

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
strategicmanagement audit is to
construct an Internal
Factor
Evaluation
(IFE) Matrix. This
strategyformulation 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
(1020)
o
Strengths
& weaknesses
Assign
weight to each (0 to 1.0)
o
Sum
of all weights = 1.0
Assign
14 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 internalaudit 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 1020
factors.
2.
Assign a weight (either in %age or in
numerical value) that ranges
from 0.0 (not important) to
1.0
(allimportant)
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 1to4 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
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 longrange 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.
Longrange planning
.05
4
.20
9.
Reputation as familyfriendly
.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
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
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