EXTERNAL FACTOR EVALUATION MATRIX External Factor Evaluation (EFE) Matrix is a strategic analysis tool used to evaluate firm’s external environment and to reveal its strengths as well as weaknesses. 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 analyzing the external environment with the tools like PESTLE analysis, Porter’s Five Forces or Profile Matrix, the key external factors can be identified. The general rule is to identify as many key external and internal 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 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. In our example, we can see that the company’s response to the opportunities is rather poor, because only one opportunity has received a rating of 3, while the rest have received the rating of 1. The company is better prepared to meet the threats, especially the first threat. 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. In internal evaluation, a low score indicates that the company is weak against its competitors. Weight (.0-1) Rate (1-4) Total Weight (Weight x Rate) 1. Widen target market 0.08 4 0.32 2. Boost the company branches’ internet speed 0.02 3 0.06 3. Opening of new franchise 0.05 3 0.15 4. Improve online and delivery services 0.04 4 0.16 5. Industrialization increases demand for fast foods 0.04 3 0.12 6. Include healthy menu options 0.08 3 0.24 7. Develop humanitarianism 0.04 4 0.16 8. Advancement of digital marketing and online transactions 0.05 4 0.20 9. Excellent customer service 0.05 4 0.20 10. Use eco-friendly products 0.05 4 0.20 1. Customers preference for different varieties is fluctuating 0.05 1 0.05 2. Dine-in has been limited due to pandemic 0.09 2 0.18 3. Competitors most effective marketing strategies 0.04 2 0.08 4. Increasing variety of fast food outlets 0.04 1 0.04 5. Cheaper fast food options 0.05 2 0.10 6. Customers have become more health conscious 0.04 1 0.04 7. The cost of operation is increasing 0.04 2 0.08 8. Strategies are prone to imitation 0.03 1 0.03 9. Technology advancement of competitors 0.05 2 0.10 OPPORTUNITIES THREATS 10. Global economic downturn due to pandemic TOTAL 0.07 1.0 2 0.14 2.65 EXTERNAL FACTOR EVALUATION ANALYSIS The EFE matrix result is 2.65 which indicates that Jollibee Food Corporation has above average ability to respond to external factors. Its strategies are well-designed in meeting and managing opportunities for the firm and in reducing and overcoming possible threats that may arise. The most advantageous opportunities include widening of target market, inclusion of healthy menu options, excellent customer service, usage of eco-friendly products, and opening of new franchises. These opportunities will likely lessen the major threats to the company such as the dining limitations and economic downturn caused by the pandemic, fluctuating customer preference, technology advancement of competitors, and cheaper fast-food options. INTERNAL FACTOR EVALUATION MATRIX Internal Factor Evaluation (IFE) Matrix is a strategy tool used to evaluate firm’s internal environment and to reveal its strengths as well as weaknesses. Internal Key Factors Strengths and weaknesses are used as the key internal factors in the evaluation. The general rule is to identify as many key internal 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 The ratings in the 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 and 1. The process of assigning ratings in IFE matrix can be done easier using benchmarking tool. 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 internal evaluation a low score indicates that the company is weak against its competitors. Weight (.0-1) Rate (1-4) Total Weight (Weight x Rate) 1. Strong database of loyal customers 0.08 4 0.32 2. 24 hours fast food service 0.07 4 0.28 3. Recognized brand locally and internationally 0.05 4 0.20 4. Franchises operates worldwide 0.07 3 0.21 5. Affordable and quality food 0.03 4 0.12 6. Wide variety of locally-styled food items 0.06 3 0.18 7. Well-trained employees 0.05 4 0.20 8. Engaging commercials and effective advertisements 0.04 3 0.12 9. Exponential growth of operation 0.07 4 0.28 10. Food safety guidelines are strictly adhered 0.08 4 0.32 1. Less familiarity 0.04 2 0.08 2. Limited technology advancement 0.06 1 0.06 3. Stagnant product option 0.05 1 0.05 4. Lack of planning and investigation 0.03 2 0.06 5. Unstable demand and supply 0.04 2 0.08 6. Poor preference over healthy diets 0.02 2 0.04 7. Employee disunity 0.04 2 0.04 8. Poor/insufficient resources 0.03 2 0.06 9. Occasional product dissatisfaction 0.05 2 0.10 10. Medical implications 0.04 2 0.08 STRENGTHS WEAKNESSES TOTAL 1.0 2.88 INTERNAL FACTOR EVALUATION ANALYSIS The IFE matrix is 2.88, which indicates that Jollibee Food Corporation is above average in dealing with internal factors. In addition, it means that the company is able to capitalize their strengths and minimize the possibility of failure within the company. Strong database of loyal customers, food safety guidelines are strictly adhered, 24 hours fast food service and exponential growth of operations are highlighted as the main strengths of the company. On the other hand, Jollibee Food Corporation needs to pay attention to these factors such as occasional product dissatisfaction, less familiarity, unstable demand and supply, and medical implications since they are most likely the ones affecting the operations progress and development. COMPETITIVE PROFILE MATRIX Competitive Profile Matrix (CPM) compares a company and its rivals. The matrix reveals the strengths and weaknesses for each company and critical success factors show the areas of success or areas of improvement. Understanding a few key elements of the competitive profile matrix will help with the interpretation. The weight reflected how important the factor was to succeed in the industry. The score ranges from 0.01 to 1.00, signaling how important the factor is to succeed in the industry. The sum must add to 1.00. Each company is given a rating showing how well it is performing when measured against the success factors. Ratings range from 1 to 4, where 4 means major strength, 3 means minor strength, 2 means minor weakness, and 1 means major weakness. A company’s weighted score for each success factor is derived by multiplying the weight with the rating. The total weighted score is the sum of the individual success factors. The score indicates how well a business is doing in each key success factor. The total score shows how well a company is doing overall and in comparison to its competitors. CRITICAL SUCCESS FACTORS (CSF) WEIGH T JOLLIBEE MCDONALDS KFC RATIN G WEIGHTE D SCORE RATIN G WEIGHTE D SCORE RATIN G WEIGHTE D SCORE a. Customer service 0.11 4 0.44 3 0.33 4 0.44 b. Production Capacity 0.08 3 0.24 3 0.24 2 0.16 c. Customer Loyalty 0.10 4 0.40 3 0.30 2 0.20 d. E-commerce Facilities 0.10 3 0.30 3 0.30 2 0.20 e. Global Expansion 0.09 2 0.18 4 0.36 3 0.27 f. 0.05 3 0.15 2 0.10 3 0.15 g. Health and Sanitation 0.05 2 0.10 2 0.10 3 0.15 h. Inventory System 0.07 3 0. 21 3 0.21 2 0.14 i. Management 0.06 3 0.18 3 0.18 3 0.18 j. Marketing Strategy 0.07 3 0.21 3 0.21 1 0.07 k. Price Competitiven ess 0.03 2 0.06 2 0.06 2 0.06 l. 0.12 4 0.48 4 0.48 4 0.48 m. Store Location 0.03 2 0.06 2 0.06 2 0.06 n. Technological Advantage 0.04 2 0.08 3 0.12 2 0.08 Good Branding Product Quality Total 3.09 3.05 2.64 COMPETITIVE PROFILE MATRIX ANALYSIS The competitiveness of a company can be assessed based on its general strength rating. The greater the difference of the general strength rating, the higher the net competitive advantage will be. In a similar context, a small difference signifies that there is a close and tight competition. From the results above, the CPM matrix demonstrates that Jollibee is the market leader and dominates its rivals with the highest point of 3.09. McDonald’s comes in second with 3.05 points and KFC is the weakest among the three with a score of 2.64. It can be inferred that there is close competition between Jollibee and McDonald’s, the frontrunners in the fast-food industry are. Taking a close look, the two almost have similar strengths and weaknesses. The only disadvantage in using the CPM matrix is that the weights and ratings are very subjective and not based on statistics and science. However, if used correctly, the CPM matrix is an excellent strategic management instrument.