IFE Matrix

122 PART 2 • STRATEGY FORMULATION

FIGURE 4-8

Transforming Value Chain Activities into Sustained Competitive Advantage

Value Chain Core Competencies Some Core Some Distinctive

Activities Are Arise in Competencies Competencies Yield
Identified and Some Evolve into Sustained
Assessed Activities Distinctive Competitive
Competencies Advantages
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 described in Chapter 3, an IFE Matrix can be
developed in five steps:
1. List key internal factors as identified in the internal-audit process. Use a total of
from 10 to 20 internal factors, including both strengths and weaknesses. List
strengths first and then weaknesses. Be as specific as possible, using percentages,
ratios, and comparative numbers. Recall that Edward Deming said, “In God we
trust. Everyone else bring data.”
2. Assign a weight 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 to each factor to indicate whether that factor represents a major
weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3),
or a major strength (rating = 4). Note that strengths must receive a 3 or 4 rating and
weaknesses must receive a 1 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.
5. Sum the weighted scores for each variable to determine the total weighted score for
the organization.
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 inter-
nally, 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. 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 a strength and a weakness, the factor should be
included twice in the IFE Matrix, and a weight and rating should be assigned to each state-
ment. For example, the Playboy logo both helps and hurts Playboy Enterprises; the logo
CHAPTER 4 • THE INTERNAL ASSESSMENT 123
TABLE 4.10 A Sample Internal Factor Evaluation Matrix for a Retail Computer Store
Key Internal Factors Weight Rating Weighted Score
Strengths
1. Inventory turnover increased from 5.8 to 6.7 0.05 3 0.15
2. Average customer purchase increased from $97 to $128 0.07 4 0.28
3. Employee morale is excellent 0.10 3 0.30
4. In-store promotions resulted in 20 percent increase in sales 0.05 3 0.15
5. Newspaper advertising expenditures increased 10 percent 0.02 3 0.06
6. Revenues from repair/service segment of store up 16 percent 0.15 3 0.45
7. In-store technical support personnel have MIS college degrees 0.05 4 0.20
8. Store’s debt-to-total assets ratio declined to 34 percent 0.03 3 0.09
9. Revenues per employee up 19 percent 0.02 3 0.06
Weaknesses
1. Revenues from software segment of store down 12 percent 0.10 2 0.20
2. Location of store negatively impacted by new Highway 34 0.15 2 0.30
3. Carpet and paint in store somewhat in disrepair 0.02 1 0.02
4. Bathroom in store needs refurbishing 0.02 1 0.02
5. Revenues from businesses down 8 percent 0.04 1 0.04
6. Store has no Web site 0.05 2 0.10
7. Supplier on-time delivery increased to 2.4 days 0.03 1 0.03
8. Often customers have to wait to check out 0.05 1 0.05
Total 1.00 2.50
attracts customers to Playboy magazine, but it keeps the Playboy cable channel out of
many markets. Be as quantitative as possible when stating factors. Use monetary amounts,
percentages, numbers, and ratios to the extent possible.
An example of an IFE Matrix is provided in Table 4-10 for a retail computer store.
Note that the two most important factors to be successful in the retail computer store
business are “revenues from repair/service in the store” and “location of the store.”
Also note that the store is doing best on “average customer purchase amount” and
“in-store technical support.” The store is having major problems with its carpet, bath-
room, paint, and checkout procedures. Note also that the matrix contains substantial
quantitative data rather than vague statements; this is excellent. Overall, this store
receives a 2.5 total weighted score, which on a 1-to-4 scale is exactly average/halfway,
indicating there is definitely room for improvement in store operations, strategies, poli-
cies, and procedures.
The IFE Matrix provides important information for strategy formulation. For exam-
ple, this retail computer store might want to hire another checkout person and repair its
carpet, paint, and bathroom problems. Also, the store may want to increase advertising for
its repair/services, because that is a really important (weight 0.15) factor to being success-
ful in this business.
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.
Conclusion
Management, marketing, finance/accounting, production/operations, research and
development, and management information systems represent the core operations of
most businesses. A strategic-management audit of a firm’s internal operations is vital to

IFE Matrix

Uploaded by

Copyright:

Available Formats

IFE Matrix

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

IFE Matrix

Uploaded by

Copyright:

Available Formats

122 PART 2 • STRATEGY FORMULATION

Transforming Value Chain Activities into Sustained Competitive Advantage

Value Chain Core Competencies Some Core Some Distinctive

The Internal Factor Evaluation (IFE) Matrix

You might also like