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THE INTERNAL FACTOR

;~ EVALUATION (IFE) MATRIX

A summary step in conducting an internal strategic-management audit is to construct an Internal Factor Evaluation (IFE) Matrix. This strategy-formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas. Intuitive judgments are required in developing an IFE Matrix, so the appearance of a scientific approach should not be interpreted to mean this is an all-powerful technique. A thorough understanding of the factors included is more important than the actual numbers. Similar to the EFE Matrix and Competitive Profile Matrix described in Chapter 3, an IFE Matrix can be developed in five steps:

1. List key internal factors as identified in the internal-audit process. Use a total of from ten to twenty internal factors, including both strengths and weaknesses. List strengths first and then weaknesses. Be as specific as possible, using percentages, ratios, and comparative numbers.

2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all-important) to each factor. The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry. Regardless of whether a key factor is an internal strength or weakness, factors considered to have the greatest effect on organizational performance should be assigned the highest weights. The sum of all weights must equal 1.0.

3. Assign a I-to-4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4). Note that strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating. Ratings are thus company-based, whereas the weights in Step 2 are industry-based.

4. Multiply each factor's weight by its rating to determine a weighted score for each variable.

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

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, with the average score being 2.5. Total weighted scores well below 2.5 characterize organizations that are weak internally, whereas scores significantly above 2.5 indicate a strong internal position. Like the EFE Matrix, an IFE Matrix should include from 10 to 20 key factors. The number of factors has no effect upon the range of total weighted scores because the weights always sum to 1.0.

When a key internal factor is both a strength and a weakness, the factor should be included twice in the IFE Matrix, and a weight and rating should be assigned to each statement. For example, the Playboy logo both helps and hurts Playboy Enterprises; the logo attracts customers to the Playboy magazine, but it keeps the Playboy cable channel out of many markets.

An example of an IFE Matrix for Circus Circus Enterprises is provided in Table 4-7. Note that the firm's major strengths are its size, occupancy rates, property, and long-range planning as indicated by the rating of 4. The major weaknesses are locations and recent joint venture. The total weighted score of 2.75 indicates that the firm is above average in its overall internal strength.

TYPES OF STRATEGIESObjectives:This lecture brings strategic management to life with many contemporary examples. Sixteen types ofstrategies are defined and exemplified, including Michael Porter's generic strategies: cost leadership,differentiation, and focus. Guidelines are presented for determining when different types of strategiesare most appropriate to pursue. An overview of strategic management in nonprofit organizations,governmental agencies, and small firms is provided. After reading this lecture you will be able to knowabout:Long term objectives:Types of StrategiesIntegration strategiesStrategies in Action:Even if you're on the right track, you'll get run over if you just sit there.-- Will RogersHundreds of companies today embrace strategic planning because:·Quest for higher revenues·Quest for higher profitsMany firms have to use strategic planning in order to earn revenues and more profits.Long term objectivesLong-term objectives represent the results expected from pursuing certain strategies. Strategiesrepresent the actions to be taken to accomplish long-term objectives. The time frame for objectives andstrategies should be consistent, usually from two to five years.The Nature of Long-Term ObjectivesObjectives should be quantitative, measurable, realistic, understandable, challenging, hierarchical,obtainable, and congruent among organizational units. Each objective should also be associated with atime line. Objectives are commonly stated in terms such as growth in assets, growth in sales,profitability, market share, degree and nature of diversification, degree and nature of vertical integration,earnings per share, and social responsibility. Clearly established objectives offer many benefits. Theyprovide direction, allow synergy, aid in evaluation, establish priorities, reduce uncertainty, minimizeconflicts, stimulate exertion, and aid in both the allocation of resources and the design of jobs.Long-term objectives are needed at the corporate, divisional, and functional levels in an organization.They are an important measure of managerial performance.Clearly stated and communicated objectives are vital to success for many reasons. First, objectives helpstakeholders understand their role in an organization's future. They also provide a basis for consistent

TABLE 4-7 A Sample Internal Factor Evaluation Matrix for Circus Circus Enterprises

KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE

Internal Strengths1. Largest casino company in the United States .05 4 .202. Room occupancy rates over 95 % in Las Vegas .10 4 .403. Increasing free cash flows .05 3 .154. Owns one mile on Las Vegas Strip .15 4 .605. Strong management team .05 3 .156. Buffets at most facilities .05 3 .157. Minimal comps provided .05 3 .158. Long-range planning .05 4 .209. Reputation as family-friendly .05 3 .15

10. Financial ratios .05 3 .151 nternal Weaknesses

1. Most properties are located in Las Vegas .05 1 .052. Little diversification .05 2 .103. Family reputation, not high rollers .05 2 .104. Laughlin properties .10 1 .105. Recent loss of joint ventures .10 1 .10

TOTAL 1.00 2.75

In multidivisional firms, each autonomous division or strategic business unit should construct an IFE Matrix. Divisional matrices then can be integrated to develop an overall corporate IFE Matrix.

v

decision making by managers whose values and attitudes differ. By reaching a consensus on objectivesduring strategy-formulation activities, an organization can minimize potential conflicts later duringimplementation. Objectives set forth organizational priorities and stimulate exertion andaccomplishment. They serve as standards by which individuals, groups, departments, divisions, andentire organizations can be evaluated. Objectives provide the basis for designing jobs and organizingactivities to be performed in an organization. They also provide direction and allow for organizationalsynergy.Without long-term objectives, an organization would drift aimlessly toward some unknown end! It ishard to imagine an organization or individual being successful without clear objectives. Success onlyrarely occurs by accident; rather, it is the result of hard work directed toward achieving certainobjectives.Not Managing by ObjectivesStrategists should avoid:Managing by ExtrapolationManaging by Crisis78

Strategic Management  MGT603VUManaging by SubjectiveManaging by HopeStrategists should avoid the following alternative ways to "not managing by objectives."·  Managing by Extrapolation--adheres to the principle "If it ain't broke, don't fix it." The idea is tokeep on doing about the same things in the same ways because things are going well.·  Managing by Crisis--based on the belief that the true measure of a really good strategist is theability to solve problems. Because there are plenty of crises and problems to go around for everyperson and every organization, strategists ought to bring their time and creative energy to bear onsolving the most pressing problems of the day. Managing by crisis is actually a form of reactingrather than acting and of letting events dictate what's and when's of management decisions.·  Managing by Subjective--built on the idea that there is no general plan for which way to go andwhat to do; just do the best you can to accomplish what you think should be done. In short, "Doyour own thing, the best way you know how" (sometimes referred to as the mystery approach to decisionmaking because subordinates are left to figure out what is happening and why).·  Managing by Hope--based on the fact that the future is laden with great uncertainty, and that if wetry and do not succeed, then we hope our second (or third) attempt will succeed. Decisions arepredicted on the hope that they will work and the good times are just around the corner, especiallyif luck and good fortune are on our side!Types of StrategiesDefined and exemplified in Table, alternative strategies that an enterprise could pursue can becategorized into thirteen actions--forward integration, backward integration, horizontal integration,market penetration, market development, product development, concentric diversification,conglomerate diversification, horizontal diversification, joint venture, retrenchment, divestiture, andliquidation--and a combination strategy. Each alternative strategy has countless variations. Forexample, market penetration can include adding salespersons, increasing advertising expenditures,coopering, and using similar actions to increase market share in a given geographic area.A Comprehensive Strategic-Management Model79

Strategic Management  MGT603VUAlternative Strategies Defined and ExemplifiedStrategyDefinitionExampleForwardGaining  ownership  orGeneral Motors is acquiring 10Integrationincreased  control  overpercent of its dealers.distributors or retailersBackwardSeeking  ownership  orMotel-8 acquired a furnitureIntegrationincreased control of amanufacturer.firm's suppliersHorizontalSeeking  ownership  orHiltonrecentlyacquiredIntegrationincreased  control  overPromos.competitorsMarketSeeking increased marketAmeritrade, the online broker,Penetrationshare for present productstripled its annual advertisingor services in presentexpenditures to $200 million tomarkets through greaterconvince people they can maketheir own investment decisions.marketing effortsMarketIntroducingpresentBritain's leading supplier ofDevelopmentproducts or services intobuses, Henlys PLC, acquiresnew geographic areaBlue  BirdCorp.,NorthAmerica's leading school busmaker.ProductSeeking increased sales byApple developed the G4 chipDevelopmentimprovingpresentthat runs at 500 megahertz.products or services ordeveloping new onesConcentricAdding new, but related,National  Westminister  BankDiversificationproducts or servicesPLC in Britain buys the leadingBritish  insurance  company,Legal & General Group PLC.ConglomerateAdding  new,  unrelatedH&R  Block,  the  top  taxDiversificationproducts or servicespreparation agency, said it willbuy discount stock brokerageOlde Financial for $850 millionin cash.HorizontalAdding  new,  unrelatedThe New York Yankees baseballDiversificationproducts or services forteam is merging with the Newpresent customersJersey Nets basketball team.Joint VentureTwo or more sponsoringLucent Technologies and Philipsfirms forming a separateElectronics NV formed PhilipsorganizationforConsumer Communications tocooperative purposesmake and sell telephones.RetrenchmentRegrouping through costSinger,  the  sewing  machineand asset reduction tomaker, declared bankruptcy.reverse declining sales andprofit80

Strategic Management  MGT603VUDivestitureSelling a division or partHarcourt General, the large U.S.of an organizationpublisher, selling its NeimanMarcus division.LiquidationSelling all of a company'sRibol sold all its assets andassets, in parts, for theirceases business.tangible worthIntegration Strategies:

Integration StrategiesForward IntegrationVerticalIntegrationBackward IntegrationStrategiesHorizontal IntegrationForward integration, backward integration, and horizontal integration are sometimes collectivelyreferred to as vertical integration strategies. Vertical integration strategies allow a firm to gain control overdistributors, suppliers, and/or competitors. Forward integration strategy refers to the transactionsbetween the customers and firm. Similarly, the function for the particular supply which the firm is beingintended to involve itself will be called backward integration. When the firm looks that other firmwhich may be taken over within the area of its own activity is called horizontal integration.Benefits of vertical integration strategy:Allow a firm to gain control over:Distributors (forward integration)Suppliers (backward integration)Competitors (horizontal integration)Forward integration: Gaining ownership or increased control over distributors or retailersForward integration involves gaining ownership or increased control over distributors or retailers.You can gain ownership or control over the distributors, suppliers andCompetitors using forward integration.Guidelines for the use of integration strategies:Six guidelines when forward integration may be an especially effective strategy are:81

Strategic Management  MGT603VUPresent distributors are expensive, unreliable, or incapable of meeting firm's needsAvailability of quality distributors is limitedWhen firm competes in an industry that is expected to grow markedlyOrganization has both capital and human resources needed to manage new business of distributionAdvantages of stable production are highPresent distributors have high profit marginsWhen your present distributors are expensive and you think that without affecting the quality of thegoods you have to carry own the operations, forward integration is advisable.Similarly, if distributors are unreliable, they can not deliver with a sustained degree of timeliness or theyare not in a proper way to meet the needs of the firm, forward integration is advisable.Availability of quality distributors is limited or it is difficult to get the quality of goods, then this needfor a quality distributor, forward integration is best alternative.Suppose you have two industries, computers and mobile telephone which are progressingtremendously, it is advisable to think of forward integration due to the changing environment of thebusiness.Organization has both capital and human resources needed to manage new business of distribution. Afirm has all the basic elements to run the business safely in that case forward integration is bestalternate.For stable production, stable supply is necessary. If you think that present distributors are charging highmark up, you may do that operation your self in order to avoid the mark up charges. It is advisable thatfirm itself involve in the operations. By gaining control, stability will be more and profitability will beenhanced.·  When an organization's present distributors are especially expensive, or unreliable, or incapable ofmeeting the firm's distribution needs·  When the availability of quality distributors is so limited as to offer a competitive advantage tothose firms that integrate forward·  When an organization competes in an industry that is growing and is expected to continue to growmarkedly; this is a factor because forward integration reduces an organization's ability to diversify ifits basic industry falters·  When an organization has both the capital and human resources needed to manage the newbusiness of distributing its own products·  When the advantages of stable production are particularly high; this is a consideration because anorganization can increase the predictability of the demand for its output through forwardintegration·  When present distributors or retailers have high profit margins; this situation suggests that acompany profitably could distribute its own products and price them more competitively byintegrating forwardBackward Integration Seeking ownership or increased control of a firm's suppliersBoth manufacturers and retailers purchase needed materials from suppliers. Backward integration is astrategy of seeking ownership or increased control of a firm's suppliers. This strategy can be especiallyappropriate when a firm's current suppliers are unreliable, too costly, or cannot meet the firm's needs.Guidelines for Backward Integration:Six guidelines when backward integration may be an especially effective strategy are:When present suppliers are expensive, unreliable, or incapable of meeting needsNumber of suppliers is small and number of competitors largeHigh growth in industry sectorFirm has both capital and human resources to manage new businessAdvantages of stable prices are importantPresent supplies have high profit margins·  When an organization's present suppliers are especially expensive, or unreliable, or incapable ofmeeting the firm's needs for parts, components, assemblies, or raw materials82

Strategic Management  MGT603VU·  When the number of suppliers is small and the number of competitors is large·  When an organization competes in an industry that is growing rapidly; this is a factor becauseintegrative-type strategies (forward, backward, and horizontal) reduce an organization's ability todiversify in a declining industry·  When an organization has both capital and human resources to manage the new business ofsupplying its own raw materials·  When the advantages of stable prices are particularly important; this is a factor because anorganization can stabilize the cost of its raw materials and the associated price of its productthrough backward integration·  When present supplies have high profit margins, which suggests that the business of supplyingproducts or services in the given industry is a worthwhile venture·  When an organization needs to acquire a needed resource quickly83

Strategic Management  MGT603VULesson 19TYPES OF STRATEGIESObjectives:This lecture brings strategic management to life with many contemporary examples. Sixteen types ofstrategies are defined and exemplified, including Michael Porter's generic strategies: cost leadership,differentiation, and focus. Guidelines are presented for determining when different types of strategiesare most appropriate to pursue. An overview of strategic management in nonprofit organizations,governmental agencies, and small firms is provided. After reading this lecture you will be able to knowabout:Types of StrategiesIntegration strategiesHorizontal Integration:Seeking ownership or increased control over competitorsHorizontal integration refers to a strategy of seeking ownership of or increased control over a firm'scompetitors. One of the most significant trends in strategic management today is the increased use ofhorizontal integration as a growth strategy. Mergers, acquisitions, and takeovers among competitorsallow for increased economies of scale and enhanced transfer of resources and competencies.Increased control over competitors means that you have to look for new opportunities either by thepurchase of the new firm or hostile take over the other firm. One organization gains control of otherwhich functioning within the same industry.It should be done that every firm wants to increase its area of influence, market share and business.Guidelines for Horizontal Integration:Four guidelines when horizontal integration may be an especially effective strategy are:Firm can gain monopolistic characteristics without being challenged by federal governmentCompetes in growing industryIncreased economies of scale provide major competitive advantagesFaltering due to lack of managerial expertise or need for particular resourcesWhen an organization can gain monopolistic characteristics in a particular area or region without beingchallenged by the federal government for "tending substantially" to reduce competitionWhen an organization competes in a growing industryWhen increased economies of scale provide major competitive advantagesWhen an organization has both the capital and human talent needed to successfully manage anexpanded organizationWhen competitors are faltering due to a lack of managerial expertise or a need for particular resourcesthat an organization possesses; note that horizontal integration would not be appropriate if competitorsare doing poorly because overall industry sales are declining84

Table of Contents:  

1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation

2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements

3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives

4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition

5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:

6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude

7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces

8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000’s USA

9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces

10. TECHNOLOGICAL FORCES:Technology-based issues

11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)

12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit

13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing

14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing

15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios

16. ANALYTICAL TOOLS:Research and Development, The functional support role

17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation

18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies

19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porter’s Generic Strategies

20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development

21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification

22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation

23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework

24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies

25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX

26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX

27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks

28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix

29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH

30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors

31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria

32. RESOURCE ALLOCATION

33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure

34. RESTRUCTURING:Characteristics, Results, Reengineering

35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy

36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation

37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning

38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS

39. RESEARCH AND DEVELOPMENT ISSUES

40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants

41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities

42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies

43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance

44. MEASURING ORGANIZATIONAL PERFORMANCE

45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning

Internal-External (IE) Matrix

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.

SPACE Matrix Strategic Management MethodSPACE 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.

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.

Should you have any questions about the SPACE matrix, you might want to submit them at our management discussion forum.

FE Matrix (Internal Factor Evaluation)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 muchsubjective; 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.

Are there other models I should know about?

The IFE matrix goes side by side with so-called EFE matrix which together lead into the IE matrix.

You might like to read about the SWOT matrix analysis, BCG matrix model, and Product Life Cycle.…

EFE Matrix (External Factor Evaluation)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 one.  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.

You can find more details about this approach as well as about possible values that the EFE matrix can take on the IFE matrixpage.

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

Are there other models I should know about?

The EFE matrix goes side by side with so-called IFE matrix. The EFE matrix together with the IFE matrix leads to the IE matrix. And, the IE

matrix can be extended into so-called SPACE matrix

Intensive, Integrative and Diversification   Strategies

INTRODUCTION

Develop proper marketing strategies is crucial to an organization to adopt changing market based on organization’s capabilities. It also helps organization to increase market share and revenue by reaching new customer segments and new market. It could be using current product to penetrate market in other countries, or develop unrelated product to increase profit margin when attempt to new market share. There are few strategies highly recommended such as Intensive, integration and diversification strategy which are useful and workable for organization to apply.

BODY

Intensive strategy is used for organization for improve market share and revenue through market expend and product improvement. It is a strategy of aggregation or expansion under which growth is achieved by expanding the scale of operation. This strategy involves expansion of firm’s product range and market. Three alternative strategies in this regard are as follows:

Market penetration, which means intend to increase market share for present product in present market. It means firms tries to penetrate deeper into the market to increase its market share. So, more funds spent on advertising and sale promotion to increase sale volume.

For example, in order to increase market share in Singapore, NTUC FAIRPRICE has opened 24-hour store (FAIRPRICE EXTRA) to provide more conveniences to customer especially working adults as this customer category usually unable to shop during normal operation hour. It helps

customer to have alternative choice and improve crowded and long queue problem during weekend.

Market development means introducing present product to new market in order to achieve higher sales and profit margin. It will be achieve successfully when products accepted in new market as total cost and average cost will be reduce. Firms may enjoy economies of scale and spread over risks instead focus in the single market.

For example: OLD TOWN CAFÉ as famous café in Malaysia with serving white coffee and local foods. It opened few branches in Singapore to increase their oversea market share. OLD TOWN CAFÉ able to spread risk of business into two markets which are Malaysia and Singapore. Business able to continue even one of the markets does not do well.

Product Development which helps to improves present product to achieve more revenue. Under this strategy, a business seeks to grow by developing improved products for the present markets. The current product may be replaced or the new products may be introduced in addition to the existing products.

For example, TOYOTA Company always seeks for new technology to increase its vehicle fuel efficiency. This improvement helps TOYOTA to be more competitive than others. As the result, TOYOTA Company gain more sales by selling hybrid vehicle as it helps to reduce pollution to environment as well.

Integration strategies allow a firm to gain control over distributors, suppliers, and/or competitor. There are three types of integration strategies: forward, backward and horizontal. It also used for organization which improve relationship and information flow with distribution and supplier.

Forward integration is meaning that firm can grow by taking over functions forward in the value chain previously provided by final manufacturers, distributors, or retailers (“forward integration”).  This strategy provides more control over such things as final products/services and distribution.

For example, FAIRPRICE setup own distribution center to receive delivered goods from various suppliers and then distribute to different branches in Singapore. It helps to make opportunity to FAIRPRICE to involve in the logistic industry and increase more power control in the distribution aspect to avoid stock out and affect its current business directly.

Backward integration is means firm can grow by taking over functions earlier in the value chain that were previously provided by suppliers or other organizations (“backward integration”).

For example, TOYOTA has agreement with its suppliers those promise to meet its JIT processing. It helps to improve cost of inventory and cash-flow. TOYOTA able to increase control powers these suppliers by investing supplier’s business development. This is win-win deal as TOYOTA also involved itself into suppliers businesses also help to increase revenue and profit at time same.

Horizontal integration refers to a strategy of seeking ownership of or increased control over a firm’s competitors. Mergers, acquisitions, and takeovers among competitors allow for increased economies of scale and enhanced transfer of resources and competencies.

For example, CHERY bought over VOLVO with over 4 billion US Dollars.  CHERY acquired ownership, goodwill, technology and customer share from VOLVO after the deal. It could lead CHERY to own higher technical support and resource for further development. At the same time, CHERY also eliminated a bigger competitor in automobile industry.

Diversification strategy is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry which the business is already in. At the corporate level, it is generally and it is also very interesting entering a promising business outside of the scope of the existing business unit.

Concentric diversification is one type of strategic thrust. Concentric diversification focuses on creating a portfolio of related businesses. The portfolio is usually developed by acquisition rather than by internal new business creation. Product-market synergies are a major issue in creating the portfolio of related strategic business units (SBUs).

For example, NOKIA launched new features mobile phone which allows consumer surfing internet and mailbox. It helps to create competitive advantages to NOKIA.

Conglomerate diversification occurs when a firm diversifies into areas that are unrelated to its current line of business. Synergy may result through the application of management expertise or financial resources, but the primary purpose of conglomerate diversification is improved profitability of the acquiring firm. Little, if any, concern is given to achieving marketing or production synergy with conglomerate diversification. For example, NOKIA business direction was mainly focusing on electronic product likes cable, television and other consumer products. When NOKIA started entry mobile phone market, it has created more revenue although industry totally different to previous.

Horizontal diversification occurs when the company acquires or develops new products that could appeal to its current customer groups even though those new products may be technologically unrelated to the existing product lines. For example, petrol station always provides merchandise stored for conveniences its customers.

Conclusion

These three strategies provide organization to improve from different perspectives to achieve more market share and compete to its competitors. Intensive strategy helps firm to achieve deeper and new market share with relevant currents business unit. For integrative strategy, it linked to further expansion either vertical or horizontal or even both at the same. This strategy helps firms to own more control power to upstream and downstream (vertical chain) by investing involved. It also could be another solution to reduce competitor in the industry such as the case we mentioned above. However, firm may also apply diversification strategy into different businesses to gain more market share. It is a good way to spread over risks to different industry instead of only focusing into single industry. The requirement of these strategies are difference, firm might need to tailor with current business direction and resource and facilities. Wrong decision making and divest might lead to higher switching cost from the business.

Regards, Mike