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explain IFE, EFE, CPM and QSPM matrixes. What are they ?, how they are constructed ?,...

explain IFE, EFE, CPM and QSPM matrixes. What are they ?, how they are constructed ?, how they are used ? Elaborate your answer by providing detailed information about factors composing matrixes?

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Expert Solution

IFE is the acronym for Internal Factor Evaluation Matrix. This is a strategic formulation tool that helps the management to evaluate the internal strengths and weaknesses in the functional areas of a business. IFE is used to identify or evaluate the relationships between the functional areas of the business. Thus, IFE helps the organization in strategy formulation. The steps in constructing the IFE are:

  1. List 10-20 internal key factors that contribute to the success (strengths) and failure of the business (weakness). Ensure that the factors are specific in nature such as percentages, ratios etc.
  2. Assign weight for each factor in the range from 0 (not important) to 1 (very important). Ensure that all the weights sum up to 1. The weights should be based on industry standards.
  3. Assign score to each factor. Assign 1 for important weakness, 2 for minor weakness, 3 for minor advantage and then the score shifts to the advantage. 4 stand for important advantages. The score denotes company standards.
  4. Multiply the weight of each factor (obtained in step 2) with that of the scores (from step 3).
  5. Sum up all the weighted scores computed for all the factors. The total weight score of the organization is determined in this final step. The average score 2.5 depicts that the organization is internally weak. Above 2.5 score denotes that the organization is strong.

EFE is the acronym for External Factor Evaluation Matrix. The organization’s relationship with the external environment is evaluated. This is also a strategic formulation tool. The strategic intents of the organization is evaluated with the help of EFE matrix. Thus, EFE helps the organization in strategy formulation. The steps in constructing the EFE are:

  1. List a set of key external factors that are critical for the success of the business.
  2. Assign weight for each factor in the range from 0 (not important) to 1 (very important). Ensure that all the weights sum up to 1.
  3. Assign rating from 1-4 to each factor that is critical to the success of the firm. This is to determine or identify the effectiveness of the organization’s response to the factors. (1 is response is poor, 4 is extremely good).
  4. Multiply the rating with that of each factor’s weight. This will result in the weighted score.
  5. Sum the weighted scores. The average score is 2.5. Any score above 2.5 indicates that the company responds positively to the external environment by exploiting the opportunities and overcoming the threats and challenges.

CPM is the acronym for Competitive Profile Matrix. The CPM tool is used by all the stakeholders of the company to analyze the strengths and weaknesses of all the major competitors in the industry. The steps in constructing the CPM are:

  1. List the Critical Success Factors (CSF) for the organization. CSF are the key areas that is performed for an organization’s success in the competitive environment such as location, efficient supply chain, customer service, brand reputation, price competitiveness, etc. The list should be upto the industry standards.
  2. Assign weight to each CSF ranging from 0.0 (low importance) to 1.0 (high importance). The weight provides the importance of each factor in the industry. Ensure the sum of all the weights is 1.
  3. Assign rating for the CSF. The ratings show well the companies are doing in each critical area. Rating ranges from 1-4 where 1 is major weakness, 2 – minor weakness, 3- minor strength and 4- major strength.
  4. Multiply the weight with the rating. The total score is the sum of all the weighted ratings. If the score is high, the company is relatively stronger in its competitive position.

QSPM is the acronym for Quantitative Strategic Planning Matrix (QSPM). This tool is used to evaluate the possible strategies. The feasible alternative actions are evaluated by QSPM. This is an analytical tool.

The steps in constructing the QSPM are:

  1. Key strategic factors are identified with the help of EFE and IFE matrix.
  2. Formulate the strategy that the organization would like to pursue. This is done with the help of SWOT analysis, SPACE and BCG matrix.
  3. Each internal and external factors are assigned weights with the help IFE and EFE matrix.
  4. Attractive Scores (AS) denotes how each factor is important to each alternative strategy. Each AS is determined by evaluating each of the key factors separately (0,1,2,3,4).
  5. Multiply the weight with the AS. The total Attractive Scores is obtained finally.
  6. Sum up the Attractive Scores (AS) for each factor. The sum total of the AS is obtained.
  7. The higher the score for the alternative the stronger is the impact on the success of the company. Hence, the alternative option with the higher AS should be chosen in the QSPM matrix.

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