External Factor Evaluation (EFE) matrix is a strategic-management device which is frequently used for evaluation of current business environment. The EFE matrix is a superior instrument to prioritize and visualize the opportunities and threats that a company is facing. An external factor in the EFE Matrix comes from social, political, legal, economic and other external forces. An example of external factor evaluation (EFE) matrix is given for the Coca-Cola Company.
Steps in the Construction of EFE Matrix
In the first column, lists down all the opportunities and threats. EFE matrix should include 10 to 20 key external factors.
In the second column assign weights to each factor that ranges from 0.0 (not important) to 1 (most important). The total weights must sum to 1.00 (It should be noted that the importance of weights depend upon the probable impact of factors on the strategic position of the company).
In the column three, rate each factor (ranging from 1 to 4) on the basis of company’s response to that factor. (Here, 1 shows poor response, 2 shows average response, 3 shows above average response and 4 shows superior response).
In the column four, calculate the weighted score by multiplying the each factor’s weight by its rating.
Find the total weighted score by adding the weighted score for each variable.
External Factor Evaluation Matrix of Coca-Cola Company
By adding the weighted score of various opportunities and threats of Coca-Cola Company, we get the total weighted score of 3.05. Here it should be noted that the highest possible total weighted score of a firm is 4 whereas the lowest possible total weighted score is 1. The total weighted score remains in the limit of 1 to 4 regardless of the total number of opportunities and threats. Similarly, the average total weighted score is 2.5. If the total weighted score of a company is 4, it means that the company is effectively taking advantage of existing opportunities and is also able to minimize the risk. On the other hand, the total weighted score of 1 show that firm is not able to take advantage of current opportunities or avoid external threats.
In the case of Coca-Cola Company, the total weighted score is above average, which means that the Coca-Cola Company strategies are effective and the company is taking advantage of existing opportunities along with minimizing the potential adverse effects of external threats.