Strategic Analysis & Choices
Strategic Analysis & Choices
EFE MATRIX
CPM
IFE MATRIX
STAGE 2: THE MATCHING STAGE SWOT MATRIX SPACE MATRIX BCG MATRIX GE9 MATRIX
External Factor Evaluation (EFE) matrix method is a strategic-management tool often used for assessment of current business conditions.
The EFE matrix is a good tool to visualize and prioritize the opportunities and threats that a business is facing.
EFE MATRIX
List factors: The first step is to gather a list of external factors. Divide factors into two groups: opportunities and threats.
Assign weights: Assign a weight to each factor. The value of each weight should be between 0 and 1 (or alternatively between 10 and 100 if you use the 10 to 100 scale). Zero means the factor is not important. One or hundred means that the factor is the most influential and critical one. The total value of all weights together should equal 1 or 100. Rate factors: Assign a rating to each factor. Rating should be between 1 and 4. Rating indicates how effective the firms current strategies respond to the factor. 1 = the response is poor. 2 = the response is below average. 3 = above average. 4 = superior. Weights are industry-specific. Ratings are company-specific.
Multiply weights by ratings: Multiply each factor weight with its rating. This will calculate the weighted score for each factor. Total all weighted scores: Add all weighted scores for each factor. This will calculate the total weighted score for the company.
IFE MATRIX
List factors: The first step is to gather a list of internal factors. Divide factors into two groups: strengths and weaknesses.
Assign weights: Assign a weight to each factor. The value of each weight should be between 0 and 1 (or alternatively between 10 and 100 if you use the 10 to 100 scale). Zero means the factor is not important. One or hundred means that the factor is the most influential and critical one. The total value of all weights together should equal 1 or 100. Rate factors: Assign a rating to each factor indicating if it is a strength or weakness. Strength will be rated either 3 or 4, weakness to be rated 1 or 2. Weights are industryspecific. Ratings are company-specific.
Multiply weights by ratings: Multiply each factor weight with its rating. This will calculate the weighted score for each factor. Total all weighted scores: Add all weighted scores for each factor. This will calculate the total weighted score for the company.
The ratings and total scores for rival firms can be compared to the sample firm. This comparative analysis provides important internal strategic information.
Company 1
Company 2
Company 3
Weight
Rating
Score
Rating
Score
Rating
score
.20 .10
1 4
.20 .40
4 3
.80 .30
3 2
.60 .20
.10 .10
.15 .10 .20 .05
3 4
4 4 4 1
.30 .40
.60 .40 .80 .05
2 3
2 3 1 4
.20 .30
.30 .30 .20 .20
4 3
3 2 2 3
.40 .30
.45 .20 .40 .15
Total
1.00
3.15
2.50
2.70
GRAPHICAL REPRESENTATION
MATRIX
Strengths-S Weaknesses-W
List Strengths Opportunities-O SO Strategies Use strengths to take advantage of opportunities ST Strategies Use strengths to avoid threats
List Weaknesses WO Strategies Overcome weaknesses by taking advantage of opportunities WT Strategies Minimize weaknesses and avoid threats
List Opportunities
Threats-T
List Threats
The SPACE matrix is broken down to four quadrants where each quadrant suggests a different type or a nature of a strategy: Aggressive Conservative Defensive Competitive
The axes of the SPACE Matrix represents two internal dimensions: Financial Strength(FS) Competitive Advantage(CA) Whereas two external dimensions are: Environmental Stability(ES) Industry Strength(IS)
Step 6: Add the average score for the SPACE matrix environmental stability (ES) and financial strength (FS) dimensions to find your final point on the axis Y. Step 7: Find intersection of your X and Y points. Draw a line from the center of the SPACE matrix to your point. This line reveals the type of strategy the company should pursue.
FINAL GRAPH
WHEN USED??
A high-growth product is for example a new one that we are trying to get to some market. It takes some effort and resources to market it, to build distribution channels, and to build sales infrastructure, but it is a product that is expected to bring the gold in the future.
A low-growth product is for example an established product known by the market. Characteristics of this product do not change much, customers know what they are getting, and the price does not change much either. This product has only limited budget for marketing. The is the milking cow that brings in the constant flow of cash.
BCG STARS (high growth, high market share) >Stars are defined by having high market share in a growing market. >Stars are the leaders in the business but still need a lot of support for promotion al placement. >If market share is kept, Stars are likely to grow into cash cows.
Steps
Enter the Business Unit Names. Enter the Industry Sector Names. Each Industry sector should correspond to a Business Unit. Enter Business Unit Strength Factors. For each Factor enter a corresponding weighting as a percentage. The sum of the weightings assigned to the different factors MUST add up to 100% Enter Industry Attractiveness Factors. For each Factor enter a corresponding weighting as a percentage. The sum of the weightings assigned to the different factors MUST add up to 100%
Enter Ratings for each Business Unit in terms of the Strength Factors on a scale of 1 to 9 where 1 Extremely Weak, 5 Industry Average, 9 Extremely Strong representing industry best practice Enter Ratings for each Industry Sector it terms of the Attractiveness Factors on a scale of 1 to 9. The Business Unit Strength and corresponding Industry Attractiveness values are calculated and the GE/McKinsey Matrix chart is automatically created.
Ch 6 -37
Example
7 S Structure
Hard S
Strategy: the plan devised to maintain and build competitive advantage over the competition. Structure: the way the organization is structured and who reports to whom. Systems: the daily activities and procedures that staff members engage in to get the job done.
Soft S
Shared Values: called "superordinate goals" when the model was first developed, these are the core values of the company that are evidenced in the corporate culture and the general work ethic. Style: the style of leadership adopted.