Stage 1:

The Input Stage

Internal Factor Evaluation

Matrix (IFE)

External Factor Evaluation

Matrix (EFE)

Competitive Profile
Matrix

IFE Matrix
 (Internal Factor Evaluation)
Internal Factor Evaluation (IFE) matrix is a strategic management tool for auditing or
evaluating major strengths and weaknesses in functional areas of a business. IFE matrix also
provides a basis for identifying and evaluating relationships among those areas. The Internal
Factor Evaluation matrix or short IFE matrix is used in strategy formulation.

The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can be utilized
to evaluate how  a company is performing in regards to identified internal strengths and
weaknesses of a company. The IFE matrix method conceptually relates to the Balanced
Scorecard method in some aspects

How can I create the IFE matrix?

The IFE matrix can be created using the following five steps:

Key internal factors...

Conduct internal audit and identify both strengths and weaknesses in all your business areas. It is
suggested you identify 10 to 20 internal factors, but the more you can provide for the IFE matrix,
the better. The number of factors has no effect on the range of total weighted scores (discussed
below) because the weights always sum to 1.0, but it helps to diminish estimate errors resulting
from subjective ratings. First, list strengths and then weaknesses. It is wise to be as specific and
objective as possible. You can for example use percentages, ratios, and comparative numbers.

Weights...

Having identified strengths and weaknesses, the core of the IFE matrix, assign a weight that
ranges from 0.00 to 1.00 to each factor. The weight assigned to a given factor indicates the
relative importance of the factor. Zero means not important. One indicates very important. If you
work with more than 10 factors in your IFE matrix, it can be easier to assign weights using the 0
to 100 scale instead of 0.00 to 1.00. Regardless of whether a key factor is an internal strength or
weakness, factors with the greatest importance in your organizational performance should be
assigned the highest weights. After you assign weight to individual
factors, make sure the sum of all weights equals 1.00 (or 100 if using
the 0 to 100 scale weights).

The weight assigned to a given factor indicates the relative importance of the factor to being
successful in the firm's industry. Weights are industry based.
Rating...

Assign a 1 to X rating to each factor. Your rating scale can be per your preference. Practitioners
usually use rating on the scale from 1 to 4. Rating captures whether the factor represents a major
weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major
strength (rating = 4). If you use the rating scale 1 to 4, then strengths must receive a 4 or 3 rating
and weaknesses must receive a 1 or 2 rating.

Note, the weights determined in the previous step are industry based. Ratings are company
based.

Multiply...

Now we can get to the IFE matrix math. Multiply each factor's weight by its rating. This will
give you a weighted score for each factor.

Sum...

The last step in constructing the IFE matrix is to sum the weighted scores for each factor.
This provides the total weighted score for your business.

Example of IFE matrix

The following table provides an example of an IFE matrix.

Weights times ratings equal weighted score.

What values does the IFE matrix take?

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 (assuming you used the 1 to 4 rating scale). The average
score you can possibly get is 2.5.

Side note...

Why is the average 2.5 and not 2.0? Let's explain using an example. You have 4 factors, each has
weight 0.25. Factors have the following rating: 1, 4, 1, 4. This will result in individual weighted
scores 0.25, 1, 0.25, and 1 for factors 1 through 4. If you add them up, you will get total IFE
matrix weighted score 2.5 which is also the average in this case.

Total weighted scores well below 2.5 point to internally weak business. Scores significantly
above 2.5 indicate a strong internal position.

What if a key internal factor is both a strength and a weakness in IFE matrix?

When a key internal factor is both a strength and a weakness, then include the factor twice in the
IFE Matrix. The same factor is treated as two independent factors in this case. Assign weight and
also rating to both factors.

What are the benefits of the IFE matrix?

To explain the benefits, we have to start with talking about one disadvantage. IFE matrix or
method is very much subjective; after all other methods such as the TOWS or SWOT matrix are
subjective as well. IFE is trying to ease some of the subjectivity by introducing numbers into the
concept.

Intuitive judgments are required in populating the IFE matrix with factors. But, having to assign
weights and ratings to individual factors brings a bit of empirical nature into the model.

How does the IFE matrix differ from the SWOT matrix method?

More is better...

One difference is already obvious. It is the weights and ratings. This difference leads to another
one. While it is suggested that the SWOT matrix is populated with only a handful of factors, the
opposite is the case with the IFE matrix.

Populating each quadrant of the SWOT matrix with a large number of factors can lead to the
point where we are over-analyzing the object of our analysis. This does not happen with IFE
matrix. Including many factors into the IFE matrix leads to each factor having only a small
weight. Therefore, if we are subjective and assign unrealistic rating to some factor, it will not
matter very much because that particular factor has only a small weight (=small importance) in
the whole matrix.

It is important to note that a thorough understanding of individual factors included in the IFE
matrix is still more important than the actual numbers.
 EFE Matrix
(External Factor Evaluation)
External Factor Evaluation (EFE) matrix method is a strategic-management tool often used
for assessment of current business conditions. The EFE matrix is a good tool to visualize and
prioritize the opportunities and threats that a business is facing.

The EFE matrix is very similar to the IFE matrix. The major difference between the EFE matrix
and the IFE matrix is the type of factors that are included in the model. While the IFE matrix
deals with internal factors, the EFE matrix is concerned solely with external factors.

External factors assessed in the EFE matrix are the ones that are subjected to the will of social,
economic, political, legal, and other external forces.

How do I create the EFE matrix?

Developing an EFE matrix is an intuitive process which works conceptually very much the same
way like creating the IFE matrix. The EFE matrix process uses the same five steps as the IFE
matrix.

List factors: The first step is to gather a list of external factors. Divide factors into two groups:
opportunities and threats.

Assign weights: Assign a weight to each factor. The value of each weight should be between 0
and 1 (or alternatively between 10 and 100 if you use the 10 to 100 scale). Zero means the factor
is not important. One or hundred means that the factor is the most influential and critical.  The
total value of all weights together should equal 1 or 100.

Rate factors: Assign a rating to each factor. Rating should be between 1 and 4. Rating indicates
how effective the firm’s current strategies respond to the factor. 1 = the response is poor. 2 = the
response is below average. 3 = above average. 4 = superior. Weights are industry-specific.
Ratings are company-specific.

Multiply weights by ratings: Multiply each factor weight with its rating. This will calculate the
weighted score for each factor.

Total all weighted scores: Add all weighted scores for each factor. This will calculate the total
weighted score for the company.
EFE matrix example

Total weighted score of 2.46 indicates that the business has slightly less than average ability to
respond to external factors. (See the page on IFE matrix for an explanation of what category the
2.46 figure falls to.)

What should I include in the EFE matrix?

Now that we know how to construct or create the EFE matrix, let's focus on factors. External
factors can be grouped into the following groups:

 Social, cultural, demographic, and environmental variables:

 Economic variables
 Political, government, business trends, and legal variables

Below you can find examples of some factors that capture aspects external to your business.
These factors may not all apply to your business, but you can use this listing as a starting point.

Social, cultural, demographic, and environmental factors...

- Aging population
- Percentage or one race to other races
- Per-capita income
- Number and type of special interest groups
- Widening gap between rich & poor
- Number of marriages and/or divorces
- Ethnic or racial minorities
- Education
- Trends in housing, shopping, careers, business
- Number of births and/or deaths
- Immigration & emigration rates

Economic factors...
- Growth of the economy
- Level of savings, investments, and capital spending
- Inflation
- Foreign exchange rates
- Stock market trends
- Level of disposable income
- Import and export factors and barriers
- Product life cycle (see the Product life cycle page)
- Government spending
- Industry properties
- Economies of scale
- Barriers to market entry
- Product differentiation
- Level of competitiveness (see the Michael Porter's Five Forces model)

Political, government, business trends & legal factors...

- Globalization trends
- Government regulations and policies
- Worldwide trend toward similar consumption patterns
- Internet and communication technologies (e-commerce)
- Protection of rights (patents, trade marks, antitrust legislation)
- Level of government subsidies
- International trade regulations
- Taxation
- Terrorism
- Elections and political situation home and abroad
 Stage 2:
The Matching Stage

TOWS Matrix

BCG Matrix

SPACE Matrix

IE Matrix
 SWOT Analysis Matrix
SWOT analysis, method, or model is a way to analyze competitive position of your company.
SWOT analysis uses so-called SWOT matrix to assess both internal and external aspects of
doing your business. The SWOT framework is a tool for auditing an organization and its
environment.

SWOT is the first stage of planning and helps decision makers to focus on key issues. SWOT
method is a key tool for company top officials to formulate strategic plans. Each letter in the
word SWOT represents one strong word: S = strengths, W = weaknesses, O = opportunities,
T = threats.

SWOT model analyzes factors that are internal to your business and also factors that affect your
company from outside. Strengths and weaknesses in the SWOT matrix are internal factors.
Opportunities and threats are external factors.

SWOT can be used in conjunction with other tools for strategic planning, such as the Porter's
Five-Force analysis or the Balanced Scorecard framework. SWOT is a very popular tool in
marketing because it is quick, easy, and intuitive.

What is SWOT matrix?

The concept of determining strengths, weaknesses, threats, and opportunities is the fundamental
idea behind the SWOT model. To present the model in a more understandable way, scholars
came up with so-called SWOT matrix. SWOT matrix is only a graphical representation of the
SWOT framework.

The above is a schema of how SWOT works. You start at the top level and go down to details.
When this is filled with content, it gets the shape of a matrix, such as the example below:
SWOT matrix makes understanding the model easier.

Can you show SWOT analysis on an example?

Strengths and weaknesses are internal value creating (or destroying) factors such as assets, skills,
or resources a company has at its disposal relatively to its competitors. Below you can find a few
examples of what your strengths might be:

 Unique product
 Location of your business
 Patents, know-how, trade secrets
 Worker's unique skill set
 Corporate culture, company image
 Quality of your product
 Access to financing
 Operational efficiency

The following list shows a few examples of weaknesses:

 Location of your business

 Lack of quality and customer service
 Poor marketing and sales
 Access to resources
 Undifferentiated products or services
Opportunities and threats are external value creating (or destroying) factors a company cannot
control but emerge from either the competitive dynamics of the industry or market or from
demographic, economic, political, technical, social, legal, or cultural factors.

An opportunity in the SWOT model could be for example:

 A new emerging or developing market (niche product, place - new country, less
competition)
 Merger, joint venture, or strategic alliance
 Market trends
 New technologies
 Social changes (for example demographics)

And now the final one, threats. A threat could be:

 New competition in the market, possibly with new products or services

 Price wars
 Economic conditions
 Political changes
 Competitor oligopoly or monopoly
 Taxation
 Availability of resources

Factors related to each aspect of the SWOT model depend very much of the nature of your
business. SWOT for a manufacturing company will be different from a SWOT for an internet
start-up.

Is SWOT analysis a hard science?

The answer is no. SWOT analysis can be very subjective. Someone can see a new firm coming
into the market as a threat because it takes away your current customers. Someone else might see
the same company as opportunity because that company might have innovative ideas which your
business can explore, and your business might even benefit from possible takeover of that new
competitor.

What is the difference between SWOT and TOWS?

TOWS analysis is very similar to the SWOT method. TOWS simply looks at the negative factors
first in order to turn them into positive factors.

How should I do the SWOT analysis?

There are a number of simple rules that you can go by when creating a SWOT matrix in SWOT
analysis.
Be realistic: Make sure you assess your situation objectively. It is better to be more pessimistic
about weaknesses and threats and lighter about strengths and opportunities.

Today versus future: When doing the SWOT analysis, distinguish between today's state of your
business and your expectation for the future. Mixing your expectation with the current state will
result in skewed outcome.

Simple: Keep your SWOT matrix short and simple. Avoid complexity and over analysis. If you
want to include many points to each quadrant of the SWOT matrix, it is a good idea to weight
them.

What is the next step in SWOT analysis?

We mentioned that the SWOT analysis is very subjective. One way to bring numbers into the
SWOT analysis and make it more useful is to weight individual items. Give a weight to every
item in the SWOT matrix and then add them together. Each quadrant in the SWOT matrix will
result in some number which as a whole will give you a better picture where your business is
relative to other quadrants. This leads us to two models called the IFE matrix and EFE matrix
that are rooted in the SWOT analysis.

There are three other models related to this called the BCG matrix model, SPACE matrix model,
and QSPM model which you can find here: BCG matrix, SPACE matrix model, QSPM model.
 Five Forces Model by Michael Porter

Five Forces model of Michael Porter is a very elaborate concept for evaluating company's
competitive position. Michael Porter provided a framework that models an industry and therefore
implicitly also businesses as being influenced by five forces. Michael Porter's Five Forces
model is often used in strategic planning.

Porter's competitive five forces model is probably one of the most commonly used business
strategy tools and has proven its usefulness in numerous situations. When exploring strategic
management models, you also might want to check out the BCG matrix, SWOT analysis, IFE
matrix, and SPACE matrix models.

Why would I need to use Porter's Five Forces model?

In general, any CEO or a strategic business manager is trying to steer his or her business in a
direction where the business will develop an edge over rival firms. Michael Porter's model of
Five Forces can be used to better understand the industry context in which the firm operates.
Porter's Five Forces model is a strategy tool that is used to analyze attractiveness of an industry
structure.

What is good about Porter's Five Forces model?

Porter has the ability to represent complex concepts in relatively easily accessible formats. His
book about the Five Forces model is written in a very easy and understandable language. Even
though his model is backed up by some complex model, the model itself is simple and easily
comprehensible at all levels. 

Porter's Five Forces model provides suggested points under each main heading, by which you
can develop a broad and sophisticated analysis of competitive position. This can be then used
when creating strategy, plans, or making investment decisions about your business or
organization.

Does Porter's Five Forces model really work?

Theoreticians have different view on this. While some agree that Porter's Five Forces model is
the ultimate explanation of how world works, others disagree. It depends in what time frame we
judge the state of the facts. Even Michael Porter himself acknowledges that time is of essence
when it comes to how his forces interact with each other. 

Numerous economic studies have shown that different industries can sustain different levels of
profitability. This can be attributed to differences in industry structures.

What is the basic idea behind Porter's Five Forces model?

Porter's Five Forces model is made up by identification of 5 fundamental competitive forces:

 Barriers to entry
 Threat of substitutes
 Bargaining power of buyers
 Bargaining power of suppliers
 Rivalry among the existing players

Some later economists also consider government as the sixth force in this model.

When putting all these points together in a graphical representation, we get Porter's Five Forces
model which looks like this:

Force 1: Barriers to entry

Barriers to entry measure how easy or difficult it is for new entrants to enter into the industry.
This can involve for example:

 Cost advantages (economies of scale, economies of scope)

  Access to production inputs and financing,
 Government policies and taxation
 Production cycle and learning curve
 Capital requirements
 Access to distribution channels

Patents, branding, and image also fall into this category.

Force 2: Threat of substitutes

Every top decision makes has to ask: How easy can our product or service be substituted? The
following needs to be analyzed:

 How much does it cost the customer to switch to competing products or services?
 How likely are customers to switch?
 What is the price-performance trade-off of substitutes?

If a product can be easily substituted, then it is a threat to the company because it can compete
with price only.

Force 3: Bargaining power of buyers

Now the question is how strong the position of buyers is. For example, can your customers work
together to order large volumes to squeeze your profit margins? The following is a list of other
examples:

 Buyer volume and concentration

 What information buyers have
 Can buyers corner you in negotiations about price
 How loyal are customers to your brand
 Price sensitivity
 Threat of backward integration
 How well differentiated your product is
 Availability of substitutes

Having a customer that has the leverage to dictate your prices is not a good position.

Force 4: Bargaining power of suppliers

This relates to what your suppliers can do in relationship with you.

 How strong is the position of sellers?

 Are there many or only few potential suppliers?
 Is there a monopoly?
 Do you take inputs from a single supplier or from a group? (concentration)
  How much do you take from each of your suppliers?
 Can you easily switch from one supplier to another one? (switching costs)
 If you switch to another supplier, will it affect the cost and differentiation of your
product?
 Are there other suppliers with the same inputs available? (substitute inputs)

The threat of forward integration is also an important factor here.

Force 5: Rivalry among the existing players

Finally, we have to analyze the level of competition between existing players in the industry.

 Is one player very dominant or all equal in strength/size?

 Are there exit barriers?
 How fast does the industry grow?
 Does the industry operate at surplus or shortage?
 How is the industry concentrated?
 How do customers identify themselves with your brand?
 Is the product differentiated?
 How well are rivals diversified?

Rivalry is the fifth factor in the Five Forces model but probably the one with the most attention.

What are the assumptions behind the Five Forces model?

From the risk-return perspective, Five Forces model indirectly implies that risk-adjusted rates of
return should be constant across firms and industries.

How can I analyze my business from inside?

Porter's Five Forces model views the business from outside. It focuses on assessing competitive

position within industry. If you wanted to analyze your firm from within, you might want to
consider the SWOT model. The SWOT model has some aspects of external view as well but
complements Porter's Five Forces model in the internal view. Another model that you might
want to consider is the Balanced Scorecard and IFE/EFE matrix.

Who is Michael Porter?

Michael Porter is a professor at Harvard Business School and is a leading authority on

competitive strategy and international competitiveness. Michael Porter was born in Ann Arbor,
Michigan.
 BCG Matrix Model
The BCG matrix or also called BCG model relates to marketing. The BCG model is a well-
known portfolio management tool used in product life cycle theory. BCG matrix is often used to
prioritize which products within company product mix get more funding and attention.

The BCG matrix model is a portfolio planning model developed by Bruce Henderson of the
Boston Consulting Group in the early 1970's.

The BCG model is based on classification of products (and implicitly also company business
units) into four categories based on combinations of market growth and market share relative to
the largest competitor.

When should I use the BCG matrix model?

Each product has its product life cycle, and each stage in product's life-cycle represents a
different profile of risk and return. In general, a company should maintain a balanced portfolio
of products. Having a balanced product portfolio includes both high-growth products as well as
low-growth products.

A high-growth product is for example a new one that we are trying to get to some
market. It takes some effort and resources to market it, to build distribution channels, and to
build sales infrastructure, but it is a product that is expected to bring the gold in the future. An
example of this product would be an iPod.

A low-growth product is for example an established product known by the market.

Characteristics of this product do not change much, customers know what they are getting, and
the price does not change much either. This product has only limited budget for marketing. The
is the milking cow that brings in the constant flow of cash. An example of this product would be
a regular Colgate toothpaste.

But the question is, how do we exactly find out what phase our product is in, and how do we
classify what we sell? Furthermore, we also ask, where does each of our products fit into our
product mix? Should we promote one product more than the other one? The BCG matrix can
help with this.

The BCG matrix reaches further behind product mix. Knowing what we are selling helps
managers to make decisions about what priorities to assign to not only products but also
company departments and business units.

What is the BCG matrix and how does the BCG model work?

Placing products in the BCG matrix results in 4 categories in a portfolio of a company:

BCG STARS (high growth, high market share)

- Stars are defined by having high market share in a growing market.

- Stars are the leaders in the business but still need a lot of support for promotion a placement.

- If market share is kept, Stars are likely to grow into cash cows.

BCG QUESTION MARKS (high growth, low market share)

- These products are in growing markets but have low market share.

- Question marks are essentially new products where buyers have yet to discover them.

- The marketing strategy is to get markets to adopt these products.

- Question marks have high demands and low returns due to low market share.

- These products need to increase their market share quickly or they become dogs.

- The best way to handle Question marks is to either invest heavily in them to gain market share
or to sell them.

BCG CASH COWS (low growth, high market share)

- Cash cows are in a position of high market share in a mature market.

- If competitive advantage has been achieved, cash cows have high profit margins and generate a
lot of cash flow.

- Because of the low growth, promotion and placement investments are low.

- Investments into supporting infrastructure can improve efficiency and increase cash flow more.

- Cash cows are the products that businesses strive for.

BCG DOGS (low growth, low market share)

- Dogs are in low growth markets and have low market share.

- Dogs should be avoided and minimized.

- Expensive turn-around plans usually do not help.

And now, let's put all this into a picture:

Are there any problems with the BCG matrix model?

Some limitations of the BCG matrix model include:

 The first problem can be how we define market and how we get data about market share
 A high market share does not necessarily lead to profitability at all times
 The model employs only two dimensions – market share and product or service growth rate
  Low share or niche businesses can be profitable too (some Dogs can be more profitable than
cash Cows)
 The model does not reflect growth rates of the overall market
 The model neglects the effects of synergy between business units
 Market growth is not the only indicator for attractiveness of a market

There are probably even more aspects that need to be considered in a particular use of the BCG
model.

Are there other models that I might be interested in?

We can recommend reading about the SWOT model, SPACE matrix, and Michael Porter's Five
Forces model.

The BCG matrix model has some similarities with the Internal-External IE matrix method.

What is the next level of strategic management analysis?

The BCG matrix can help to find a strategy. But, what if we have 2-3 strategies and need to
decide which one is the best one? The Quantitative Strategic Planning Matrix (QSPM) model can
be used to compare strategic alternatives.
 SPACE Matrix Strategic Management Method
The SPACE matrix is a management tool used to analyze a company. It is used to determine
what type of a strategy a company should undertake. The Strategic Position & Action
Evaluation matrix or short a SPACE matrix is a strategic management tool that focuses on
strategy formulation especially as related to the competitive position of an organization.

The SPACE matrix can be used as a basis for other analyses, such as the SWOT analysis, BCG
matrix model, industry analysis, or assessing strategic alternatives (IE matrix).

What is the SPACE matrix strategic management method?

To explain how the SPACE matrix works, it is best to reverse-engineer it. First, let's take a look
at what the outcome of a SPACE matrix analysis can be, take a look at the picture below. The
SPACE matrix is broken down to four quadrants where each quadrant suggests a different type
or a nature of a strategy:

 Aggressive
 Conservative
 Defensive
 Competitive

This is what a completed SPACE matrix looks like:

This particular SPACE matrix tells us that our company should pursue an aggressive strategy.
Our company has a strong competitive position it the market with rapid growth. It needs to use
its internal strengths to develop a market penetration and market development strategy. This can
include product development, integration with other companies, acquisition of competitors, and
so on.
 Example Strategy Profiles (Figure 6-6)

Aggressive Profiles

FS FS
( +1, +5)
( +4, +4)

CA IS CA IS

ES ES
A financially strong firm that has A firm whose financial strength is a
achieved major competitive advantages dominating factor in the industry
in a growing and stable industry

Example Strategy Profiles (Figure 6-6)

Conservative Profiles

FS FS
(-2, +4)
(-5, +2)

CA IS CA IS

ES ES
A firm that has achieved financial A firm that suffers from major
strength in a stable industry that is not competitive disadvantages in an
growing; the firm has no major industry that is technologically stable
competitive advantages but declining in sales
 Example Strategy Profiles (Figure 6-6)

Competitive Profiles

FS FS

CA IS CA IS

(+5, -1)

(+1, -2)
ES ES
A firm with major competitive An organization that is competing fairly
advantages in a high-growth industry well in an unstable industry

Example Strategy Profiles (Figure 6-6)

Defensive Profiles

FS FS

CA IS CA IS

(-5, -1)

(-1, -5)
ES ES
A firm that has a very weak competitive An financially troubled firm in a very
position in a negative growth, stable unstable industry
industry

Now, how do we get to the possible outcomes shown in the SPACE matrix? The SPACE Matrix
analysis functions upon two internal and two external strategic dimensions in order to determine
the organization's strategic posture in the industry. The SPACE matrix is based on four areas of
analysis.

Internal strategic dimensions:

          Financial strength (FS)

          Competitive advantage (CA)

External strategic dimensions:

          Environmental stability (ES)

          Industry strength (IS)

There are many SPACE matrix factors under the internal strategic dimension. These factors
analyze a business internal strategic position. The financial strength factors often come from
company accounting. These SPACE matrix factors can include for example return on
investment, leverage, turnover, liquidity, working capital, cash flow, and others. Competitive
advantage factors include for example the speed of innovation by the company, market niche
position, customer loyalty, product quality, market share, product life cycle, and others.

Every business is also affected by the environment in which it operates. SPACE matrix factors
related to business external strategic dimension are for example overall economic condition,
GDP growth, inflation, price elasticity, technology, barriers to entry, competitive pressures,
industry growth potential, and others. These factors can be well analyzed using the Michael
Porter's Five Forces model.

The SPACE matrix calculates the importance of each of these dimensions and places them on a
Cartesian graph with X and Y coordinates.

The following are a few model technical assumptions:

- By definition, the CA and IS values in the SPACE matrix are plotted on the X axis.

- CA values can range from -1 to -6

- IS values can take +1 to +6

- The FS and ES dimensions of the model are plotted on the Y axis.

- ES values can be between -1 and -6.

- FS values range from +1 to +6.

How do I construct a SPACE matrix?

The SPACE matrix is constructed by plotting calculated values for the competitive advantage
(CA) and industry strength (IS) dimensions on the X axis. The Y axis is based on the
environmental stability (ES) and financial strength (FS) dimensions. The SPACE matrix can be
created using the following seven steps:

Step 1: Choose a set of variables to be used to gauge the competitive advantage (CA), industry
strength (IS), environmental stability (ES), and financial strength (FS).

Step 2: Rate individual factors using rating system specific to each dimension. Rate competitive
advantage (CA) and environmental stability (ES) using rating scale from -6 (worst) to -1 (best).
Rate industry strength (IS) and financial strength (FS) using rating scale from +1 (worst) to +6
(best).

Step 3: Find the average scores for competitive advantage (CA), industry strength (IS),
environmental stability (ES), and financial strength (FS).

Step 4: Plot values from step 3 for each dimension on the SPACE matrix on the appropriate axis.

Step 5: Add the average score for the competitive advantage (CA) and industry strength (IS)
dimensions. This will be your final point on axis X on the SPACE matrix.

Step 6: Add the average score for the SPACE matrix environmental stability (ES) and financial
strength (FS) dimensions to find your final point on the axis Y.

Step 7: Find intersection of your X and Y points. Draw a line from the center of the SPACE
matrix to your point. This line reveals the type of strategy the company should pursue.

SPACE matrix example

The following table shows what values were used to create the SPACE matrix displayed above.
Each factor within each strategic dimension is rated using appropriate rating scale. Then
averages are calculated. Adding individual strategic dimension averages provides values that are
plotted on the axis X and Y.

Where do I go next?

The SPACE matrix can help to find a strategy. But, what if we have 2-3 strategies and need to
decide which one is the best one? The Quantitative Strategic Planning Matrix (QSPM) model can
help to answer this question.

Internal-External
(IE) Matrix

The Internal-External (IE) matrix is another strategic management tool used to

analyze working conditions and strategic position of a business. The Internal External Matrix or
short IE matrix is based on an analysis of internal and external business factors which are
combined into one suggestive model.

The IE matrix is a continuation of the EFE matrix and IFE matrix models.

How does the Internal-External IE matrix work?

The IE matrix belongs to the group of strategic portfolio management tools. In a similar manner
like the BCG matrix, the IE matrix positions an organization into a nine cell matrix.

The IE matrix is based on the following two criteria:

1. Score from the EFE matrix -- this score is plotted on the y-axis
2. Score from the IFE matrix -- plotted on the x-axis

The IE matrix works in a way that you plot the total weighted score from the EFE matrix on the
y axis and draw a horizontal line across the plane. Then you take the score calculated in the IFE
matrix, plot it on the x axis, and draw a vertical line across the plane. The point where your
horizontal line meets your vertical line is the determinant of your strategy. This point shows the
strategy that your company should follow.

On the x axis of the IE Matrix, an IFE total weighted score of 1.0 to 1.99 represents a weak
internal position. A score of 2.0 to 2.99 is considered average. A score of 3.0 to 4.0 is strong.

On the y axis, an EFE total weighted score of 1.0 to 1.99 is considered low. A score of 2.0 to
2.99 is medium. A score of 3.0 to 4.0 is high.

IE matrix example...

Let us take a look at an example. We calculated IFE matrix for an anonymous company on the
IFE matrix page. The total weighted score calculated on this page is 2.79 which points at a
company with an above-average internal strength.

We also calculated the EFE matrix for the same company on the EFE matrix page. The total
weighted score calculated for the EFE matrix is 2.46 which suggests a slightly less than average
ability to respond to external factors.

Now we plot these values on axes in the IE matrix.

This IE matrix tells us that our company should hold and maintain its position. The company
should pursue strategies focused on increasing market penetration and product development
(more about this below).

What does the IE matrix tell me?

Your horizontal and vertical lines meet in one of the nine cells in the IE matrix. You should
follow a strategy depending on in which cell those lines intersect.

The IE matrix can be divided into three major regions that have different strategy implications.

Cells  I, II, and III suggest the grow and build strategy. This means intensive and aggressive
tactical strategies. Your strategies should focus on market penetration, market development, and
product development. From the operational perspective, a backward integration, forward
integration, and horizontal integration should also be considered.

Cells IV, V, and VI suggest the hold and maintain strategy. In this case, your tactical strategies
should focus on market penetration and product development.

Cells VII, VIII, and IX are characterized with the harvest or exit strategy. If costs for
rejuvenating the business are low, then it should be attempted to revitalize the business. In other
cases, aggressive cost management is a way to play the end game.

What is the difference between the IE matrix and BCG matrix?

First, the IE matrix measures different values on its axes. The BCG matrix measures market
growth and market share. The IE matrix measures a calculated value that captures a group of
external and internal factors. This means that the IE matrix requires more information about
the business than the BCG matrix.

While values for each axis in the BCG matrix are single-factor, values for each axis in the IE
matrix are multi-factor figures.

Because the IE matrix is broader in its definition, strategists often develop both the BCG Matrix
and the IE Matrix when assessing their conditions and formulating strategies.

Is the IE matrix forward-looking?

By default, both the BCG matrix and the IE matrix are constructed using factors related to
current conditions. However, strategists often develop two sets of matrices -- a BCG Matrix and
an IE Matrix for the current state and another set to reflect expectations of the future.

Is there any other management model related to IE matrix?

Yes, the IE matrix model can be developed into an even more analytical tool called the SPACE
matrix.

Besides the IFE and EFE matrix, you might also be interested in reading about the SWOT
matrix.

The Quantitative Strategic Planning Matrix (QSPM) model is the next step in strategic
management decision making. This method can help if we need to decide between strategic
alternatives.
 Competitive profile matrix
(CPM)
• ‘The CPM identifies a firm’s major competitors and
their particular strengths and weaknesses in
relation to a sample firm’s strategic position’.
David 2001, p. 115

• Key success factors (KSFs)

– Technology related
– Distribution related
– Marketing related
– Skills related
– Organisational capability
– Other types of KSFs

Competitive profile matrix

(CPM) (Cont)
Developing the CPM - Example
Company A Company B Company C
Key success factors Weight Rating Score Rating Score Rating Score

Advertising 0.1 3 0.3 3 0.3 4 0.4

Product quality 0.3 4 1.2 2 0.6 3 1.2

Customer loyalty 0.2 3 0.6 2 0.4 2 0.4

Financial position 0.2 3 0.6 2 0.4 4 0.8

Global expansion 0.1 2 0.2 2 0.2 1 0.1

Market share 0.1 3 0.3 2 0.2 2 0.2

Total 1.00 3.2 2.1 3.1

Rating: 1=major weakness, 4=major strength

 Stage 3:
The Decision Stage

Quantitative Strategic
Planning Matrix
(QSPM)

Quantitative Strategic Planning Matrix (QSPM)

Quantitative Strategic Planning Matrix (QSPM) is a high-level strategic management
approach for evaluating possible strategies. Quantitative Strategic Planning Matrix or a QSPM
provides an analytical method for comparing feasible alternative actions. The QSPM
method falls within so-called stage 3 of the strategy formulation analytical framework.

When company executives think about what to do, and which way to go, they usually have a
prioritized list of strategies. If they like one strategy over another one, they move it up on the list.
This process is very much intuitive and subjective. The QSPM method introduces some
numbers into this approach making it a little more "expert" technique.

What is a Quantitative Strategic Planning Matrix or a QSPM?

The Quantitative Strategic Planning Matrix or a QSPM approach attempts to objectively select
the best strategy using input from other management techniques and some easy computations. In
other words, the QSPM method uses inputs from stage 1 analyses, matches them with results
from stage 2 analyses, and then decides objectively among alternative strategies.

Stage 1 strategic management tools...

The first step in the overall strategic management analysis is used to identify key strategic
factors. This can be done using, for example, the EFE matrix and IFE matrix.

Stage 2 strategic management tools...

After we identify and analyze key strategic factors as inputs for QSPM, we can formulate the
type of the strategy we would like to pursue. This can be done using the stage 2 strategic
management tools, for example the SWOT analysis (or TOWS), SPACE matrix analysis,
BCG matrix model, or the IE matrix model.

Stage 3 strategic management tools...

The stage 1 strategic management methods provided us with key strategic factors. Based on their
analysis, we formulated possible strategies in stage 2. Now, the task is to compare in QSPM
alternative strategies and decide which one is the most suitable for our goals.

The stage 2 strategic tools provide the needed information for setting up the Quantitative
Strategic Planning Matrix - QSPM. The QSPM method allows us to evaluate alternative
strategies objectively.

Conceptually, the QSPM in stage 3 determines the relative attractiveness of various strategies
based on the extent to which key external and internal critical success factors are capitalized
upon or improved. The relative attractiveness of each strategy is computed by determining the
cumulative impact of each external and internal critical success factor.

What does a QSPM look like and what does it tell me?

First, let us take a look at a sample Quantitative Strategic Planning Matrix QSPM, see the picture
below. This QSPM compares two alternatives. Based on strategies in the stage 1 (IFE, EFE) and
stage 2 (BCG, SPACE, IE), company executives determined that this company XYZ needs to
pursue an aggressive strategy aimed at development of new products and further penetration of
the market.

They also identified that this strategy can be executed in two ways. One strategy is acquiring a
competing company. The other strategy is to expand internally. They are now asking which
option is the better one.

(Attractiveness Score: 1 = not acceptable; 2 = possibly acceptable; 3 = probably acceptable; 4 =

most acceptable; 0 = not relevant)
Doing some easy calculations in the Quantitative Strategic Planning Matrix QSPM, we came to a
conclusion that acquiring a competing company is a better option. This is given by the Sum Total
Attractiveness Score figure. The acquisition strategy yields higher score than the internal
expansion strategy. The acquisition strategy has a score of 4.04 in the QSPM shown above
whereas the internal expansion strategy has a smaller score of 2.70.

How do I construct a QSPM?

You can see a sample Quantitative Strategic Planning Matrix QSPM above. The left column of a
QSPM consists of key external and internal factors (identified in stage 1). The left column of a
QSPM lists factors obtained directly from the EFE matrix and IFE matrix. The top row consists
of feasible alternative strategies (provided in stage 2) derived from the SWOT analysis, SPACE
matrix, BCG matrix, and IE matrix. The first column with numbers includes weights assigned to
factors. Now let us take a look at detailed steps needed to construct a QSPM.

STEP 1...

Provide a list of internal factors -- strengths and weaknesses. Then generate a list of the firm's
key external factors -- opportunities and threats. These will be included in the left column of the
QSPM. You can take these factors from the EFE matrix and the IFE matrix.

Step 2...

Having the factors ready, identify strategy alternatives that will be further evaluated. These
strategies are displayed at the top of the table. Strategies evaluated in the QSPM should be
mutually exclusive if possible.

Step 3...

Each key external and internal factor should have some weight in the overall scheme. You can
take these weights from the IFE and EFE matrices again. You can find these numbers in our
example in the column following the column with factors.

Step 4...

Attractiveness Scores (AS) in the QSPM indicate how each factor is important or attractive to
each alternative strategy. Attractiveness Scores are determined by examining each key
external and internal factor separately, one at a time, and asking the following question:

Does this factor make a difference in our decision about which strategy to pursue?

If the answer to this question is yes, then the strategies should be compared relative to that key
factor. The range for Attractiveness Scores is 1 = not attractive, 2 = somewhat attractive, 3 =
reasonably attractive, and 4 = highly attractive. If the answer to the above question is no, then
the respective key factor has no effect on our decision. If the key factor does not affect the choice
being made at all, then the Attractiveness Score would be 0.

Step 5...

Calculate the Total Attractiveness Scores (TAS) in the QSPM. Total Attractiveness Scores are
defined as the product of multiplying the weights (step 3) by the Attractiveness Scores (step 4) in
each row.

The Total Attractiveness Scores indicate the relative attractiveness of each key factor and related
individual strategy. The higher the Total Attractiveness Score, the more attractive the strategic
alternative or critical factor.

Step 6...

Calculate the Sum Total Attractiveness Score by adding all Total Attractiveness Scores in each
strategy column of the QSPM.

The QSPM Sum Total Attractiveness Scores reveal which strategy is most attractive. Higher
scores point at a more attractive strategy, considering all the relevant external and internal
critical factors that could affect the strategic decision.

Can I compare more than two strategies using a QSPM?

Yes, in general, any number of alternative strategies can be included in the QSPM analysis. We
included only two alternatives in our example just to keep it simple. It is important to note that
strategies subject to comparison should be mutually exclusive if possible.