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Definition of Matrix

The External Factor Evaluation (EFE) Matrix is a tool used by strategists to assess key external factors affecting a firm, including opportunities and threats, through a structured five-step process. The Competitive Profile Matrix (CPM) evaluates a firm's competitors by identifying critical success factors, assigning weights, and calculating scores to determine competitive positioning. Both matrices help organizations make informed strategic decisions based on external and competitive analysis.

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10 views2 pages

Definition of Matrix

The External Factor Evaluation (EFE) Matrix is a tool used by strategists to assess key external factors affecting a firm, including opportunities and threats, through a structured five-step process. The Competitive Profile Matrix (CPM) evaluates a firm's competitors by identifying critical success factors, assigning weights, and calculating scores to determine competitive positioning. Both matrices help organizations make informed strategic decisions based on external and competitive analysis.

Uploaded by

Thanh Huyền
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Definition of EFE Matrix

An External Factor Evaluation (EFE) Matrix allows strategists to summarize and


evaluate economic, social, cultural, demographic, environmental, political,
governmental, legal, techno logical, and competitive information, illustrated earlier.
The EFE Matrix can be developed in five steps:
1. List 20 key external factors as identified in the external-audit process, including
both opportunities and threats that affect the firm and its industry. List the
opportunities first and then the threats. Be as specific as possible, using percentages,
ratios, and comparative num bers whenever possible. Recall that Edward Deming
said, “In God we trust. Everyone else bring data.” In addition, utilize “actionable”
factors as defined earlier in this chapter.
2. Assign to each factor a weight that ranges from 0.0 (not important) to 1.0 (very
impor tant). The weight indicates the relative importance of that factor to being
successful in the firm’s industry. Opportunities often receive higher weights than
threats, but threats can receive high weights if they are especially severe or
threatening. Appropriate weights can be determined by comparing successful with
unsuccessful competitors or by discussing the factor and reaching a group consensus.
The sum of all weights assigned to the factors must equal 1.0.
3. Assign a rating between 1 and 4 to each key external factor to indicate how
effectively the irm’s current strategies respond to the factor, where 4 = the response is
superior, 3 = the response is above average, 2 = the response is average, and 1 = the
response is poor. Ratings are based on effectiveness of the firm’s strategies. Ratings
are thus company-based, whereas the weights in Step 2 are industry-based. It is
important to note that both threats and opportunities can receive a 1, 2, 3, or 4.
4. Multiply each factor’s weight by its rating to determine a weighted score.
5. Sum the weighted scores for each variable to determine the total weighted score for
the organization.

Definition of CPM Matrix


The Competitive Profile Matrix (CPM) is identifies a firm’s major competitors and its
par ticular strengths and weaknesses in relation to a sample firm’s strategic position.
The CPM Matrix can be developed in steps:
1. Identify Critical Success Factors: These are the key areas essential for success
in a specific industry
2. Assign Weights to Each Factor, Assign a weight to each factor based on its
importance in the industry.
3. Rate Each Competitor, Assign a rating from 1 to 4 for each company
4. Calculate Weighted Scores
5. Analyze the Total Scores, the company with the highest total weighted score is
considered to have the strongest competitive [Link] differences in scores
highlight relative strengths and weaknesses.

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