Application of quantified analysis in determining

Rate & weight in EFE, IFE and CPM

By
MAR
Brief Introduction of EFE, IFE and CPM

EFE, IFE and CPM are the strategic management tools used for different purposes.

EFE 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.

IFE used 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 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.

CPM used for to compare the firm with the major players of the industry. Competitive
profile matrix shows the clear picture to the firm about their strong points and weak points
relative to their competitors. The CPM score is measured on basis of critical success
factors, each factor is measured in same scale mean the weight remain same for every
firm only rating varies. The best thing about CPM that it includes your firm and also
facilitates to add other competitors make easier the comparative analysis
Background of Study:

Rate and weight in EFE, IFE and CPM are determined/ calculated on the basis of subjective
analysis. Following are two shortcomings of this method,

1) All the key factors scores are measured subjectively ( 1 – 4)

2) Non – uniformity may occur when answering the same question because the key
factors weights are scored subjectively by the evaluation group without a
consistency test.

Following tables shows the calculations of the company ‘A’.

In our first case of table 1.0 Weight and Rate remains constant in table 1.1 and 1.2
therefore the resultant scores are same. In table 2.0 case only weight are changed in
table 2.2, and as you can noticed that the score is decrease by 0.05. Changes made in
weight in table 2.2 are listed below

* Change of - 0.05
* Change of + 0.05

With slight changes in weight while Rating remains constant the overall company scores
changes, and also the same thing applies to the Rate as well.

Therefore there must be some method in place for determination of Rate and Weight or in
other words quantifiable analysis should be applied instead of subjective analysis where
feeling and judgmental of facts and figures of the individual taking part in the analysis
process that determines the outcome.
Introduction:

In this paper following two methods are proposed for determination of Rate and Weight in
the three strategic management tools (EFE, IFE, and CPM) and could also be used in other
techniques where weight and calculation of this sort involves,

1. Analytic hierarchy process should be used for calculating Weight.

2. Factors Parameterization; each factor in EFE, IFE and CPM should have a model
in place for calculating Rate.

Analytic Hierarchy process:

Following steps are followed in sequence for determining the weight,

Step: 1 - Pair wise comparison and assign values 
Step: 2 - Weights Normalized (A): column value / columns sum  
Step: 3 - Inconsistency test (Optional) 
Step: 4 - Compute the average value of each row 
 
Scale: 
I – vertical 
J –horizontal 
 
Scale  Description  Scale  Description 
1  Both are equal in importance  1/3  If J is weakly more important then I 
3  If I is weakly more important then J  1/5  If J is strongly more important then I 
5  If I is strongly more important then J  1/7  If J is very strongly more important then I 
7  If I is very strongly more important then J  1/9  If J is absolutely more important then I 
9  If I is absolutely more important then J     
 
For elaborating the above steps we take an example of company ‘A’ which has following factors, 
 
ƒ Market share 
ƒ Financial Position 
ƒ Price competitiveness 
 
Step 1: 
 
In step 1 we perform pair wise comparison (Market share – market share, market share – Financial 
position, Market share – price competitiveness etc) and assign the values based on the above 
mentioned scale 
 
 
J 
I  Market share  Financial Position  Price Competitiveness 
Market Share  1  1/5  5 
Financial Position  5  1  5 
Price Competitiveness  1/5  1/5  1 
 
 J 
I  Market share  Financial Position  Price Competitiveness 
Market Share  1  0.200  5 
Financial Position  5  1  5 
Price Competitiveness  0.200  0.200  1 
   6.2 1.4 11 

Step 2:

In step 2 for normalizing weights each column value is divided by sum of column values.

* Value calculated by dividing 1 by sum of market share column which is 6.2

J 
I  Market share  Financial Position  Price Competitiveness 
Market Share  *0.161  0.143  0.455 
Financial Position  0.807  0.714  0.455 
Price Competitiveness  0.032  0.143  0.091 

Step 4:

In step 4 we get the weights by summing up the values of each rows and divided it by 3,

  Total  Average  WEIGHT 

Market Share  0.759  0.253 0.253
Financial Position  1.976  0.658666667 0.659
Price Competitiveness  0.266  0.088666667 0.089
      1.001

Finally we get these weights,

Market share - 0.253
Financial position – 0.659
Price competitiveness – 0.089
Factors Parameterization:

Following steps are followed in sequence for factors parameterization,

Step 1: Listing Factors

Step 2: Identifying input / output parameters for each factor
Step 3: Developing scale based on the summation parameter output for each factor
Step 4: Output/display Rate for each factor

In order to elaborate the above steps we again take an example of a Company ‘A’.

Step 1:

Company ‘A’ has the following critical success factors,

ƒ Market share
ƒ Financial position
ƒ Price competiveness

Step 2:

For market share following input / output parameters identified,

Inputs:
Total units sold in market
Company units sold in market

Output:
Company ‘A’ market share in percentage

Step 3:

Scale for Market share

Ranges  Rate 
If (x < = 25%)  1
If (x > 25 % and x < = 50%)  2
If (x > 50 % and x < = 75%)  3
If (x > 75%)  4

Step 4:

Market share output are checked in the defined ranges and Rate is displayed
Steps 2 to 4 are repeated for each identified factors in step 1.

Financial Position:

Step 2:

For evaluating the financial position of the company ‘A’ following three ratios are used,

Liquidity ratios
Inputs:
Total current Assets
Total current Liabilities
Total Inventory

Outputs:
>Current ratio
>Quick ratio

Financial leverage ratios

Inputs:
Total Debt
Total Assets
Total Equity

Outputs:
>Debt ratio
>Debt to equity ratio

Profitability ratios
Inputs:
Sales
COGS
Net Income
Shareholder equity

Outputs:
>Gross Profit Margin
>ROA
>ROE

Step 3:

For example purpose we are using same scale for all ratios output but it’s recommended
that for every output you have a separate scale defined as per your requirements.

Ranges  Rate 
 1 < =  x > 0  1  
 2 < =  x> 1  2  
 4 < =  x> 2  3 
  x  >  4  4 

Step 4:

Factors in which there are multiple output parameters/ scales are defined then we would
take the rate which is max in quantity from all the parameters output.