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

evaluate economic, social, cultural, demographic, environmental, political,

governmental, legal, technological, and competitive information. Illustrated
in Table 3-11, the EE !atri" can be developed in #ve steps$
1. %ist &e' e"ternal factors as identi#ed in the e"ternal-audit process.
Include a total of from ten to twent' factors, including both
opportunities and threats a(ecting the #rm and its industr'. %ist the
opportunities #rst and then the threats. )e as speci#c as possible,
using percentages, ratios, and comparative numbers whenever
possible.
*. Assign to each factor a weight that ranges from +.+ ,not important-
to 1.+ ,ver' important-. The weight indicates the relative importance
of that factor to being successful in the #rm.s industr'. /pportunities
TABLE 3-11 An Example External Factor Evaluation Matrix for UST, Inc.
EI!"TE#
$E% E&TE'(AL FA)T*'S EI!"T 'ATI(! S)*'E
Opportunities
1. !lo+al mar,et- are practicall. untappe/ .10 1 .10
+. -mo,ele-- to+acco mar,et
1. Increa-e/ /eman/ cau-e/ +. pu+lic .20 3 .10
+annin3 of -mo,in3
3. A-tronomical Internet a/verti-in3 .20 1 .20
3ro4t5
6. 7in,erton i- lea/er in /i-count to+acco .10 6 .82
mar,et
0. More -ocial pre--ure to 9uit -mo,in3, .12 3 .32
t5u- lea/in3 u-er- to -4itc5 to
alternative-
Threats
1. Le3i-lation a3ain-t t5e to+acco in/u-tr. .12 1 .12
2. 7ro/uction limit- on to+acco increa-e- .20 3 .10
competition for pro/uction
3. Smo,ele-- to+acco mar,et i- concen- .20 1 .12
trate/ in -out5ea-t re3ion of Unite/ State-
6. Ba/ me/ia expo-ure from t5e F#A .12 1 .12
0. )linton A/mini-tration .12 1 .12
T*TAL 1.22 1.12
t5reat-, +ut t5reat- too can receive 5i35 4ei35t- if t5e. are e-peciall. -evere or
t5reatenin3. Appropriate 4ei35t- can +e /etermine/ +. comparin3 -ucce--ful 4it5
un-ucce--ful competitor- or +. /i-cu--in3 t5e factor an/ reac5in3 a 3roup con-en-u-
T5e -um of all 4ei35t- a--i3ne/ to t5e factor- mu-t e9ual 1.2.
3. A--i3n a 1-to-6 ratin3 to eac5 ,e. external factor to in/icate 5o4 effectivel. t5e firm:-
current -trate3ie- re-pon/ to t5e factor, 45ere 6 ; t5e response is superior, 3 ; t5e
response is above average, 2 = the response is average, an/ 1 ; t5e
response is poor< 'atin3- are +a-e/ on effectivene-- of t5e firm:- -trate3ie-. 'atin3-
are t5u- compan.-+a-e/, 45erea- t5e 4ei35t- in Step 2 are in/u-tr.-+a-e/. It i-
important to note t5at +ot5 t5reat- an/ opportunitie- can receive a 1, 1, 3, or 6.
6. Multipl. eac5 factor:- 4ei35t +. it- ratin3 to /etermine a 4ei35te/ -core.
0. Sum t5e 4ei35te/ -core- for eac5 varia+le to /etermine t5e total 4ei35te/ -core for t5e
or3ani=ation.
'e3ar/le-- of t5e num+er of ,e. opportunitie- an/ t5reat- inclu/e/ in an EFE Matrix, t5e
5i35e-t po--i+le total 4ei35te/ -core for an or3ani=ation i- 6.2 an/ t5e lo4e-t po--i+le total
4ei35te/ -core i- 1.2. T5e avera3e total 4ei35te/ -core i- 1.0. A total 4ei35te/ -core of 6.2
in/icate- t5at an or3ani=ation i- re-pon/in3 in an out-tan/in3 4a. to exi-tin3 opportunitie- an/
t5reat- in it- in/u-tr.. In ot5er 4or/-, t5e firm:- -trate3ie-
effectivel. ta,e a/vanta3e of exi-tin3 opportunitie- an/ minimi=e t5e potential a/ver-e effect
of external t5reat-. A total -core of 1.2 in/icate- t5at t5e firm:- -trate3ie- are not capitali=in3 on
opportunitie- or avoi/in3 external t5reat-.
An example of an EFE Matrix i- provi/e/ in Ta+le 3-11 for UST, Inc., t5e manufacturer,
of - S,oal an/ )open5a3en -mo,ele-- to+acco. (ote t5at t5e )linton A/mini-tration 4a-
con-i/ere/ to +e t5e mo-t important factor affectin3 t5i- in/u-tr., a- in/icate/ +. t5e 4ei35t of
2.12. UST 4a- not pur-uin3 -trate3ie- t5at effectivel. capitali=e on t5i- opportunit., a-
in/icate/ +. t5e ratin3 of 1.21. T5e total 4ei35te/ -core of 1.12 in/icate- t5at UST i- +elo4
avera3e in it- effort to pur-ue -trate3ie- t5at capitali=e on external opportunitie- an/ avoi/
t5reat-. It i- important to note 5ere t5at a t5orou35 un/er-tan/in3 of t5e factor- +ein3 u-e/ in
t5e EFE Matrix i- more important t5an t5e actual 4ei35t- an/ ratin3- a--i3ne/.
TABLE 3-11 A )ompetitive 7rofile Matrix
A>*( L:*'EAL 7'*)TE' ? !AMBLE
)'ITI)AL SU))ESS FA)T*'S EI!"T 'ATI(! S)*'E 'ATI(! S)*'E 'ATI(! S)*'E
A/verti-in3 2.12 1 2.12 6 2.@2 3 2.82
7ro/uct Aualit. 2.12 6 2.62 6 2.62 3 2.32
7rice )ompetitivene-- 2.12 3 2.32 3 2.32 6 2.62
Mana3ement 2.12 6 2.62 3 2.32 3 2.32
Financial 7o-ition 2.10 6 2.82 3 2.60 3 2.60
)u-tomer Lo.alt. 2.12 6 2.62 6 2.62 1 2.12
!lo+al Expan-ion 2.12 6 2.@2 1 2.62 1 2.62
Mar,et S5are 2.20 1 2.20 6 2.12 3 2.10
T*TAL 1.22 3.10 3.10 1.@2
(ote< B1C T5e ratin3- value- are a- follo4-< 1 ; maDor 4ea,ne--, 1 ; minor 4ea,ne--, 3 ; minor -tren3t5, 6 ; maDor -tren3t5. B1C A- in/icate/
+. t5e total 4ei35te/ -core of 1.@, )ompetitor 3 i- 4ea,e-t. B3C *nl. ei35t critical -ucce-- factor- are inclu/e/ for -implicit.E t5i- i- too fe4 in
actualit..
T"E )*M7ETITI>E 7'*FILE MAT'I& B)7MC
T5e Competitive Profile Matrix (CPM) i/entifie- a firm:- maDor competitor- an/ t5eir particular
-tren3t5- an/ 4ea,ne--e- in relation to a -ample firm:- -trate3ic po-ition. T5e 4ei35t- an/ total
4ei35te/ -core- in +ot5 a )7M an/ EFE 5ave t5e -ame meanin3. "o4ever, t5e factor- in a )7M
inclu/e +ot5 internal an/ external i--ue-E t5erefore, t5e ratin3- refer to -tren3t5- an/ 4ea,ne--e-,
45ere 6 ; maDor -tren3t5, 3 ; minor -tren3t5, 1 ; minor 4ea,ne--, an/ 1 ; maDor 4ea,ne--. T5ere
are -ome important /ifference- +et4een t5e EFE an/ )7M. Fir-t of all, t5e critical -ucce-- factor-
in a )7M are +roa/erE t5e. /o not inclu/e -pecific or factual /ata an/ even ma. focu- on internal
i--ue-. T5e critical -ucce-- factor- in a )7M al-o are not 3roupe/ into opportunitie- an/ t5reat- a-
t5e. are in an EFE. In a )7M t5e ratin3- an/ total 4ei35te/ -core- for rival firm- can +e compare/
to t5e -ample firm<, T5i- comparative anal.-i- provi/e- important internal -trate3ic information.
A -ample )ompetitive 7rofile Matrix i- provi/e/ in Ta+le 3-11. In t5i- example,
a/verti-in3 an/ 3lo+al expan-ion are t5e mo-t important critical -ucce-- factor-, a- in/icate/ +. a
4ei35t of 2.12. Avon:- an/ L:*real:- pro/uct 9ualit. are -uperior, a- evi/ence/
v
+. a ratin3 of 6E L:*real:- Ffinancial po-itionF i- 3oo/, a- in/icate/ +. a ratin3 of 3E 7rocter ?
!am+le i- t5e 4ea,e-t firm overall, a- in/icate/ +. a total 4ei35te/ -core of 1.@2.
*t5er t5an t5e critical -ucce-- factor- li-te/ in t5e example )7M, ot5er factor- often
inclu/e/ in t5i- anal.-i- inclu/e +rea/t5 of-pro/uct line, effectivene-- of -ale- /i-tri+ution,
proprietar. or patent a/vanta3e-, location of facilitie-, pro/uction capacit. an/ effi-
cienc., experience, union relation-, tec5nolo3ical a/vanta3e-, an/ e-commerce experti-e.
A 4or/ on interpretation< Gu-t +ecau-e one firm receive- a 3.1 ratin3 an/ anot5er receive- a 1.@ ratin3 in a
)ompetitive 7rofile Matrix, it /oe- not follo4 t5at t5e fir-t firm i- 12 percent +etter t5an t5e -econ/.
(um+er- reveal t5e relative -tren3t5 of firm-, +ut t5eir implie/ preci-ion i- an illu-ion. (um+er- are not
ma3ic. T5e aim i- not to arrive at a -in3le num+er, +ut rat5er to a--imilate an/ evaluate information in a
meanin3ful 4a. t5at ai/- in /eci-ion ma,in3.