Complete Guide To External Factor Evaluation Matrix

Internal Factor Evaluation (IFE) Matrix is a strategy tool used to evaluate firm’s internal environment and to reveal its strengths as well as weaknesses.

External Factor Evaluation (EFE) Matrix is a strategy tool used to examine company’s external environment and to identify the available opportunities and threats.

In this article we will study the External, Internal & SWOT influences that impact Business Strategy. In other words, we will find out:

What Is A Business Strategy? What Is Business Strategy Planning?
What Is The SWOT Analysis?
How To Do A SWOT Analysis In Simple Way?
What Is An Internal Analysis?
What Is An External Analysis?
What Is A 4Ps Analysis?

Introduction

Strategic planning is a management process that consists of both intentional, planned efforts, and emergent results. Thus, organizations rarely have a single or static strategy; strategies generally must be forward looking, adaptable, and resilient while being rooted in a coherent vision. Strategy planning can be organized along both time and functional dimensions like a matrix. Typically organizations break time down to current (short term) plans, next year (medium term) plans, and backlog (long term) plans. Along the other axis, an organization plans their strategy by defining each component of the organization in terms of a component dimension like business units. Another vertical division is between strategy-making and management.

Businesse strategy is a plan of action an organization uses to achieve a societal purpose, drive objectives, and solve problems. According to Porter that strategy must be aligned with its business competencies and connect to its functional and social structures. Strategy process begins after the vision has been established and formulated into a mission. After the employers know what business they are in and what they are trying to accomplish, every unit in the company should have a strategy for carrying it out. Each unit or department should be established or defined by a business strategy.

Strategy Also Involves Two Other Elements:

Footprint: The business area in which an enterprise operates in a particular geographical region.

Positioning: How the enterprise position themselves against the competition.

Business strategy is a type of strategy that a firm can develop. Business strategy is about deciding how a firm is going to

Compete
Organize
Manage

If the firm lacks the necessary competences to pursue a particular strategy, the firm should not pursue it. The development of the business strategy is usually organized into a business strategy planning process. The business strategy includes not only the macro-level strategy of the entire business but also the micro-level strategies of the subordinate parts of the organization. The business strategy at any time may be different from the general strategy of the organization.

The business strategy must be expressed at the beginning of a lifecycle of products or services. This strategy may be modified during the life cycle as a result of new technologies, changes in customer needs, changes in competitive environment, changes in market demand, etc.

Business strategies create the framework for the company’s tactic. According to Porter, the key to good business strategy is to make it fit as well as possible to the environment and resources.

It is often said that strategy forms the basis of the sustainable competitive advantage of a company. It is one of the key components of strategic management and strategic planning. It is a plan of action an organization uses to achieve a societal purpose, drive objectives, and solve problems. It also refers to the organisation level direction as well as an integrated policy of deploying the resources of the organisation to serve a market. The basic purpose of any strategy is to achieve a goal.

The Strategic Management Field Is Usually Considered To Consist Of Two Major Activities:

Strategy formulation
Strategy implementation

Strategy Formulations and implementation are equally important but different activities. Strategy formulation is concerned with identifying the strategy for the organizations, whereas strategy implementation is concerned with translating the strategy into practices and decisions.

Strategy implementation is guided or regulated by a bureaucratic approach. On the contrary, an entrepreneurial approach should be used in developing the strategy.

Strategy Can Be Of Different Types:

Depending upon the

Nature of strategy
Structure of strategy
Nature of strategy

There can be mainly three types of strategies:

Horizontal strategy
Vertical strategy
Stacked strategy

Horizontal Strategy

A horizontal strategy is one where the firm tries to cover the full market by either innovating more or improving the product. A horizontal strategy is aimed at offering improvement in products or services which widens the market of the firm.

In horizontal product differentiation strategies the firm competes by targeting market segments the firm did not serve immediately. In vertical product differentiation strategies the firm competes in the same product market by getting into the areas the firm did not serve previously.

Vertical Strategy

A vertical strategy is one where the firm tries to get the market by entering the different levels of the market to reach the customer. In vertical market penetration strategies the firm deals with customers one level down from the customer it serves immediately. In vertical market extension strategies the firm serves more segments of customers than it does presently.

Stacked Strategy

A stacked strategy is a combination of both, a horizontal and vertical strategy. A stacked strategy does not only bring the firm to a different level of market but also sees that it meets the customers with new products and services.

A stacked strategy is an important kind of strategy where the market penetration and market extension come together to meet the customer. A stacked strategy portrays the strategy in Fig-1. Offen and Davis presented the different aspects of a particular strategy with respect to its characteristics.

Structure Of Strategy

There are two kinds of strategies:

Primary strategy
Compensatory strategy

Primary Strategy

A primary strategy is one strategy that is critical to the success of the firm in the intermediate term. A primary strategy is usually a building block to higher level strategies.The selection of the primary strategy is not settled at the time period of the strategy, but it should be reviewed periodically.

Compensatory Strategy

A compensatory strategy is one strategy that helps the organization to make up for the deficiencies or weaknesses in the primary strategy. A compensatory strategy is usually a complementary strategy to the primary strategy.

Types of strategy can be expressed by the terms defensive strategy, offensive strategy, preemptive strategy, and strategic niche. Prahalad and Hamel (1990) distinguished between defensive strategy, offensive strategy, and preemptive strategy. In their view, the defensive strategy is one where the organization defends itself against the existing player. The offensive strategy is specific about who the customers are for the organization. If the customer does not know the organization the organization should make sure that they do. The preemptive strategy is related to new and emerging technologies. In Prahalad and Hamel’s opinion, new and emerging technologies are all about being first to the market.

Models Of Strategic Choice

There are various models of strategic choice. These are the following:

House of strategy
Balanced scorecard
Star
BCG
MODE

House Of Strategy

The house of strategy is a model for resolving the problems which the companies face in strategy formation and strategy implementation. This model depicts company’s strategy in terms of a house in which various departments are like the rooms of the house. This model shows that there are two important aspects that determine the company’s strategy:

Organizational structure
Process technology

The organization structure will directly affect the ‘speed and efficiency’ of the business and technology will affect the ‘degree of differentiation’.

The different aspects of the house of strategy are:

Primary strategy
Compensatory strategy
Reserve strategy
Offensive strategy
Defensive strategy
Compensatory strategy
Plan B
Business model
Core competencies
Strategic context
Strategic planning process
Matrix organization

Matrix organization is an organizational structure where the managerial responsibilities are cross-functional. It allows the firm to proceed with two or more strategic directions simultaneously rather than performing the tasks in sequence. The organizational structure are as follows: Exaggerated Matrix · Tandem · Cross-functional team

Balanced Scorecard

The balanced scorecard helps the companies to align their strategic and operational goals by assessing their performance against four perspectives in the present and in the future. The balanced scorecard is a strategic management tool and it is also a measurement tool. In a balanced scorecard the companies which are pursuing a strategy should have to take into consideration the four perspectives, that is,

Financial perspective
Customer perspective
Internal processes perspective
Learning and growth perspective

Star

The utility of the star model lies in the fact that it is applicable to small businesses as well as multinational corporations. Corporate star strategy is a simple model that portrays a range of different strategies for a firm. The broad division of the five strategies shows that there are two categories, open-space and consolidated. The open-space division is characterized by using rapidly changing market forces to shape the firm’s strategy. The consolidated division is characterized by maintaining market stability through the skill of the firm.

BCG

In the BCG matrix, the company has to determine its position on two dimensions, the market share and the growth rate of the market. The matrix is as follows: