EFI MATRIX: WHAT EVALUATES, HOW TO DO IT, ANALYSIS, EXAMPLE - DUDAS - 2025

The EFI (Internal Factors Assessment) matrix is a strategic management tool used to audit or evaluate the internal environment of a company and reveal the main strengths and weaknesses in the functional areas of a business.

It also provides a basis for identifying and evaluating the relationships between those areas. The internal factor assessment matrix or EFI matrix is ​​used in formulating a strategy.

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Fred R. David introduced the Internal Factor Assessment Matrix in his book Strategic Management. According to the author, this tool is used to summarize the information obtained from the analysis of the internal environment of the company.

Although the tool is quite simplifying, it does the best possible job of identifying and evaluating the key factors affecting the business.

The EFI matrix is ​​a strategy formulation tool that can be used to assess a company's performance in relation to its identified internal strengths and weaknesses. The EFI matrix method is conceptually related in some respects to the “Balanced Scorecard” method.

Strengths and weaknesses

In the search for internal strengths, companies may wonder what they are good at and what added value they offer their customers compared to what their competitors offer. What are employees proud of and what is going well within the organization?

To discover weaknesses, companies can see how they could improve both their services and their products. What is currently not working optimally and what elements are more developed in the competition?

What does the EFI matrix evaluate?

The general rule of thumb is to identify 10-20 key internal factors, but as many factors as possible should be identified.

Internal factors

Internal factors are the result of a detailed internal audit of a company. Obviously, all companies have some weak points and some strengths, so internal factors fall into two categories: strengths and weaknesses.

The strengths and weaknesses of the company are used in the evaluation as key internal factors.

Strengths and weaknesses are organized in the EFI matrix in different parts. This means that all the strengths are listed first and then the internal weaknesses come. If all factors appear on the list, the rating will help identify internal strengths and weaknesses.

Strengths

When looking for strengths, ask yourself what is done better or has more value than what your competitors do.

Strengths are the strong areas or attributes of the company, which are used to overcome weaknesses and to take advantage of external opportunities available in the industry. That means the company has a good management strategy. They can be tangible or intangible:

- Income.

- Good position in a market (high market value).

- Profitable, high value of the shares.

- Good financial situation.

- High level of marketing and promotion.

- Recognizable brand.

- High quality products.

Weaknesses

In the case of weaknesses, you have to ask yourself what areas of the company could be improved, so at least this way you can catch up with your competitors.

Weaknesses are the risk areas that must be addressed with priority to minimize their impact. Competitors always look for holes in the company and do their best to capitalize on identified weaknesses.

They are the fields where the company should be concerned, since they can generate losses in two ways: directly or any other company in the market can expose those weak areas, leading to losses. Examples of weaknesses:

- Unprofitable operations, low return on investment.

- High cost of doing business.

- Poor employee motivation.

- Products of low quality and too expensive.

How to make an EFI matrix?

Step 1. Identify the internal key factors

Internal audits should be performed to identify strengths and weaknesses in all areas of the business. It is suggested that 10-20 internal factors be identified, but the more you can contribute to the EFI matrix, the better.

The number of factors has no effect on the range of the total weighted score, since the total weights will always add up to 1.0, but it helps to reduce the estimation error resulting from subjective scores.

The company's resources, capabilities, organizational structure, culture, functional areas, and value chain analysis are again examined to recognize the strengths and weaknesses of the organization.

First, the strengths are listed and then the weaknesses. It is advisable to be as specific and objective as possible. For example, comparative percentages, ratios, and numbers can be used.

In case a SWOT analysis has already been done, some of the factors can be collected from there. The SWOT analysis will generally have no more than 10 strengths and weaknesses, so additional analysis will need to be done to identify more key internal factors for the matrix.

Step 2. Assign the weights

Weights are assigned based on the opinions of industry analysts. Find out what analysts are saying about industry success factors and then use their opinion or analysis to assign the appropriate weights.

Having identified the strengths and weaknesses, each factor is assigned a weight that varies from 0.00 to 1.00. The weight assigned to a given factor indicates the relative importance of the factor. Thus, zero means not important and 1 indicates very important.

Regardless of whether a key factor is internal strength or weakness, the factors with the highest importance in the organization's performance should be assigned the greatest weight.

After assigning the weight to the individual factors, make sure that the sum of all the weights equals 1.00.

Step 3. Assign grades

The same process is done with the ratings. Although this time the group members will have to decide what ratings should be assigned.

The weights determined in the previous step are based on the industry. Ratings are based on the company.

A rating of 1 to 4 is assigned to each factor. The rating indicates whether the factor represents a major weakness (1), a minor weakness (2), a minor strength (3) or a major strength (4). Strengths should be rated 4 or 3 and weaknesses should be rated 1 or 2.

Weights and grades are assigned subjectively. Therefore, it is a process that is more difficult than identifying the key factors.

Step 4. Get weighted scores

Now you can get to the EFI matrix. The weight of each factor is multiplied by its rating. This will give a weighted score for each factor.

Step 5. Add weighted scores

The last step in constructing the EFI matrix is ​​to add the weighted scores for each factor. This provides the total weighted score for the business.

Analysis

An internal analysis examines the internal environment of the organization to assess its resources, competencies and also its competitive advantages. Performing an internal analysis allows you to identify the strengths and weaknesses of the organization.

This knowledge helps the strategic decision making of the management while carrying out the process of formulation and execution of the strategy.

After completing the EFI matrix, the organization should have a clear idea of ​​where they are excelling, where they are doing well, and where current deficits and deficiencies lie.

The analysis will provide management with the knowledge to exploit its strengths. It also enables management to develop strategies to remedy identified weaknesses.

The organization can be sure that it is channeling its resources, time and focus effectively and efficiently.

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. It assigns weight and also classifies both factors.

Weighted Scores and Total Weighted Score

The score is the result of the weight multiplied by the grade. Each key factor must be scored. The total weighted score is simply the sum of all the individual weighted scores.

The company can receive a total score ranging from 1 to 4 on the matrix. The total score of 2.5 represents an average score.

In the internal evaluation, a score below 2.5 indicates that the company is internally weak compared to its competitors. On the other hand, scores above 2.5 show a strong internal position.

Benefits of the EFI matrix

To explain the benefits of this matrix you have to start by talking about a disadvantage.

The EFI matrix is ​​very subjective, although all other methods, such as the SWOT matrix, are also subjective. EFI tries to alleviate some of the subjectivity by introducing numbers into the concept.

Intuitive judgments are required to populate the EFI matrix with factors. However, having to assign weights and ratings to individual factors brings a bit of the empirical nature to the model.

Example

As shown in the example EFI matrix for a company, 13 internal key factors were taken, consisting of seven strengths and six weaknesses.

Each factor is individually assigned a weight, fixed subjectively, but whose total sum is 1.

In this case, the total weighted value of the company is 2.74, which indicates that this company has a slightly strong internal position with respect to the competition.

References

1. Ovidijus Jurevicius (2014). IFE & EFE Matrices. Strategic Management Insight. Taken from: strategicmanagementinsight.com.
2. Maddy Mirkovic (2019). Internal Analysis: Every strategy should start with one. Taken from: executestrategy.net.
3. Maxi-Pedia (2019). IFE Matrix (Internal Factor Evaluation). Taken from: maxi-pedia.com.
4. MBA-Tutorials (2019). IFE (Internal Factor Evaluation) Matrix. Taken from: mba-tutorials.com.
5. CEOpedia (2019). IFE matrix. Taken from: ceopedia.org.
6. Marketers' Magazine (2012). Internal Factor Evaluation (IFE) Matrix. Taken from: mmauc.blogspot.com.