EFE Matrix Analysis

EFE Matrix Analysis

Template: EFE Matrix (adapted from Fred R. David (13^th ed.) “Strategic Management”)

EFE Matrix Template
Key External Opportunities	Weight	Rating	Weighed Score
1. The chance to further diversify the product portfolio 2. Increasing international market opportunities 3. internet marketing could attract larger customer bases 4. New relationships with tech retailers can help to reach larger targets.	0.16 0.15 0.08 0.11	4 3 1 2	0.64 0.45 0.08 0.22
Key External Threats
1. Excess competition from big market players 2. Booming smartphone industry reducing use of Dell’s main product, the PC 3. Dell’s product is not very unique. It can easily be imitated by another company. 4. A possible economic downturn could affect purchases.	0.15 0.07   0.12   0.16	3 4   3   4	0.45 0.28   0.36   0.64
Total	1		3.12

(hint: make sure the weights sum to 1.0)

Narrative

The External Factor Evaluation (EFE) Matrix is a management tool used to assess the current external business conditions. This tool is used to rate the severity or weight of the external issues that could affect business performance (David & David, 2017). Thus, it is essential to prioritize a business’s threats and opportunities in its external environment. This tool is very important in strategic management, but it has its advantages and limitations.

Pros and Cons of the EFE Matrix

            One of the main advantages of the EFE matrix is its ability to improve an organization’s perception of the extent to which external factors can affect its strategy. It is one thing to recognize the existence of an external business factor and another to know how much impact it can have on the business. For example, almost all businesses have the potential to be affected by an economic downturn. However, some businesses are much more susceptible to economic changes than others. This matrix can help a business determine where it belongs in the range of susceptibility (Capps III & Glissmeyer, 2012). Another advantage of the tool is its assistance in the decision-making process. By weighing the probability and impact of the external factors, the business is able to determine the ones to focus on in its strategy. The EFE Matrix is also relatively easy to create. It is presented in a very simple tabular form that is easy to make and use in the strategic management process.

Nonetheless, the matrix is limited by the difficulty of weighing external factors. The assignment of weights and scores to the factors can be subjective. As a result, it is hard to ascertain that the matrix represents an accurate evaluation of the external environment. This can lead to the exaggeration of issues of little significance to the business and the minimization of important issues.

Applications of the EFE Matrix

            The EFE Matrix is mainly applied in strategic decision-making. A big part of strategic management is understanding the external business environment. The managers must understand how their decisions interact with different external factors such as the law, social issues, cultural issues, technology, and the economy, among others (Rothaermel, 2013). The EFE matrix helps the managers to understand, not only the external factors that affect their business, but also the extent to which they affect the business.

The EFE Matrix can also be used for better strategic planning. This matrix is an addition to the usual narrative external analysis of a business. It is more precise. Thus, a business can better plan its future strategic plans based on the results of the matrix analysis. The weighted values provide a basis for understanding the extent to which the factors need to be dealt with for better future performance.

The EFE matrix can also be used to allocate resources better. This evaluation helps to priorities different issues in terms of the weight they have on the business strategy. For instance, an external factor with a higher weight is considered to be more urgent (Rothaermel, 2013). Thus, business managers can dedicate resources to urgent issues first before the less serious ones. This provides a chance for better management of the business’s external issues with the limited resources available for the business.

Conclusion

The EFE Matrix is an important tool for evaluating external business factors. This tool complements the SWOT analysis by not only understanding the existence of external issues affecting business, but also the extent to which they affect the business. Therefore, it assists the business in better decision-making, prioritization and resource allocation, and planning for future business strategies.

References

Capps III, C. J., & Glissmeyer, M. D. (2012). Extending the competitive profile matrix using internal factor evaluation and external factor evaluation matrix concepts. Journal of Applied Business Research, 28(5), 1059.

David, F. R., & David, F. R. (2017). Strategic management: A competitive advantage approach, concepts, and cases. Pearson.

Rothaermel, F. T. (2013). Strategic management: concepts. New York, NY: McGraw-Hill Irwin.

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This component of your project will provide practice in developing an EFE matrix. An EFE matrix summarizes the results of an external audit. Refer back to the Unit 1 assignment, Strategic Analysis, where you identified the external opportunities and threats to your chosen organization. Review the grading rubric and record your EFE factors, weights, ratings, and total weighted scores in the matrix. Make sure to discuss the pros, cons, and applications for the use of this analytical tool. Use Tables 3-9 and 3-10 as template examples.

When you have completed the EFE matrix and discussed the pros and cons and applications for the use of this analytical tool for your organization, submit your analysis as an attachment in the assignment area.