Strategic Management

IE
MATRIX
 CONTENTS

TABLE OF

CONTENTS
INTRODUCTION 01

THE IE MATRIX 02

CASE STUDY 03
THE INTERNAL - EXTERNAL MATRIX

DEFINITION
 DEFINITION

A strategic tool that helps businesses

IE evaluate and position their various

divisions or business units based on
MATRIX internal and external factors.
 DEFINITION

Revenue & profit percentages in the IE Matrix provide

IE a comprehensive view, supporting financial

MATRIX performance assessment and resource allocation across

divisions.

20
22
 IMPORTANCE

IMPORTANCE
IN STRATEGIC MANAGEMENT

A strategic roadmap for

01 resource allocation across
various business units

Identifying which units to

02 invest in, maintain, divest or
restructure
Enables managers to make
03 informed decisions about directing
resources

Optimizing the overall

20
22
04 business portfolio
THE INTERNAL - EXTERNAL MATRIX

COMPONENTS
 COMPONENTS

COMPONENTS IFE
MATRIX
The Internal Factor Evaluation
matrix, which assesses the internal
strengths & weaknesses

EFE
MATRIX
The External Factor Evaluation
matrix, which evaluates external
opportunities & threats.
THE INTERNAL - EXTERNAL MATRIX

IFE MATRIX
THE
COMPONENTS
AROWWAI INDUSTRIES

• Helps organizations identify and assess key internal factors,

IFE including strengths and weaknesses in functional areas

MATRIX • Providing a comprehensive view of internal capabilities and

challenges
THE INTERNAL - EXTERNAL MATRIX

HOW TO DEVELOP
IFE MATRIX
 HOW TO DEVELOP

5 STEPS
TO DEVELOP THE IE
MATRIX

STEP 1 STEP 2 STEP 3 STEP 4 STEP 5

List Key Internal Assign Weights Assign Ratings Calculate Caculate Total
Factors Weighted Scores Weighted Score
 HOW TO DEVELOP

STEP
1 Key Internal
List
Factors
• List important strengths and weaknesses for
the organization, identified during the internal
audit

• Identifying 10 to 20 internal factors, but the

more you can provide for the IFE matrix, the
better it is.

• Use precise data, like percentages, ratios, or

comparative metrics, for greater clarity
 HOW TO DEVELOP

STEP
2
Assign Weight
• Each factor is assigned a weight based on its
importance, from 0.0 (not important) to 1.0
(very important)

• The weight reflects the relative importance of

the factor in the firm’s industry

• Factors with the greatest importance in your

organizational performance should be
assigned the highest weights

• After assigning weight to individual factors,

make sure the sum of all weights equals 1.00
 HOW TO DEVELOP

STEP
3
Assign Ratings

• Assign a rating to each factor to indicate its

level of strength or weakness:

1 = Major Weakness
2 = Minor Weakness
3 = Minor Strength
4 = Major Strength
Strengths are rated 3 or 4, while weaknesses are
rated 1 or 2

• Helps define how each factor affects the

organization’s overall performance.
 HOW TO DEVELOP

STEP
4
Calculate Weighted Scores

• By multiplying each factor's weight by its

rating, you can get a weighted score for each
factor.

• The formula is:

WEIGHT * RATING = WEIGHTED SCORE
 HOW TO DEVELOP

STEP
5
Determine
Total Weighted
Score
• Add up the weighted scores to get the total IFE
score.

• This score helps determine the company’s

internal position

• The total weighted score can range from a low

of 1.0 to a high of 4.0, with the average score
being 2.5:
2,79 > 2,5
+Scores below 2.5: Is weak internally
THIS COMPANY HAS A STRONG INTERNAL POSITION
+Scores above 2.5: Has a strong internal
position
THE INTERNAL - EXTERNAL MATRIX

EFE MATRIX
THE
 COMPONENTS
AROWWAI INDUSTRIES

• A strategic-management tool often used for assessment of current

business conditions.

• A good tool to visualize and prioritize the opportunities and threats EFE
that a business is facing. MATRIX
• External factors in the EFE matrix are those influenced by social,
THE INTERNAL - EXTERNAL MATRIX

HOW TO DEVELOP
EFE MATRIX
 HOW TO DEVELOP

STEP
1
List Key External
Factors
• List the key external factors identified during
the external audit process.

• These factors should include both

opportunities and threats that impact the
organization and its industry.

• It is important to be as specific as possible,

using data such as percentages, ratios, and
comparative figures when available
 HOW TO DEVELOP

STEP
2
Assign Weights
• Each factor is given a weight from 0.0 to 1.0
based on its importance in affecting the
business.

• The weights should reflect the relative

importance of each factor, with more
significant factors receiving higher weights

• .Total weight of all factors must equal 1.0.

 HOW TO DEVELOP

STEP
3
Assign Ratings
• Assign a rating between 1 and 4 to each
factor. The rating reflects how effectively the
firm's current strategies respond to the factor:
4 = The firm's response is superior.
3 = The firm's response is above average.
2 = The firm's response is average.
1 = The firm's response is poor.
• It's important to note that both opportunities
and threats can receive any rating from 1 to 4,
depending on how well the firm is addressing
them.
 HOW TO DEVELOP

STEP 4
Calculate
the Weighted Scores
• For each external factor, multiply the weight
by the rating to obtain the weighted score.

• This score represents the importance of each

factor in relation to the firm's ability to
respond to it

WEIGHT * RATING = WEIGHTED SCORE

 HOW TO DEVELOP

STEP
5etermine
D
Total Weighted Score
• Add up all the weighted scores from each factor
to find the EFE matrix's overall score.

• Higher Total Score (>2.5): Good performance

in managing external factors.

• Lower Total Score (<2.5): Needs improvement

in dealing with external factors.
2,46 < 2,5
THIS COMPANY MAY NEED TO IMPROVE HOW IT
DEALS WITH EXTERNAL FACTORS.
 2
Structure
of IE matrix
 Nine-Cell Grid
I II III Representation
• Presented as a 3 × 3 grid,
IV V VI forming nine cells

VII VIII IX
 Nine-Cell Grid
I II III Representation
• Presented as a 3 × 3 grid,
IV V VI forming nine cells
• Each cell represents a
specific strategic position
VII VIII IX
EFE

Nine-Cell Grid
I II III Representation
• Presented as a 3 × 3 grid,
IV V VI forming nine cells
• Each cell represents a
specific strategic position
VII VIII IX • Helps visualize where each
business unit stands in terms of
IFE
internal and external factors
 Axes & Scoring Ranges
strong average weak
4,0 3,0 2,0 1,0
X-Axis (Horizontal): represents

I II III internal strengths and weaknesses

IFE Score Range:
• 1.0 – 1.99: Weak internal

IV V VI position.
• 2.0 – 2.99: Average internal
position.
• 3.0 – 4.0: Strong internal
VII VIII IX position.

The IFE total weighted scores

The EFE total weighted scores Axes & Scoring Ranges

4,0
Y-Axis (Vertical): represents

I II III high external opportunities and threats

EFE Score Range:
3,0
• 1.0 – 1.99: Unattractive external

IV V VI medium environment.
• 2.0 – 2.99: Average external
2,0 attractiveness.
• 3.0 – 4.0: Highly attractive
VII VIII IX low
external environment.
1,0
 Strategic Regions &
Their Implications

Region I (Cells I, II, IV): Grow and

I II III Build
• Strong internal strengths and operating
in a highly attractive external
IV V VI environment.
• Recommended Strategies: Market
VII VIII IX penetration, Market development,
Product development, Diversification
 Strategic Regions &
Their Implications

Region II (Cells III, V, VII): Hold and

I II III Maintain
• Average internal capabilities and
average external attractiveness.
IV V VI
• Recommended Strategies: Process
improvements, Cost optimization,
VII VIII IX Market segmentation
 Strategic Regions &
Their Implications

Region III (Cells VI, VIII, IX): Harvest

I II III or Divest
• Weak internal positions and operating
in an unattractive external environment.
IV V VI
• Recommended Strategies: Cost
reduction, Divestiture, Retrenchment
VII VIII IX
 Visual Representation
Circles Represent Business Units

Size of Circle Pie Slices within Circles

Corresponds to the Indicate the division's profit
division's revenue (larger margin (the shaded area
revenue equals a larger represents profit
circle) contribution)
 3
Benefits &
Limitations
 Benefits

So that profit is maximized

0
over the long-term due to
1
Allocate Limited Resources
High-Level Way 0
Visualize the performance 2
of each of the divisions of
the company
 Benefits
Used by small and large, for-
profit and nonprofit
0
organizations.
3
Diverse users
Access to a range of 0
data 4
Improving enterprise-level
planning and policy-making,
enhancing decision-making
 Limitations
Snapshot Independent
It doesn’t look to see what is The framework assumes that
likely to happen to a market each business unit is
in the future. independent of the others.

Intuitive judgments
The weights and ratings require judgmental
decisions, even though they should be based on
objective company and industry trends, facts, data
 III
Case study
Okoroh Energy
Services company

• Appears to be an energy
solutions provider
• Aims to provide sustainable
energy solutions to
individuals, businesses, and
communities in Nigeria
 Purpose

Have a deeper insight Determine the

on the performance of strategic approach
each of the divisions

Improve on its Determine the resource

corporate strategy allocation mechanism
 Preparing Data
Compute the sales
revenue/percentage and
0
profit/percentage
1
Sales and Profit Data
Choose the Unit 0
Determine the divisions: Drilling, 2
Installation, Fabrication, E&I,
Maintenance.
 Preparing Data
Compute the sales Sale Profit
Division
revenue/percentage and (Millions) (Million)
Drilling 930.000 120.000
profit/percentage
Installation 550.000 75.000
Sales and Profit Data
Fabrication 420.000 110.000

0 E&I 120.000 30.000

2 Maintenance 40.000 7.000

Total 2.060.000 342.000

 Developing IE matrix

0
3

IFE-EFE Matrix
Two key dimensions which
provide the basis of the IE
matrix
 Developing IE matrix

0
3

IFE-EFE Matrix
Two key dimensions which
provide the basis of the IE
matrix
 Developing IE matrix
Sale % of Profit % Of IFE EFE
Division
(Millions) Sales (Million) Profit Score Score
Drilling 930.000 45.15% 120.000 35.1% 3.345 3.79

Installation 550.000 26.70% 75.000 21.9% 2.525 3.113

Fabrication 420.000 20.39% 110.000 32.2% 2.985 2.849

E&I 120.000 5.83% 30.000 8.8% 2.345 1.955

Maintenance 40.000 1.94% 7.000 2.0% 1.789 1.435

Total 2.060.000 100.00% 342.000 100%

 Constructing
The total weighted score of
0
the EFE matrix ranging
4 from 1.0 to 4.0
EFE Total Weighted Score
IFE Total Weighted Score 0
The total weighted score 5
of the IFE matrix ranging
from 1.0 to 4.0
 Region 2
Constructing
I II III
Region 1

0
6
IV V VI

Determining the 3 Regions Region 3

Each region indicates different
actions to be taken VII VIII IX
 IFE IFE
3.345 2.525
4,0 3,0 2,0

EFE I
3.79
II 21%
Drilling
79% III
35%
EFE 65%
3.113
Installation
3,0

IV
First Region:
V VI
Grow & Build

2,0

VII VIII IX
 3,0 IFE 2,0 1,0
2.985

I II III

3,0
EFE
2.849 IV V Fabrication
Second Region: 33% VI
Hold & Maintain 67%

2,0
VII
VIII IX

1,0
 I II III

3,0
IV V VI

Third Region:
Harvest and Divest
VII 2,0
VIII IX EFE
E&I
2% 1.955
Maintenance
9%
EFE
1.435
98%

IFE IFE 91% 1,0

3,0 2,0
2.345 1.789
 Constructing

0 0
6 7

Determining the 3 Regions Strategic Decisions

Each region indicates different
actions to be taken
 STRACTERIC
10 OPTIONS
 1. Grow & Build Region 2. Hold & Maintain Region 3. Harvest & Divest Region
The Fabrication unit in this region. E&I and Maintenance unit are in
More attention needs to be given to
Okoroh Energy Services needs to be here. The company needs to be
Drilling and Installation unit. The
cautious in making hasty decisions.
EXTERNAL FACTOR
company should use its strengths in
these units to gain a competitive
cautious on further investment in
this region. By expanding operations There is a need to consider the
synergetic contribution of the units. If
EVALUATION (EEF)
advantage. By building on its current
abilities, it can become the leader in
beyond its current markets, the
company has a chance to increase its their existence makes other units to
market share in the Fabrication perform better, the company need
those divisions.
division. to keep them, but without further
investments on them.
CONCLUSION
The Internal-External Matrix
being a diagnostic and
prescriptive tool for maximizing
corporate competitiveness has
helped Okoroh Energy Services to
allocate resources more
efficiently. In addition, It has also
helped in formulating strategies
to create a competitive advantage
in the energy industry in Nigeria.