External Factor Evaluation

(EFE) Matrix and

Competitive Profile Matrix
EXTERNAL FACTOR EVALUATION MATRIX

•External Factor Evaluation (EFE) Matrix allows strategists

to summarize and evaluate economic, social, cultural,
demographic, environmental, political, governmental, legal,
technological, and competitive information.

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EFE STEPS

•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 numbers whenever possible.

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EFE STEPS
•Assign to each factor a weight that ranges from 0.0 (not important) to 1.0 (very
important).
• 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.

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 EFE STEPS
•Assign a rating between 1 and 4 to each key external factor to indicate how effectively the
firm’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.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.

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 EFE STEPS

•Multiply each factor’s weight by its rating to determine a

weighted score.
•Sum the weighted scores for each variable to determine
the total weighted score for the organization.

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 EFE NOTES
•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.
•The average total weighted score is 2.5.
•A total weighted score of 4.0 indicates that an organization is responding in
an outstanding way to existing opportunities and threats in its industry. In
other words, the firm’s strategies effectively take advantage of existing
opportunities and minimize the potential adverse effects of external threats.
•A total score of 1.0 indicates that the firm’s strategies are not capitalizing on
opportunities or avoiding external threats.

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EFE SAMPLE

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 COMPETITIVE PROFILE MATRIX

•The Competitive Profile Matrix (CPM) identifies a firm’s

major competitors and its particular strengths and
weaknesses in relation to a sample firm’s strategic position.
•The weights and total weighted scores in both a CPM and
an EFE have the same meaning.

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 COMPETITIVE PROFILE MATRIX

•However, critical success factors in a CPM include both

internal and external issues; therefore, the ratings refer to
strengths and weaknesses, where
• 4 = major strength,
• 3 = minor strength,
• 2 = minor weakness, and
•1 = major weakness.

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COMPETITIVE PROFILE MATRIX

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Strategic
Business
Analysis

Learn More Prof. JB Bernat, PhDc

RESOURCES AND CAPABILITIES ANALYSIS

•Resource-based view (RBV) of strategy pioneered by Jay

Barney at the University of Utah says that the competitive
advantage and superior performance of an organization
are explained by the distinctiveness of its resources and
capabilities.

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RESOURCES AND CAPABILITIES ANALYSIS

• Distinctive resources and capabilities are required to

achieve competitive advantage.
• For example, Apple has distinctive resources in
smartphone technologies and in its powerful brand,
together with distinctive capabilities in design and in
understanding consumer behavior.

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VRIO FRAMEWORK

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VRIO FRAMEWORK

•V – value of resources and capabilities

• Resources and capabilities are valuable when they create a
product or a service that is of value to customers and enables the
organization to respond to environmental opportunities or threats.
• There are three components to consider here: value to
customers, taking advantage of opportunities and neutralizing
threats & cost.

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VRIO FRAMEWORK

•R – rarity
• Rare resources and capabilities, on the other hand, are those
possessed uniquely by one organization or by a few others.

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VRIO FRAMEWORK

•I – inimitability
• Sustainable competitive advantage also involves identifying
inimitable resources and capabilities – those that competitors find
difficult and costly to imitate or obtain or substitute.

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VRIO FRAMEWORK

•O – organizational support
• Sustainable competitive advantage also involves identifying
inimitable resources and capabilities – those that competitors find
difficult and costly to imitate or obtain or substitute.

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VRIO ANALYSIS

•A VRIO analysis thus helps to evaluate if, how and to what

extent an organization or company has resources and
capabilities that are
• (i) valuable,
• (ii) rare,
• (iii) inimitable and
• (iv) supported by the organization.
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VRIO ANALYSIS

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VALUE CHAIN ANALYSIS

•The value chain describes the categories of activities

within an organization which, together, create a product or
service.
•Most organizations are also part of a wider value system,
the set of inter-organizational links and relationships that
are necessary to create a product or service.

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VALUE CHAIN ANALYSIS

•Primary activities are directly concerned with the creation

or delivery of a product or service.
For example, for a manufacturing business:
•Inbound logistics are activities concerned with receiving,
storing and distributing inputs to the product or service
including materials handling, stock control, transport, etc.

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VALUE CHAIN ANALYSIS

For example, for a manufacturing business:

• Operations transform these inputs into the final product
or service: machining, packaging, assembly, testing, etc.
• Outbound logistics collect, store and distribute the
product or service to customers; for example, warehousing,
materials handling, distribution, etc.

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VALUE CHAIN ANALYSIS

For example, for a manufacturing business:

• Marketing and sales provide the means whereby consumers
or users are made aware of the product or service and are able
to purchase it. This includes sales administration, advertising
and selling.
• Service includes those activities that enhance or maintain the
value of a product or service, such as installation, repair,
training and spares.
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VALUE CHAIN ANALYSIS

Each of these groups of primary activities is linked to support

activities which help to improve the effectiveness or efficiency of
primary activities:

• Procurement. Processes that occur in many parts of the

organization for acquiring the various resource inputs to
the primary activities. These can be vitally important in
achieving scale advantages.
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VALUE CHAIN ANALYSIS

Each of these groups of primary activities is linked to support activities

which help to improve the effectiveness or efficiency of primary activities:

• Technology development. All value activities have a

‘technology’, even if it is just know-how. Technologies may be
concerned directly with a product (e.g. R&D, product design) or
with processes (e.g. process development) or with a particular
resource (e.g. raw materials improvements).

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VALUE CHAIN ANALYSIS

Each of these groups of primary activities is linked to support

activities which help to improve the effectiveness or efficiency of
primary activities:

• Human resource management. This transcends all

primary activities and is concerned with recruiting,
managing, training, developing and rewarding people
within the organization.
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VALUE CHAIN ANALYSIS

Each of these groups of primary activities is linked to support

activities which help to improve the effectiveness or efficiency of
primary activities:

• Infrastructure. The formal systems of planning, finance,

quality control, information management and the structure
of an organization.

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TOWS MATRIX

• SWOT can also help focus discussion on future choices

and the extent to which an organization is capable of
supporting these strategies.
• A useful way of doing this is to use a TOWS matrix.

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TOWS MATRIX

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