ZeePedia Add to Favourites   |   Contact us


Strategic Management

<<< Previous THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation Next >>>
 
img
Strategic Management ­ MGT603
VU
Lesson 17
THE INTERNAL FACTOR EVALUATION (IFE) MATRIX
Objectives:
In multidivisional firms, each autonomous division or strategic business unit should construct an IFE
Matrix. Divisional matrices then can be integrated to develop an overall corporate IFE Matrix.
Both external and internal evaluation together called SWOT analysis for any business firm.
After reading this lecture you will be able to prepare IFE and EFE matrixes for any business planning.
The Internal Factor Evaluation (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, so the appearance of a scientific approach should not be interpreted to mean this is an all-
powerful technique. A thorough understanding of the factors included is more important than the
actual numbers. Similar to the EFE Matrix and Competitive Profile Matrix, an IFE Matrix can be
developed in five steps:
List key internal factors (10-20)
o  Strengths & weaknesses
Assign weight to each (0 to 1.0)
o  Sum of all weights = 1.0
Assign 1-4 rating to each factor
o  Firm's current strategies response to the factor
Multiply each factor's weight by its rating
o  Produces a weighted score
Sum the weighted scores for each
o  Determines the total weighted score for the organization
Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5
Explanation:
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. Always list strengths first and then
weaknesses. Be as specific as possible, using percentages, ratios, and comparative numbers. The list
of all strength and weaknesses should consist of 10-20 factors.
2. Assign a weight (either in %age or in numerical value) 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 (rating means what is the capability of the firm to meet its strength and
weaknesses) to each factor to indicate whether that factor represents a major weakness (rating 5 1),
a minor weakness (rating 5 2), a minor strength (rating 5 3), or a major strength (rating 5 4). Note
that strengths must receive a 4 (for average strength) or 3 (for normal strength) rating and
weaknesses must receive a 1 (for normal weakness) 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.
6. Sum the weighted scores for each variable to determine the total weighted score for the
organization.
Highest possible weighted score for the organization is 4.0; the lowest, 1.0. Average = 2.5
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. Like the EFE Matrix, an IFE Matrix should include from 10 to 20 key factors.
75
img
Strategic Management ­ MGT603
VU
The number of factors has no effect upon the range of total weighted scores because the weights always
sum to 1.0.
When a key internal factor is both strength and a weakness, the factor should be included twice in the
IFE Matrix, and a weight and rating should be assigned to each statement. For example, the Playboy
logo both helps and hurts Playboy Enterprises; the logo attracts customers to the Playboy magazine, but
it keeps the Playboy cable channel out of many markets.
An example of an IFE Matrix for XYZ Casino Enterprises is provided in Table. Note that the firm's
major strengths are its size, occupancy rates, property, and long-range planning as indicated by the
rating of 4. The major weaknesses are locations and recent joint venture. The total weighted score of
2.75 indicates that the firm is above average in its overall internal strength.
A Sample Internal Factor Evaluation Matrix for XYZ Casino
Weighted
Key Internal Factors
Weight
Rating
Score
Internal Strengths
1. Largest casino company in the United
.05
4
.20
States
2. Room occupancy rates over 95% in Las
.10
4
.40
Vegas
3. Increasing free cash flows
.05
3
.15
4. Owns one mile on Las Vegas Strip
.15
4
.60
5. Strong management team
.05
3
.15
6. Buffets at most facilities
.05
3
.15
7. Minimal comps provided
.05
3
.15
8. Long-range planning
.05
4
.20
9. Reputation as family-friendly
.05
3
.15
10. Financial ratios
.05
3
.15
Internal Weaknesses
1. Most properties are located in Las Vegas
.05
1
.05
2. Little diversification
.05
2
.10
3. Family reputation, not high rollers
.05
2
.10
4. Laughlin properties
.10
1
.10
5. Recent loss of joint ventures
.10
1
.10
TOTAL
1.00
2.75
XYZ Casino (in the previous example), has a total weighted score of 2.75 indicating that the firm is
above average in its overall internal strength
76
img
Strategic Management ­ MGT603
VU
The next stages for the strategic business planning are goals setting and strategy formulation. Then
strategy implementation and feed back control will be the next steps in considering the strategy
planning stages.
77
Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning