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 allpowerful
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.
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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
Key Internal Factors Weight Rating
Weighted
Score
Internal Strengths
1. Largest casino company in the United
States .05 4 .20
2. Room occupancy rates over 95% in Las
Vegas .10 4 .40
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
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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.
