IFE & EFE
Innovation Alphabet
IFE & EFE
in a nutshell
In mathematics, matrices are every high school student’s nightmare. For a manager, however, they can be an essential tool. IFE (Internal Factor Evaluations) and EFE (External Factor Evaluations) are useful methods of analysis for assessing, respectively, the company’s internal environment – discovering its strengths and weaknesses – and the external environment – showing how the company’s strategy responds to opportunities and threats.
Steps
IFE & EFE matrices are constructed in five steps:
1) Key Internal/External Factors. Internal factors – or external factors, depending on which matrix you are working on – relating to all areas of the company are identified. The greater the precision, the better the detail of the matrix and the evaluation that will result. Ideally, at least 10 to 20 internal and just as many external factors should be identified.
2) Weights. Each factor (in the case of IFE the strengths and weaknesses, in the case of EFE the opportunities and threats) will be rated with a score starting from 0.0 (low importance) to 1.0 (high importance). The evaluation indicates how important that individual factor is considered to be to the success of the company. Total sum of the individual weights must equal 1.0. The operation of the analysis assumes that each factor has its own specific weight, different from the others.
3) Rating. Taking a scale ranging from 1 to 4, the evaluation has a different meaning depending on the two matrices: in the IFE case, the evaluation indicates how strong or weak the individual factor is within the company (4 indicates great strength, while 1 indicates profound weakness). In the EFE matrix, the rating evaluates how effectively the company’s strategy responds to opportunities and threats (4 indicates an effective response, 1 indicates an ineffective response).
4) Weighted Score. The weighted score is given by multiplying the weight by the evaluation of each factor.
5) Total Weighted Score. The total weighted score, on the other hand, is given by the sum of the individual weighted scores and should be between 1 and 4. By analyzing the responses from the two environments, the company can develop new strategies to grow and become more competitive.
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Industries
• IFE & EFE in the construction industry
Total Bangun Persada is among the largest construction companies in Indonesia, with a capital of 5 million Indian rupees. Considering the high degree of development of the infrastructure sector in the country, the company needs constant upgrading, but more importantly, internal and external analysis in order to maintain its status as a market leader, taking into account possible competitors and growing demand.
• IFE & EFE in the education industry
A clear example of how the principles of strategy can be applied to any reality: the Hamedan Branch Islamic Azad University (HBIAU) is the sixth largest university in the world. It conducted a study in 2011 using IFE & EFE matrices in order to derive a strategy for it to help improve its educational offerings and services.
• IFE & EFE in the IT industry
With the purpose of remaining on the Olympus of the world’s most important companies in the IT sector, IBM has carried out several analyses in order to be able to assess its status, also resorting to IFE & EFE metrics. IBM took several factors into consideration, such as the performance of other competitors (including Sony) or even different government legislation.
Business Functions
• IFE & EFE in support of R&D: Google
In order to continue to compete with other giants such as Apple and Samsung, the multinational company born in Menlo Park has resorted to evaluating internal and external factors and then investing in research to be able to implement its position in the wearable device market, such as the Wear OS smartwatch.
• IFE & EFE in support of sales: Amazon
Beginning as a website in the publishing business, Jeff Bezos’ retail behemoth was able to understand and assess market opportunities and the needs of its customers (external factors) and then to transform itself into the world’s largest e-commerce company. Amazon ended 2020 with revenues of $347 billion.
• IFE & EFE in support of marketing: Coca-Cola
With more than 100 years of history, Coca-Cola is probably the most popular soft drink in the world. It has always been able to seize the opportunities offered by events of a certain importance, such as the Olympics (of which it has been an official sponsor since 1928). But also to develop Product Placement campaigns in other fields. One example is cinema, with famous appearances in Steven Spielberg’s “E.T. the Extra-Terrestrial” and Ridley Scott’s “Blade Runner”.
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Check out more of the Innovation Alphabet:
Gamification
Gamification
Gamification is actually adding a game-like element to make more fun and engaging something that’s not necessarily a game. It’s all about turning a task that might be boring or difficult into a more enjoyable and motivating activity. You can also earn points, badges, and rewards for completing certain actions or challenges. Are you ready to play?
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Business Intelligence
Business Intelligence
A smart business means efficiency: Business Intelligence represents the ability to collect up-to-date data, present it in easy-to-understand formats, and deliver it in a timely manner to employees. Making data-driven decision-making and management processes leads to competitive advantage, reduces inefficiencies, and improves productivity and service at all levels.
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Artificial Scarcity
Artificial Scarcity
We often tend to desire what we cannot have. Or what we are in danger of losing: Artificial Scarcity is a strategy that flaunts a limited number of items that do not correspond to actual availability. The goal is to stimulate the perception in consumers that the stock of items is about to run out and thus create a need based on the “fear of being cut off” or the intention to buy the item in order to resell it at a higher price.
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Subscription Model
Subscription Model
A subscription model is a business tool that generates revenue by charging customers a fee at regular intervals. The company provides products or services to subscribers on a subscription basis, usually monthly or annually. In this way, loyalty has become more important than acquiring new users.
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Holacracy & Flat Organization
Holacracy & Flat Organization
A “flat organization” breaks down the traditional hierarchy and removes its negative connotation, while “holacracy” is the business tool that facilitates its formation. Flat organizations place more emphasis on communication and collaboration, aspiring to a distributed decision-making process that gives each employee a voice. But this is a model that is difficult to implement.
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Mass Customization
Mass Customization
Mass customization is an initiative adopted by companies to embrace the increasingly diversified needs of customers. By offering customizable products and services, consumers feel engaged and can bring their creativity into play. Brands gain from this a boost in perceived value and the opportunity to fuel a positive word-of-mouth marketing.
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Coopetition
Coopetition
If you can’t beat them, join them. Coopetition is a business strategy that defines cooperative and competitive relationships between competing companies in the same young or high-growth market. The goal is to travel a stretch of road together to lower initial research and development costs. Once the desired results are achieved, the companies will return to being enemies as before.
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MVP
MVP
To the disappointment of all sports fans, this is not an article about Michael Jordan. In the language of business, MVP stands for Minimum Viable Product and indicates the version of a new product that has enough features to attract customers. In this way, a team can gather the most feedback with the least effort, improve the prototype, and validate its sale.
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Agile
Agile
Agile is an approach to software development designed to respond to change. Teams quickly analyze the context in which they operate, identify uncertainties faced, and figure out how to adapt to always move forward. Interaction between individuals comes before processes and tools; collaboration with the customer is more important than negotiating contracts.
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Bounded Rationality
Bounded Rationality
The best solutions always come to mind when it is too late. This is because human beings tend to make decisions on the basis of satisfaction rather than optimization. Bounded Rationality means that we are unable to think clearly and linearly, we proceed by trial and error and forget all the possible variables that affect the process. But we are also flawed.
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