Strategic Management
IE
MATRIX
CONTENTS
TABLE OF
CONTENTS
INTRODUCTION 01
THE IE MATRIX 02
CASE STUDY 03
THE INTERNAL - EXTERNAL MATRIX
DEFINITION
DEFINITION
IE A strategic tool that helps businesses evaluate
and position their various divisions or business
MATRIX units based on internal and external factors.
20
22
THE INTERNAL - EXTERNAL MATRIX
COMPONENTS
COMPONENTS
COMPONENTS IFE
MATRIX
The Internal Factor Evaluation
matrix, which assesses the internal
strengths & weaknesses
EFE
MATRIX
The External Factor Evaluation
matrix, which evaluates external
opportunities & threats.
THE INTERNAL - EXTERNAL MATRIX
IFE MATRIX
THE
COMPONENTS
AROWWAI INDUSTRIES
• Helps organizations identify and assess key internal factors,
IFE including strengths and weaknesses in functional areas
MATRIX • Providing a comprehensive view of internal capabilities and
challenges
THE INTERNAL - EXTERNAL MATRIX
HOW TO DEVELOP
IFE MATRIX
HOW TO DEVELOP
5 STEPS
TO DEVELOP THE IE
MATRIX
STEP 1 STEP 2 STEP 3 STEP 4 STEP 5
List Key Internal Assign Weights Assign Ratings Calculate Calculate Total
Factors Weighted Scores Weighted Score
HOW TO DEVELOP
STEP
1 Key Internal
List
Factors
• Identify and list key internal strengths and
weaknesses identified during the internal audit
like: management, finance and operations.
• Identifying 10 to 20 internal factors,
prioritize the strengths and weaknesses that
can impact your company the most
• Strengths should be listed first, followed by
weaknesses
• Use precise data, like percentages, ratios, or
comparative metrics, for greater clarity
HOW TO DEVELOP
STEP
2
Assign Weight
• Each factor is assigned a weight based on its
importance, from 0.0 (not important) to 1.0
(very important)
• The weight reflects the relative importance of
the factor in the firm’s industry
• Factors with the greatest importance in your
organizational performance should be
assigned the highest weights
• After assigning weight to individual factors,
make sure the sum of all weights equals 1.00
HOW TO DEVELOP
STEP
3
Assign Ratings
• Assign a rating to each factor to indicate its
level of strength or weakness:
1 = Major Weakness
2 = Minor Weakness
3 = Minor Strength
4 = Major Strength
Strengths are rated 3 or 4, while weaknesses are
rated 1 or 2
• Helps define how each factor affects the
organization’s overall performance.
HOW TO DEVELOP
STEP
4
Calculate Weighted Scores
• By multiplying each factor's weight by its
rating, you can get a weighted score for each
factor.
• The formula is:
WEIGHT * RATING = WEIGHTED SCORE
HOW TO DEVELOP
STEP
5
Determine
Total Weighted
Score
• Add up the weighted scores to get the total IFE score.
• This score helps determine the company’s internal
position
• 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 a score of:
● 1.0- 1.99: weak internal position
● 2.0- 2.99: average internal position An IFE score of 2.79 suggests the company
● 3.0- 4.0 : strong internal position has a moderately strong internal performance,
above average, though there's still room for
improvement to reach its full potential.
THE INTERNAL - EXTERNAL MATRIX
EFE MATRIX
THE
COMPONENTS
AROWWAI INDUSTRIES
• A strategic-management tool often used for assessment of current
business conditions.
• A good tool to visualize and prioritize the opportunities and threats EFE
that a business is facing. MATRIX
• External factors in the EFE matrix are those influenced by social,
THE INTERNAL - EXTERNAL MATRIX
HOW TO DEVELOP
EFE MATRIX
HOW TO DEVELOP
STEP
1
List Key External
Factors
• List the key external factors identified during
the external audit process.
• These factors should include both
opportunities and threats that impact the
organization and its industry.
• It is important to be as specific as possible,
using data such as percentages, ratios, and
comparative figures when available
HOW TO DEVELOP
STEP
2
Assign Weights
• Each factor is given a weight from 0.0 to 1.0
based on its importance in affecting the
business.
• The weights should reflect the relative
importance of each factor, with more
significant factors receiving higher weights
• .Total weight of all factors must equal 1.0.
HOW TO DEVELOP
STEP
3
Assign Ratings
• Assign a rating between 1 and 4 to each
factor. The rating reflects how effectively the
firm's current strategies respond to the factor:
4 = The firm's response is superior.
3 = The firm's response is above average.
2 = The firm's response is average.
1 = The firm's response is poor.
• It's important to note that both opportunities
and threats can receive any rating from 1 to 4,
depending on how well the firm is addressing
them.
HOW TO DEVELOP
STEP 4
Calculate
the Weighted Scores
• For each external factor, multiply the weight
by the rating to obtain the weighted score.
• This score represents the importance of each
factor in relation to the firm's ability to
respond to it
WEIGHT * RATING = WEIGHTED SCORE
HOW TO DEVELOP
STEP
5etermine
D
Total Weighted Score
• Add up all the weighted scores from each
factor to find the EFE matrix overall score.
• Regardless of the number of key
opportunities and threats included in an EFE
Matrix, the highest possible total weighted
score for an organization is 4.0 and the lowest
possible total weighted score is 1.0:
• 1.0- 1.99: a poor response to external factors An EFE Score of 2.46 shows that the company is
responding at an average level to external opportunities
• 2.0- 2.99: an average response to external and threats. While it has some capability in managing
factors external factors, there is room for improvement to
achieve higher effectiveness.
• 3.0- 4.0: a strong response to external factors
2
Structure
of IE matrix
Nine-Cell Grid
I II III Representation
• Presented as a 3 × 3 grid,
IV V VI forming nine cells
VII VIII IX
Nine-Cell Grid
I II III Representation
• Presented as a 3 × 3 grid,
IV V VI forming nine cells
• Each cell represents a
specific strategic position
VII VIII IX
EFE
Nine-Cell Grid
I II III Representation
• Presented as a 3 × 3 grid,
IV V VI forming nine cells
• Each cell represents a
specific strategic position
VII VIII IX • Helps visualize where each
business unit stands in terms of
IFE
internal and external factors
Axes & Scoring Ranges
strong average weak
4,0 3,0 2,0 1,0
X-Axis (Horizontal): represents
I II III internal strengths and weaknesses
IFE Score Range:
• 1.0 – 1.99: Weak internal
IV V VI position.
• 2.0 – 2.99: Average internal
position.
• 3.0 – 4.0: Strong internal
VII VIII IX position.
The IFE total weighted scores
The EFE total weighted scores Axes & Scoring Ranges
4,0
Y-Axis (Vertical): represents
I II III high external opportunities and threats
EFE Score Range:
3,0
• 1.0 – 1.99: Unattractive external
IV V VI medium environment.
• 2.0 – 2.99: Average external
2,0 attractiveness.
• 3.0 – 4.0: Highly attractive
VII VIII IX low
external environment.
1,0
Strategic Regions &
Their Implications
Region I (Cells I, II, IV): Grow and
I II III Build
• Strong internal strengths and operating
in a highly attractive external
IV V VI environment.
• Recommended Strategies: Market
VII VIII IX penetration, Market development,
Product development, Diversification
Strategic Regions &
Their Implications
Region II (Cells III, V, VII): Hold and
I II III Maintain
• Average internal capabilities and
average external attractiveness.
IV V VI
• Recommended Strategies: Process
improvements, Cost optimization,
VII VIII IX Market segmentation
Strategic Regions &
Their Implications
Region III (Cells VI, VIII, IX): Harvest
I II III or Divest
• Weak internal positions and operating
in an unattractive external environment.
IV V VI
• Recommended Strategies: Cost
reduction, Divestiture, Retrenchment
VII VIII IX
Visual Representation
Circles Represent Business Units
Size of Circle Pie Slices within Circles
Corresponds to the Indicate the division's profit
division's revenue (larger margin (the shaded area
revenue equals a larger represents profit contribution)
circle)
3
Benefits &
Limitations
Benefits
Profit is maximized over the
0
long-term development
1
Allocate Limited Resources
High-Level Way 0
Visualize the performance 2
of each of the divisions of
the company
Benefits
Can be used by small and
large, for-profit and
0
nonprofit organizations.
3
Diverse users
Access to a huge 0
range of data 4
Improving enterprise-level
planning and policy-making,
enhancing decision-making
Limitations
Snapshot Independent
It is not used to see what is The framework assumes that
likely to happen to a market each business unit is
in the future. independent of the others.
Intuitive judgments
The weights and ratings require judgmental
decisions, even though they should be based on
objective company and industry trends, facts, data
III
Case study
Okoroh Energy
Services company
• Appears to be an energy
solutions provider
• Aims to provide sustainable
energy solutions to
individuals, businesses, and
communities in Nigeria
Purpose
Have a deeper insight Determine the
on the performance of strategic approach
each divisions
Improve on its Determine the resource
corporate strategy allocation mechanism
Preparing Data
Compute the sales
revenue/percentage and
0
profit/percentage
1
Sales and Profit Data
Choose the Unit 0
Determine the divisions: Drilling, 2
Installation, Fabrication, E&I,
Maintenance.
Preparing Data
Compute the sales Sale Profit
Division
revenue/percentage and (Millions) (Millions)
Drilling 930.000 120.000
profit/percentage
Installation 550.000 75.000
Sales and Profit Data
Fabrication 420.000 110.000
0 E&I 120.000 30.000
2 Maintenance 40.000 7.000
Total 2.060.000 342.000
Developing IE matrix
0
3
IFE-EFE Matrix
Two key dimensions which
provide the basis of the IE
matrix
Developing IE matrix
0
3
IFE-EFE Matrix
Two key dimensions which
provide the basis of the IE
matrix
Developing IE matrix
Sale % of Profit % Of IFE EFE
Division
(Millions) Sales (Million) Profit Score Score
Drilling 930.000 45.15% 120.000 35.1% 3.345 3.79
Installation 550.000 26.70% 75.000 21.9% 2.525 3.113
Fabrication 420.000 20.39% 110.000 32.2% 2.985 2.849
E&I 120.000 5.83% 30.000 8.8% 2.345 1.955
Maintenance 40.000 1.94% 7.000 2.0% 1.789 1.435
Total 2.060.000 100.00% 342.000 100%
Constructing
The total weighted score of
0
the EFE matrix ranging
4 from 1.0 to 4.0
EFE Total Weighted Score
IFE Total Weighted Score 0
The total weighted score 5
of the IFE matrix ranging
from 1.0 to 4.0
Region 2
Constructing
I II III
Region 1
0
6
IV V VI
Determining the 3 Regions Region 3
Each region indicates different
actions to be taken VII VIII IX
IFE IFE
3.345 2.525
4,0 3,0 2,0
EFE I
3.79
II 21%
Drilling
79% III
35%
EFE 65%
3.113
Installation
3,0
IV
First Region:
V VI
Grow & Build
2,0
VII VIII IX
3,0 IFE 2,0 1,0
2.985
I II III
3,0
EFE
2.849 IV V Fabrication
Second Region: 33% VI
Hold & Maintain 67%
2,0
VII
VIII IX
1,0
I II III
3,0
IV V VI
Third Region:
Harvest and Divest
VII 2,0
VIII IX EFE
E&I
2% 1.955
Maintenance
9%
EFE
1.435
98%
IFE IFE 91% 1,0
3,0 2,0
2.345 1.789
Constructing
0 0
6 7
Determining the 3 Regions Strategic Decisions
Each region indicates different
actions to be taken
STRATEGIC OPTIONS
10
1. Grow & Build Region 2. Hold & Maintain Region 3. Harvest & Divest Region
The Fabrication unit in this region. E&I and Maintenance unit are in
More attention needs to be given to
Okoroh Energy Services needs to be here. The company needs to be
Drilling and Installation unit. The
cautious in making hasty decisions.
EXTERNAL FACTOR
company should use its strengths in
these units to gain a competitive
cautious on further investment in
this region. By expanding operations There is a need to consider the
synergetic contribution of the units. If
EVALUATION (EEF)
advantage. By building on its current
abilities, it can become the leader in
beyond its current markets, the
company has a chance to increase its their existence makes other units to
market share in the Fabrication perform better, the company need
those divisions.
division. to keep them, but without further
investments on them.
CONCLUSION
The Internal-External Matrix
being a diagnostic and
prescriptive tool for maximizing
corporate competitiveness has
helped Okoroh Energy Services to
allocate resources more
efficiently. In addition, It has also
helped in formulating strategies
to create a competitive advantage
in the energy industry in Nigeria.
