The purpose of using two matrices for evaluating internal factors and evaluating external factors is to determine the organization’s position in the industry and prescribe appropriate macro strategies for the organization.
This is done in the first stage of the strategy development framework as input information, and the output of these matrices is used in the SWOT matrix in the analysis and comparison of strategies stage. This tool is easy to use and does not require any special expertise to understand and use.
Internal Factor Evaluation (IFE) Matrix
The Internal Factor Evaluation Matrix is a tool for examining and analyzing the internal environment, which is mainly used to identify the overall strengths or weaknesses of the organization. To prepare an internal factor evaluation matrix, intuitive judgments and opinions of stakeholders are mainly relied on.
This tool is used to collect internal information in the strategic planning process in public and private organizations. The IFE matrix evaluates the strengths and weaknesses in the company’s performance and current situation.
Steps to create an Internal Factor Evaluation (IFE) matrix:
Step 1: Identify the organization’s key internal factors, including the organization’s strengths and weaknesses. Step 2: Assign a weighting factor from zero (unimportant) to one (very important) to each of the factors. Step 3: Assign a score between zero and 4 to each of the strengths and weaknesses based on the organization’s current status in utilizing the organization’s strengths and dealing with its weaknesses.
Step 4: Calculate the weighted score of strengths and weaknesses
How to calculate the percentage of internal key factors:
The parameters used in this formula are as follows:
IF%: Percentage of internal key factors
S: Total weighted score of strengths
W: Total weighted score of weaknesses
External Factors Assessment Matrix
The External Factor Evaluation Matrix (EFE) is a quantitative tool in strategy analysis. Using this matrix creates consensus and focuses people on threats and opportunities.
Steps to create an External Factor Evaluation (EFE) Matrix:
Step 1: Identify key external factors affecting the organization, including opportunities and threats.
Step 2: Assign a weighting factor from zero (unimportant) to one (very important) to each factor.
It is best to use the opinions of industry experts and company officials and stakeholders to weight the factors.
Step 3: Assign a score between zero and 4 to each of the opportunities and threats based on the organization’s current situation in responding to them.
Step 4: Calculate the weighted score of opportunities and threats
Interpretation of results: The weighted score indicates the organization’s readiness to face threats or take advantage of opportunities. A number of 4 indicates high readiness and a number of 1 indicates very low readiness.
How to calculate the percentage of external key factors:
The parameters used in this formula are as follows:
EF%: Percentage of external key factors
O: Total weighted score of opportunities
T: Total weighted score of threats
IEFE analysis and determination of the organization’s macro strategies
In order to analyze IEFE, we first calculate the percentage of internal key factors and the percentage of external factors, and then form the organization’s position matrix. Depending on which cell of the matrix the organization’s position corresponds to, a specific macro strategy is prescribed for it, and all the organization’s main strategies are based around this strategy.
Considering the alignment of the organization’s situation with each of the houses of the above matrix, the following macro strategies are prescribed:
Position (1): Natural development strategy
Including the development of products, services, and target markets in opportunities
Situation (2 and 4): Selective development strategy
Involving the selection of the most attractive development opportunity from among potential development opportunities
Position (3, 5, 7): Strategy of maintaining and guarding competitors
Effort to maintain the status quo (market share)
Position (6, 8, 9): Downsizing strategy: Gradual exit from the industry or change of field of activity
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