Business Strategy and Policy
Assignment #3

Perform an External Factor Evaluation on the
external environment of your chosen corporation. The critical thing to remember about this
analysis is that you should develop a thorough understanding of the external
opportunities and threats chosen.
Because of the importance of factor knowledge, you should acquire a
minimum of one MLA citation for each and every external factor discussed.

Your
analysis MUST include a chart
similar to the one attached at the end of this document.

Parameters:

EFE
·
Choose 6-10 external factors
for analysis (total factors will depend on the nature of the industry)
·
Each factor should be presented
and discussed completely under its own heading
·
A MLA-format citation should be
included for each factor telling where you got your information
·
Five pages or less (excluding
chart)
·
Chart must begin the assignment
and be on one page only
·
Double spaced, Typed
·
Note: all external factors
should be derived from your external research; i.e., you should not present
speculation, made-up/fictitious, or “common knowledge†as researched factors.
You should therefore only present factors that you can prove through your
research and citations.

For each factor write a paragraph or two as
necessary discussing the nature of the factor, how it will impact the firm, and
its importance to the future strategy of the firm (i.e., tell me why you
assigned the rating score that you did) and cite where you got your information
from..

THE EXTERNAL
FACTOR EVALUATION (EFE) MATRIX
An
External Factor Evaluation (EFE) Matrix allows strategists to summarize and
evaluate economic, social, cultural, demographic, environmental, political,
governmental, legal, technological, and competitive information. Illustrated in
Table 1, the EFE Matrix can be developed in five steps:

1. List key external factors as
identified in the external-audit process. Include a total of from eight to ten
factors, including both opportunities and threats affecting the firm and its
industry. List the opportunities first and then the threats. Be as specific as
possible, using percentages, ratios, and comparative numbers whenever possible.

2. Assign to each factor a weight that
ranges from 0.0 (not important) to 1.0 (very important). The weight indicates
the relative importance of that factor to being successful in the firm’s
industry. Opportunities often receive higher weights than threats, but threats too
can receive high weights if they are especially severe or threatening. Appropriate
weights can be determined by comparing successful with
unsuccessful competitors or by discussing the factor and reaching a group
consensus. In the end, the weight assigned is wholly up to you and
your considered judgment…the more important a factor is to future success,
the greater the weight assigned. The sum of all weights assigned to the factors
must equal 1.0.

3.
Assign
a 1-to-4 rating to each key external factor to indicate how effectively the
firm’s current strategies respond to the factor, where 4 = the response is
superior, 3 = the response is above average, 2 = the response
is average, and 1 = the response is poor. Ratings are based on
effectiveness of the firm’s strategies to date in your judgment. It is
important to note that both threats and opportunities can receive a 1, 2, 3, or
4.

4.
Multiply
each factor’s weight by its rating to determine a weighted score.

5.
Sum
the weighted scores for each variable to determine the total weighted score for
the organization.

Regardless of
the number of key opportunities and threats included in an EFE
Matrix, the highest possible total weighted
score for an organization is 4.0 and the lowest possible total weighted score
is 1.0. The average total weighted score is 2.5. A total weighted score of 4.0
indicates that an organization is responding in an outstanding way to existing
opportunities and threats in its industry. In other words, the firm’s
strategies effectively take advantage of existing opportunities and minimize
the potential adverse effect of external threats. A total score of 1.0
indicates that the firm’s strategies are not capitalizing on opportunities or
avoiding external threats.

An example of an
EFE Matrix is provided in Table 1 for UST, Inc., the manufacturer of Skoal and
Copenhagen smokeless tobacco. Note that the Clinton administration was
considered to be the most important factor affecting this industry, as
indicated by the weight of 0.20. The Clinton administration was threatening to
go after smokeless tobacco as it had against the traditional big tobacco firms.
The total weighted score of 2.10 indicates that UST is below average in its
effort to pursue strategies that capitalize on external opportunities and avoid
threats. It is important to note here that a thorough understanding of the
factors being used in the EFE Matrix is more important than the actual weights
and ratings assigned.

Bonus
Question: List one of the most important Core Competencies
of the firm you are working on and explain how that factor helps create
sustainable competitive advantage for your firm.

External Factor Evaluation
Matrix (EFE)
US Tobacco

KEY EXTERNAL FACTORS

WEIGHT

RATING

WEIGHTED SCORE

Opportunities

1. Global markets are
practically untapped
by
smokeless tobacco
market

.15

1

.15

2. Increased demand
caused by
public
banning of smoking

.05

3

.15

3. Astronomical Internet

advertising growth

.05

1

.05

4. Pinkerton is leader in

discount tobacco
market

.15

4

.60

5. More social pressure to

quit smoking,
thus
leading users to
switch
to alternatives

.10

3

.30

Threats

1. Legislation against the

tobacco industry

.10

2

.20

2. Production limits on
tobacco
increases
resource competition

.05

3

.15

3. Smokeless tobacco
market is
concentrated
in southeast region
of
United States

.05

2

.10

4. Bad media exposure
from the FDA

.10

2

.20

5. Clinton administration

.20

1

.20

TOTAL

1.00

2.10