A manager uses the EFE matrix by identifying the key external factors through a PEST analysis, assigning weights and ratings subjectively and using the results to develop new strategies. He categorizes the external factors identified as either threats or opportunities and assigns each factor a rating from 1.0 to 4.0.Continue Reading
A manager assigns ratings to indicate the strength of a firm's response to a threat or opportunity; a rating of 4.0 represents a superior response. He assigns weights based on the importance of a factor in the success of a business; a weight of 0.0 indicates zero importance, and a weight of 1.0 indicates extreme importance. A manager calculates the weighted score by multiplying the ratings of a factor by its weight. The sum of the weighted scores is the total weighted score, which must be between 1.0 and 4.0. The average total weighted score is 2.5, a score below 2.5 indicates that a firm has weak strategies, while a score above 2.5 shows that a firm has efficient strategies.
The advantages of using the EFE matrix include that it is easy to use and understand; it is multipurpose as it can be used for SWOT analysis or benchmarking. Disadvantages include that it can be easily replaced by a SWOT analysis and it does not directly help a company to form strategies.Learn more about Business Resources