Page 75 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 4: External Assessment

areas (e.g. marketing, finance, production) with a specific business unit or they may Notes
relate to a specific business unit or to the overall company for all its business units
(e.g. diversification).
(d) The Impact Scale: We can use a 5 – point impact scale to assess the ‘degree’ and
‘quality’ of impact of each trend on different strategies. The pattern of scoring can be
as follows:
Figure 4.2: The Impact Matrix

Trend Probability of Impact on strategies
occurrence S1 S2 S3 S4
T1
T2
T3
T4
T1, T2, T3, T4 refer to trends in the environment
S1, S2, S3, S4 refer to strategies

+ 2 extremely favourable impact
+ 1 moderately favourable impact

0 no impact
– 1 moderately unfavourable impact
– 2 extremely unfavourable impact

Like the Threat and Opportunity Matrices discussed above, we can assign probability of
occurrences for each trend. You would observe that the above framework gives an objective
picture of the impact of the environmental forces on different strategies of the organisation.

EFE Matrix

Just like ETOP, the External Factor Evaluation Matrix (EFE Matrix) helps to summarize and
evaluate the various components of external environment. The EFE Matrix can be developed in
five steps:
1. List 10 to 20 important opportunities and threats.
2. Assign a weight to each factor from 0.0 (not important) to 1.0 (most important). The higher
the weight, the more important is the factor to the current and future success of the
company.
3. Assign a rating to each factor 1(poor), 2 (average), 3 (above average), 4 (superior). The
rating indicates how effectively the firm’s current strategies respond to that particular
factor.
4. Multiply each factor’s weight by its rating to determine a weighted score.

5. Finally, add the individual weighted scores for all the external factors to determine the
total weighted score for the organisation.

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