IFE Matrix (Internal Factor Evaluation)
Finance & Business
Internal Factor Evaluation (IFE) matrix is a strategic management tool for auditing or evaluating major strengths and weaknesses in functional areas of a business. IFE matrix also provides a basis for identifying and evaluating relationships among those areas. The Internal Factor Evaluation matrix or short IFE matrix is used in strategy formulation.
The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can be utilized to evaluate how a company is performing in regards to identified internal strengths and weaknesses of a company. The IFE matrix method conceptually relates to the Balanced Scorecard method in some aspects.
How can I create the IFE matrix?
The IFE matrix can be created using the following five steps:
Key internal factors...
Conduct internal audit and identify both strengths and weaknesses in all your business areas. It is suggested you identify 10 to 20 internal factors, but the more you can provide for the IFE matrix, the better. The number of factors has no effect on the range of total weighted scores (discussed below) because the weights always sum to 1.0, but it helps to diminish estimate errors resulting from subjective ratings. First, list strengths and then weaknesses. It is wise to be as specific and objective as possible. You can for example use percentages, ratios, and comparative numbers.
Having identified strengths and weaknesses, the core of the IFE matrix, assign a weight that ranges from 0.00 to 1.00 to each factor. The weight assigned to a given factor indicates the relative importance of the factor. Zero means not important. One indicates very important. If you work with more than 10 factors in your IFE matrix, it can be easier to assign weights using the 0 to 100 scale instead of 0.00 to 1.00. Regardless of whether a key factor is an internal strength or weakness, factors with the greatest importance in your organizational performance should be assigned the highest weights. After you assign weight to individual factors, make sure the sum of all weights equals 1.00 (or 100 if using the 0 to 100 scale weights).
The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry. Weights are industry based.
Assign a 1 to X rating to each factor. Your rating scale can be per your preference. Practitioners usually use rating on the scale from 1 to 4. Rating captures whether the factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4). If you use the rating scale 1 to 4, then strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating.
Note, the weights determined in the previous step are industry based. Ratings are company based.
Now we can get to the IFE matrix math. Multiply each factor's weight by its rating. This will give you a weighted score for each factor.
The last step in constructing the IFE matrix is to sum the weighted scores for each factor. This provides the total weighted score for your business.
Example of IFE matrix
The following table provides an example of an IFE matrix.
Weights times ratings equal weighted score.
What values does the IFE matrix take?
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 (assuming you used the 1 to 4 rating scale). The average score you can possibly get is 2.5.
Why is the average 2.5 and not 2.0? Let's explain using an example. You have 4 factors, each has weight 0.25. Factors have the following rating: 1, 4, 1, 4. This will result in individual weighted scores 0.25, 1, 0.25, and 1 for factors 1 through 4. If you add them up, you will get total IFE matrix weighted score 2.5 which is also the average in this case.
Total weighted scores well below 2.5 point to internally weak business. Scores significantly above 2.5 indicate a strong internal position.
What if a key internal factor is both a strength and a weakness in IFE matrix?
When a key internal factor is both a strength and a weakness, then include the factor twice in the IFE Matrix. The same factor is treated as two independent factors in this case. Assign weight and also rating to both factors.
What are the benefits of the IFE matrix?
To explain the benefits, we have to start with talking about one disadvantage. IFE matrix or method is very much subjective; after all other methods such as the TOWS or SWOT matrix are subjective as well. IFE is trying to ease some of the subjectivity by introducing numbers into the concept.
Intuitive judgments are required in populating the IFE matrix with factors. But, having to assign weights and ratings to individual factors brings a bit of empirical nature into the model.
How does the IFE matrix differ from the SWOT matrix method?
More is better...
One difference is already obvious. It is the weights and ratings. This difference leads to another one. While it is suggested that the SWOT matrix is populated with only a handful of factors, the opposite is the case with the IFE matrix.
Populating each quadrant of the SWOT matrix with a large number of factors can lead to the point where we are over-analyzing the object of our analysis. This does not happen with IFE matrix. Including many factors into the IFE matrix leads to each factor having only a small weight. Therefore, if we are subjective and assign unrealistic rating to some factor, it will not matter very much because that particular factor has only a small weight (=small importance) in the whole matrix.
It is important to note that a thorough understanding of individual factors included in the IFE matrix is still more important than the actual numbers.
Are there other models I should know about?
The IFE matrix goes side by side with so-called EFE matrix which together lead into the IE matrix.
You might like to read about the SWOT matrix analysis, BCG matrix model, and Product Life Cycle.
EFE Matrix (External Factor Evaluation)
Finance & Business
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.
The EFE matrix is very similar to the IFE matrix. The major difference between the EFE matrix and the IFE matrix is the type of factors that are included in the model. While the IFE matrix deals with internal factors, the EFE matrix is concerned solely with external factors.
External factors assessed in the EFE matrix are the ones that are subjected to the will of social, economic, political, legal, and other external forces.
How do I create the EFE matrix?
Developing an EFE matrix is an intuitive process which works conceptually very much the same way like creating the IFE matrix. The EFE matrix process uses the same five steps as the IFE 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 firm’s 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.
You can find more details about this approach as well as about possible values that the EFE matrix can take on the IFE matrix page.
EFE matrix example
Total weighted score of 2.46 indicates that the business has slightly less than average ability to respond to external factors. (See the page on IFE matrix for an explanation of what category the 2.46 figure falls to.)
What should I include in the EFE matrix?
Now that we know how to construct or create the EFE matrix, let's focus on factors. External factors can be grouped into the following groups:
Social, cultural, demographic, and environmental variables:
Political, government, business trends, and legal variables
Below you can find examples of some factors that capture aspects external to your business. These factors may not all apply to your business, but you can use this listing as a starting point.
Social, cultural, demographic, and environmental factors...
- Percentage or one race to other races
- Per-capita income
- Number and type of special interest groups
- Widening gap between rich & poor
- Number of marriages and/or divorces
- Ethnic or racial minorities
- Trends in housing, shopping, careers, business
- Number of births and/or deaths
- Immigration & emigration rates
of the economy
- Level of savings, investments, and capital spending
- Foreign exchange rates
- Stock market trends
- Level of disposable income
- Import and export factors and barriers
- Product life cycle (see the Product life cycle page)
- Government spending
- Industry properties
- Economies of scale
- Barriers to market entry
- Product differentiation
- Level of competitiveness (see the Michael Porter's Five Forces model)
Political, government, business trends & legal factors...
- Government regulations and policies
- Worldwide trend toward similar consumption patterns
- Internet and communication technologies (e-commerce)
- Protection of rights (patents, trade marks, antitrust legislation)
- Level of government subsidies
- International trade regulations
- Elections and political situation home and abroad
Internal-External (IE) Matrix
Finance & Business
The Internal-External (IE) matrix is another strategic management tool used to analyze working conditions and strategic position of a business. The Internal External Matrix or short IE matrix is based on an analysis of internal and external business factors which are combined into one suggestive model.
The IE matrix is a continuation of the EFE matrix and IFE matrix models.
How does the Internal-External IE matrix work?
The IE matrix belongs to the group of strategic portfolio management tools. In a similar manner like the BCG matrix, the IE matrix positions an organization into a nine cell matrix.
The IE matrix is based on the following two criteria:
Score from the EFE matrix -- this score is plotted on the y-axis
Score from the IFE matrix -- plotted on the x-axis
The IE matrix works in a way that you plot the total weighted score from the EFE matrix on the y axis and draw a horizontal line across the plane. Then you take the score calculated in the IFE matrix, plot it on the x axis, and draw a vertical line across the plane. The point where your horizontal line meets your vertical line is the determinant of your strategy. This point shows the strategy that your company should follow.
On the x axis of the IE Matrix, an IFE total weighted score of 1.0 to 1.99 represents a weak internal position. A score of 2.0 to 2.99 is considered average. A score of 3.0 to 4.0 is strong.
On the y axis, an EFE total weighted score of 1.0 to 1.99 is considered low. A score of 2.0 to 2.99 is medium. A score of 3.0 to 4.0 is high.
IE matrix example...
Let us take a look at an example. We calculated IFE matrix for an anonymous company on the IFE matrix page. The total weighted score calculated on this page is 2.79 which points at a company with an above-average internal strength.
We also calculated the EFE matrix for the same company on the EFE matrix page. The total weighted score calculated for the EFE matrix is 2.46 which suggests a slightly less than average ability to respond to external factors.
Now we plot these values on axes in the IE matrix.
This IE matrix tells us that our company should hold and maintain its position. The company should pursue strategies focused on increasing market penetration and product development (more about this below).
What does the IE matrix tell me?
Your horizontal and vertical lines meet in one of the nine cells in the IE matrix. You should follow a strategy depending on in which cell those lines intersect.
The IE matrix can be divided into three major regions that have different strategy implications.
Cells I, II, and III suggest the grow and build strategy. This means intensive and aggressive tactical strategies. Your strategies should focus on market penetration, market development, and product development. From the operational perspective, a backward integration, forward integration, and horizontal integration should also be considered.
Cells IV, V, and VI suggest the hold and maintain strategy. In this case, your tactical strategies should focus on market penetration and product development.
Cells VII, VIII, and IX are characterized with the harvest or exit strategy. If costs for rejuvenating the business are low, then it should be attempted to revitalize the business. In other cases, aggressive cost management is a way toplay the end game.
What is the difference between the IE matrix and BCG matrix?
First, the IE matrix measures different values on its axes. The BCG matrix measures market growth and market share. The IE matrix measures a calculated value that captures a group of external and internal factors. This means that the IE matrix requires more information about the business than the BCG matrix.
While values for each axis in the BCG matrix are single-factor, values for each axis in the IE matrix are multi-factor figures.
Because the IE matrix is broader in its definition, strategists often develop both the BCG Matrix and the IE Matrix when assessing their conditions and formulating strategies.
Is the IE matrix forward-looking?
By default, both the BCG matrix and the IE matrix are constructed using factors related to current conditions. However, strategists often develop two sets of matrices -- a BCG Matrix and an IE Matrix for the current state and another set to reflect expectations of the future.
Is there any other management model related to IE matrix?
Yes, the IE matrix model can be developed into an even more analytical tool called the SPACE matrix.
Besides the IFE and EFE matrix, you might also be interested in reading about the SWOT matrix.
The Quantitative Strategic Planning Matrix (QSPM) model is the next step in strategic management decision making. This method can help if we need to decide between strategic alternatives.
External factors are extracted after deep analysis of external environment. Obviously there are some good and some bad for the company in the external environment. That’s the reason external factors are divided into two categories opportunities and threats.
Opportunities are the chances exist in the external environment, it depends firm whether the firm is willing to exploit the opportunities or may be they ignore the opportunities due to lack of resources.
Threats are always evil for the firm, minimum no of threats in the external environment open many doors for the firm. Maximum number of threats for the firm reduce their power in the industry.
Rating in EFE matrix represent the response of firm toward the opportunities and threats. Highest the rating better the response of the firm to exploit opportunities and defend the threats. Rating range from 1.0 to 4.0 and can be applied to any factor whether it comes under opportunities or threats.
There are some important point related to rating in EFE matrix.
Rating is applied to each factor.
The response is poor represented by 1.0
The response is average is represented by 2.0
The response is above average represented by 3.0
The response is superior represented by 4.0
Weight attribute in EFE matrix indicates the relative importance of factor to being successful in the firm’s industry. The weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight to factors must be equal to 1.0 otherwise the calculation would not be consider correct.
Weighted score value is the result achieved after multiplying each factor rating with the weight.
Total Weighted Score
The sum of all weighted score is equal to the total weighted score, final value of total weighted score should be between range 1.0 (low) to 4.0(high). The average weighted score for EFE matrix is 2.5 any company total weighted score fall below 2.5 consider as weak. The company total weighted score higher then 2.5 is consider as strong in position.
Steps in developing the EFE matrix:
Identify a list of KEY external factors (critical success factors).
Assign a weight to each factor, ranging from 0 (not important) to 1.0 (very important).
Assign a 1-4 rating to each critical success factor to indicate how effectively the firm’s current strategies respond to the factor. (1 = response is poor, 4 = response is extremely good)
Multiply each factor’s weight by its rating to determine a weighted score.
Sum the weighted scores.
Examples of EFE Matrix
Below is the example of EFE matrix for Nextal Communication.Nextel Communications Inc. is a provider of communications services with three operating segments:
Customers receive crystal clear calls and guaranteed message delivery in a secure environment, within the Nextel National Network.
Direct Connect®, Nationwide Direct Connect™, and International Direct Connect™ services allow communication without having to dial a number
Nextel EFE Matrix
As the results shows that Nextal Communication is respoding above average to the enviroment for exploiting opportunties and to overcome threats.
Internal factors are extracted after deep internal analysis of the company. Obviously every company have some weak point and strong point that’s the reasons internal factors are divided into two categories namely strengths and weakness.
Strengths are the strong areas or attribute of the company, which are used to overcome weakness and capitalize to take advantage of the external opportunities available in the industry.
Weakness are painful for the company means these are the weak factors which needs to be improve in future otherwise if they exposed to the competitors they can take the advantage of it.
How we can differentiate strength and weakness in IFE matrix?
If this question comes into mind then don’t worry its a good question and I will be the happy man to answer this one. The strength and weakness are organized in IFE matrix in different portion mean all strength are listed first under internal factors and then comes the internal weakness. In case if all the factors are listed altogether then the rating will help you out to identify internal strength and weakness.
Rating is common word I hope you are aware of it, in IFE rating is the way out to differentiate internal strengths and weakness. Internal weakness are further divided in two categories namely minor weakness and major weakness same goes of the strengths (minor strength and major strength)
There are some important point related to rating in IFE matrix.
Rating is applied to each factor.
Major weakness is represented by 1.0
Minor weakness is represented by 2.0
Minor strength represented by 3.0
Major Strength represented by 4.0
Major weakness need lot of company effort to change into minor weakness then strength and finally major strength. As compared to major strength minor weakness need little efforts of the company to change it into strength. The range of rating start from minimum 1.0 which is worst and maximum 4.0 which is the best factor ofthe company.
Weight attribute in IFE matrix indicates the relative importance of factor to being successful in the firm’s industry. The weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight to factors must be equal to 1.0 otherwise the calculation would not be consider correct.
Weighted score value is the result achieved after multiplying each factor rating with the weight.
Total Weighted Score
The sum of all weighted score is equal to the total weighted score, final value of total weighted score should be between range 1.0 (low) to 4.0(high). The average weighted score for IFE matrix is 2.5 any company total weighted score fall below 2.5 consider as weak. The company total weighted score higher then 2.5 is consider as strong in position.
Steps to develop IFE Matrix
1. List key internal factors as identified in the internal audit process. Use a total of from ten to twenty internal factors, including both strengths and weaknesses. List strengths first and then weaknesses. Be as specific as possible, using percentages, ratios, and comparative numbers.
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 I 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 4 or 3 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.
What are the examples of Internal Factors?
There are few examples of internal factors of the company.
Strong marketing and promotion
Best product quality
Strong Financial condition
High Market Share
High value assets
High cost operations
Manufacturing cost is high
High employee turnover rate
Loss in joint venture
What is the difference between IFE and EFE?
External factor evaluation matrix consider external environment for evaluation by considering external opportunities and threats whereas IFE is the strategic tool to identify the internal factors for internal audit.
Examples of IFE Matrix
Here are some examples of IFE Matrix.
Amazon IFE Matrix
As you can see in this examples the total weighted score value is 2.80 which means company internal position is better.
What is IE Matrix?
IE stands for Internal external as the name suggest that it’s based upon internal and external factors of the organization. The IE is an important strategic tool which comes under the portfolio management considered much similar to BCG Matrix. The IE matrix used to plot the organization divisions in nine cell diagram, each cell have some meaning associated which suggest strategies.
In summarize way it can be defined as the strategic management tool which is used to analyze the current position of the divisions and suggest the strategies for the future for the better results.
What are the terms commonly used in understanding the IE Matrix?
Before going into details it is important to understand the IE attributes or terms which are commonly used further in the discussion.
IE Matrix Cells
IE Matrix is composed of nine cells each one is numbered and associated with the some meaning.
IFE Total Weighted Score
The total weighted score which is derived from the IFE matrix based on division internal factors weight and rating.
IFE Total Weighted Score
The total weighted score which is derived from the EFE matrix based on division external factors weight and rating.
A division of a business entity is a portion of that business that operates under a different name.
How IE Matrix Looks?
As discussed earlier the IE matrix is composed of nine cells, each division plotted in one of the cell based on division IFE and EFE total weighted score.
The below diagram shows the structure of IE matrix.
The IE matrix have to important dimensions IFE total weighted score on x-axis and EFE total weighted score on y-axis. The number represent the cells and circle are the divisions plotted on the basis of IFE and EFE scores.
What are the classification on X and Y- Axis?
On x-axis of the IE matrix, the IFE total weighted score of 1.0 to 1.99 represent weak position, 2.0 to 2.99 considered as Average and 3.0 to 4.0 on high extremes is strong. On Y-axis score of 1.0 to 1.99 represent low, 2.0 to 2.99 considered as Average and 3.0 to 4.0 is strong.
How to decide strategies for Divisions on basis of IE Matrix Cells?
Well, I can’t say its a magic sure there is some way to formulate the strategy. The IE matrix is divided into threeregions that have different strategy implications. The divisions that fall under cells 1,2 or 4 are considered in grow and build region which is the most appropriate region for the divisions. Following are the recommendedstrategies for the divisions which fall into grow and build region.
Intensive (market penetration, market development, product development)
Integrative (backward integration, forward integration, and horizontal integration) strategies
Grow & Build
Hold & Maintain
Harvest or Divest
Source: David, Fred R. (1999). Strategic Management: Concepts (7th ed.). Upper Saddle River, NJ: Prentice-Hall, Inc., p. 191.
Secondly, the divisions which comes under cells 3, 5 or 7 can be properly manages with hold and maintain strategies this position is average for the division market penetration and development strategies are most appropriate strategies. Last, the 6, 8, 9 cells represent harvest or divest which is the weak position for the divisions.
What are the information required to plot the Divisions in IE Matrix?
The below mentioned information is required to plot the division in the IE matrix cells.
What are the Circles in IE Matrix?
The circle represent the divisions, larger the revenue larger will be the size of the circle. The marked or sliced area of circle shows the profits of the division as shown below.
The circle represent the division with 50 percent of profits.
What is the difference between BCG and IE Matrix?
There are few difference in BCG and IE matrix, firstly the IE axis are different x- axis represent IFE weighted score and Y-axis represent total EFE weighted score. IE matrix require more information about the division than BCG matrix in which only relative market share and industry growth figures are required.
What are the next Steps after developing IE Matrix?
Grand strategy matrix and QSPM will further help in deciding the appropriate strategies for the Organization