses are removed to overcome external threats. It
is difficult to target WT strategy.
For example, weak distribution network creating many
problems for the firm, but if they have strong distribution
network then it can overcome many external threats.
 SWOT Matrix

Internal
Factors Strengths (S) Weaknesses (W)
External List Strengths List Weaknesses
Factors
SO Strategies WO Strategies
Opportunities
General strategies here General strategies here
(O)
that use strengths to that take advantage of
List
take advantage of opportunities by
Opportunities
opportunities overcoming weakness
WT Strategies
ST Strategies
General strategies here
Threats (T) General strategies here
that minimize
List Treats that use strengths to
weakness and avoid
avoid threats
threats
McDonald’s
Corporation
 Strengths

1. Strong Global Presence (located in over-

100 countries)
2. Strong Real Estate Portfolio
3. Brand Recognition
4. Revenue Growth 9% (Above Industry Average of
7.5%)
5. The Ronald McDonald House (Children Charity)
6. Systemization and Duplication (Consistency)

O’Malley, Ouellette, Plourde, & Roy

32
2009
 Weaknesses

1. Public Perception (perceived as a

contributor to societies obesity problem)
2. Product Innovation
3. Advertising (targets young children)
4. Customer Service
5. Market Saturation (more difficult to add
new stores)
6. Labor Turnover

O’Malley, Ouellette, Plourde, & Roy

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2009
 Internal Factor Evaluation Matrix
McDonald's

Key Internal Factors Weights Rating Weighted Score

  0.0 to 1.0 1, 2, 3 or 4  
Internal Strengths   3 or 4  
Strong Global Presence (located in over 100 countries) 0.09 4 0.36
Strong Real Estate Portfolio (franchises, land, buildings) 0.09 4 0.36
Brand Recognition (Ronald McDonald is as famous as Mickey Mouse) 0.11 4 0.44
Revenue Growth 9% (Above Industry Average of 7.5%) 0.11 4 0.44
The Ronald McDonald House (Children Charity) 0.06 4 0.24
Systemization and Duplication Process (consistency) 0.09 4 0.36
      0
      0
      0
      0
Internal Weaknesses   1 or 2  
Public Perception (perceived as a contributor to societies obesity problem) 0.09 1 0.09
Product Innovation 0.08 2 0.16

Advertising- targets young children (many countries ban unhealthy advertisements) 0.07 2 0.14
Customer Service 0.08 2 0.16
Market Saturation (more difficult to add new stores) 0.07 2 0.14
Labor Turnover 0.06 1 0.06
      0
      0
      0
      0
  O’Malley, Ouellette, Plourde, & Roy     0
34
Totals 2009 1  2.95
 Opportunities

1. New Products & Services

2. Beverage Market
3. Growth of Franchise Restaurants
4. Demand for Organic Products
5. International Expansion
6. Conservation (going green)

O’Malley, Ouellette, Plourde, & Roy

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2009
 Threats
1. Change in Commodity Prices
2. Food Safety and Food Borne Illness
Concerns
3. Economic Slowdown
4. Growing Health Consciousness
5. Intense Competition (dine-in
restaurants, Burger King)
6. Legal Challenges (McDonald’s faces
many lawsuits)

O’Malley, Ouellette, Plourde, & Roy

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2009
 External Factor Evaluation Matrix
McDonalds
Key External Factors Weights Rating Weighted Score
  0.0 to 1.0 1 to 4  
Opportunities      
New Products & Services 0.1 3 0.3
Beverage Market (frosties) 0.08 2 0.16
Growth of Franchise Restaurants 0.09 3 0.27
Demand for Organic Products 0.06 1 0.06
International Expansion 0.1 4 0.4
Conservation (going green) 0.07 1 0.07
      0
      0
      0
      0
Threats     0
Change in Commodity Prices 0.07 3 0.21
Food Safety and Food Borne Illness Concerns 0.07 4 0.28
Economic Slowdown 0.1 4 0.4
Growing Health Consciousness 0.08 2 0.16
Intense Competition (din-in restaurants, Wendy's) 0.09 4 0.36
Legal Challenges (McDonalds faces many lawsuits) 0.09 3 0.27
      0
      0
      0
      0
      0
   
O’Malley, Ouellette, Plourde, & Roy   0
37
Totals 2009 1  2.94
Strategic Formulation

O’Malley, Ouellette, Plourde, & Roy

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2009
 SWOT Matrix
SO Strategies WO Strategies ST Strategies WT Strategies

1. Launch Marketing
Campaign for Ronald
1. Develop New 1. Advertise Organic McDonald House to 1. Research and
Products & Services Products to Older increase Brand Recognition Develop products that
For Global Markets. Demographic. (W3, and Customer Loyalty. (S5, quell Growing Health
(S1, O1) O4, O6) S3, T3, T5) Concerns. (W1, T2, T4)

2. Develop alternatives to
2. Spend more money existing menu that can be
on Research and easily implemented and 2. Increase spending
2. Develop Green Development to create don't rely on more on Customer Service
Packaging for all new products and expensive commodities. efforts to decrease legal
Stores. (S6, O6) services. (W2, O1) (S6, T1) challenges. (W4, T6)
3. Integrate into
new territories. (S1, 3. Create an organic
S4, O5) menu. (W2,O’Malley,
O1) Ouellette,
2009
Plourde,  & Roy   39
 GRAND STRATEGY MATRIX

This is also an important matrix of strategy formulation frame

work.

Grand strategy matrix it is popular tool for formulating

alternative strategies.

In this matrix all organization divides into four quadrants. Any

organization should be placed in any one of four quadrants.
Appropriate strategies for an organization to consider are listed
in sequential order of attractiveness in each quadrant of the
matrix.

It is based two major dimensions:

1. Market growth
2. Competitive position
 GRAND STRATEGY MATRIX

Qurdant-1 contains that company’s strong having competitive

situation and rapid market growth. Firms located in Quadrant I of
the Grand Strategy Matrix are in an excellent strategic position.
These firms must focus on current market and appropriate to
follow market penetration, market development and products
development are appropriate strategies.
Qurdant-2 contains that company’s having weak competitive
situation and rapid market growth. Firms positioned in Quadrant
II need to evaluate their present approach to the marketplace
seriously. Although their industry is growing, they are unable to
compete effectively, and they need to determine why the firm's
current approach is ineffectual and how the company can best
change to improve its competitiveness. Because Quadrant II
firms are in a rapid-market-growth industry, an intensive strategy
(as opposed to integrative or diversification) is usually the first
option that should be considered.
 GRAND STRATEGY MATRIX

Qurdant-3 contains that company’s weak competitive situation and

slow market growth. The firms fall in this quadrant compete in slow-
growth industries and have weak competitive positions. These
firms must make some drastic changes quickly to avoid further
demise and possible liquidation. Extensive cost and asset
reduction (retrenchment) should be pursued first. An alternative
strategy is to shift resources away from the current business into
different areas. If all else fails, the final options for Quadrant III
businesses are divestiture or liquidation.
Qurdant-4 contains that company’s strong competitive situation
and slow market growth. Finally, Quadrant IV businesses have a
strong competitive position but are in a slow-growth industry.
These firms have the strength to launch diversified programs into
more promising growth areas. Quadrant IV firms have
characteristically high cash flow levels and limited internal growth
needs and often can pursue concentric, horizontal, or
conglomerate diversification successfully. Quadrant IV firms also