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.