Performing an External Factor Evaluation Matrix - Industry Analysis

Perform an External Factor Evaluation Matrix on your chosen corporation. The critical thing to remember about this analysis is that you should develop a thorough understanding of the factors chosen.  Because of the importance of factor knowledge, you should acquire a minimum of five external sources of information regarding the factors that you choose. Your analysis should include a chart similar to the one attached to this document.

Parameters:

EFE

• Choose 6-10 external factors for analysis (total factors will depend on the nature of the industry)
• Four pages or less (not including chart)
• Chart must begin the assignment and be on one page only
• Double spaced
• Typed
• For each factor write a paragraph or two as necessary discussing the nature of the factor, how it will impact the firm, and its importance to the future strategy of the firm (i.e., tell me why you assigned the rating score that you did).
• Each and every factor included MUST have a citation and be external to the firm…remember, if the firm controls the factor, by definition it is internal and thus should NOT be included in this assignment.

Due Date: Uploaded to Canvas, Saturday, June 27th (3 weeks) 

Industry Analysis: The External Factor Evaluation (Efe) Matrix

An External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information. Illustrated in Table 1, the EFE Matrix can be developed in five steps:

1. List key external factors as identified in the external-audit process. Include a total of from eight to ten factors, including both opportunities and threats affecting the firm and its industry. List the opportunities first and then the threats. Be as specific as possible, using percentages, ratios, and comparative numbers whenever possible.

2. Assign to each factor a weight that ranges from 0.0 (not important) to 1.0 (very important). The weight indicates the relative importance of that factor to being successful in the firm's industry. Opportunities often receive higher weights than threats, but threats too can receive high weights if they are especially severe or threatening. Appropriate weights can be determined by comparing successful with unsuccessful competitors or by discussing the factor and reaching a group consensus. The sum of all weights assigned to the factors must equal 1.0.

3. Assign a 1-to-4 rating to each key external factor to indicate how effectively the firm's current strategies respond to the factor, where 4 = the response is superior, 3 = the response is above average, 2 = the response is average, and 1 = the response is poor. Ratings are based on effectiveness of the firm's strategies. Ratings are, thus, company based, whereas the weights in Step 2 are industry based. It is important to note that both threats and opportunities can receive a 1, 2, 3, or 4.

4. Multiply each factor's weight by its rating to determine a weighted score.

5. Sum the weighted scores for each variable to determine the total weighted score for the organization. 

Regardless of the number of key opportunities and threats included in an EFE Matrix, the highest possible total weighted score for an organization is 4.0 and the lowest possible total weighted score is 1.0. The average total weighted score is 2.5. A total weighted score of 4.0 indicates that an organization is responding in an outstanding way to existing opportunities and threats in its industry. In other words, the firm's strategies effectively take advantage of existing opportunities and minimize the potential adverse effect of external threats. A total score of 1.0 indicates that the firm's strategies are not capitalizing on opportunities or avoiding external threats.

An example of an EFE Matrix is provided in Table 1 for UST, Inc., the manufacturer of Skoal and Copenhagen smokeless tobacco. Note that the Clinton administration was considered to be the most important factor affecting this industry, as indicated by the weight of 0.20. UST was not pursuing strategies that effectively capitalize on this opportunity, as indicated by the rating of 1.01. The total weighted score of 2.10 indicates that UST is below average in its effort to pursue strategies that capitalize on external opportunities and avoid threats. It is important to note here that a thorough understanding of the factors being used in the EFE Matrix is more important than the actual weights and ratings assigned.