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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 3-11, 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 ten to twenty 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

TABLE 3-11 An Example External Factor Evaluation Matrix for UST, Inc.
WEIGHTED
KEY EXTERNAL FACTORS WEIGHT RATING SCORE

Opportunities
1. Global markets are practically untapped .15 1 .15
by smokeless tobacco market
2. Increased demand caused by public .05 3 .15
banning of smoking
3. Astronomical Internet advertising .05 1 .05
growth
4. Pinkerton is leader in discount tobacco .15 4 .60
market
5. More social pressure to quit smoking, .10 3 .30
thus leading users to switch to
alternatives

Threats
1. Legislation against the tobacco industry .10 2 .20
2. Production limits on tobacco increases .05 3 .15
competition for production
3. Smokeless tobacco market is concen- .05 2 .10
trated in southeast region of United States
4. Bad media exposure from the FDA .10 2 .20
5. Clinton Administration .20 1 .20

TOTAL 1.00 2.10

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...