How to create an EFE Matrix
If you’re taking Strategic Management (Strama), you’ll most likely be required to present an EFE Matrix for your chosen business.
An EFE (External Factor Evaluation) matrix is a strategic tool you can use to analyze and evaluate your business’s strategies in relation to the market and external environment. It is a component of the SWOT analysis and is often paired with an IFE (Internal Factor Evaluation).
An EFE helps you analyze how your business is responding to the changing world around it.
When evaluating the surrounding world, you look at it through various perspectives: economic, social, technological, governmental, political, legal, and competitive. Just as you would when deciding whether to buy a house or not. Is it nice? Is the location good? Is the price ok? Is the neighborhood peaceful? Etc etc.
One of the cases our class got to work on was about a hotel called Mandarin Oriental. The hotel was based in Makati but was recently closed because its long-term lease with Ayala Land already expired. The goal was to create an EFE Matrix for Mandarin. As input, we were given a few points about Mandarin. We were also given the profile of its target market, and a few economic high-level data about the Philippines.
Once we got all the available information assessed, we proceeded with creating an EFE Matrix. Below I’ve posted our team’s matrix.
A typical EFE Matrix looks like the table shown above. You may color it up a bit, make it sexier, but overall it should be similar. Your matrix should include the specific opportunities and threats that are relevant to your industry, weight, your rating, and weighted score.
Below are the steps in creating an EFE Matrix.
We gave Mandarin Hotel a weighted score of 2.15, way below average. This means their current strategies were not working well enough. We think there were opportunities they didn’t fully maximize. For instance, their revenue growth was only 6% compared to the overall industry growth of 15%.
The numbers you put on your matrix can be subjective. You can write anything but they should be accompanied by good, intuitive judgment. When you do your Strama presentation, panelists will ask you to explain your EFE Matrix. Make sure to be able to defend your matrix with facts. Most importantly, remember to go through the process consciously and meticulously. Creating your Strama paper begins with this first basic step.
I haven't defended yet. Most of what I know about the actual defense process I got from the grapevine. And of course, from my Professors.
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Here's a book I co-wrote with a bunch of industry colleagues. Not sure if you'll find it useful, but feel free to check once you can.
Ateneo Graduate School of Business
University of San Carlos