McDonald’s is an American largest fast food chain founded 1940 and operating in fast food industry. Its headquarter is located in Oak Brook, Illinois,United States. Its is serving customers in more than 119 countries. MacDonald’s primary menu food items are hamburgers, cheeseburgers, chicken, French fries, breakfast items, soft drinks, milkshakes and desserts.
External factor evaluation (EFE) matrix is a well known strategic tool has been used for the evaluation of external environment of a firm. External environment mainly consist of political,legal,economical,social and technological factors. A firm should determine the external factors and segregate them into opportunities and threats. The opportunities are the options available for a firm to further strengthen its position in a industry only if a firm exploit each offered opportunity. On the other hand, threats are considered as negative factors for a firm which may harm its position in a industry however, impact of threat could be minimized or eliminated if a firm respond to each threat in a timely manner.
Here is an example of EFE matrix made for McDonald’s Stores.
Steps in Developing the EFE Matrix
1.Identify a list of KEY external factors (critical success factors).
2.Assign a weight to each factor, ranging from 0 (not important) to 1.0 (very important).
3.Assign a 1-4 rating to each critical success factor to indicate how effectively the firm’s current strategies respond to the factor. (1 = response is poor, 4 = response is extremely good)
4.Multiply each factor’s weight by its rating to determine a weighted score.
5.Sum the weighted scores.
EFE Matrix of McDonalds’s
|Operates in fast growing industry||0.05 (5%)||4||0.20|
|Increase in demand of healthy products||0.07 (7%)||3||0.21|
|Cost competition||0.06 (6%)||3||0.18|
|Merger and acquisition||0.03(3%)||3||0.09|
|Going green||0.04 (4%)||3||0.12|
|Incorporate healthy food in its menu||0.10 (10%)||2||0.20|
|Expand coffee business||0.09 (9%)||3||0.27|
|Strong competition especially from burger king.||0.10 (10%)||3||0.30|
|New entrants in fast food industry||0.05 (5%)||3||0.15|
|Online sales increasing which will results in increasing competition||0.10 (10%)||3||0.30|
|Economics recession||0.05 (5%)||1||0.05|
|Political issues||0.05 (5%)||2||0.05|
|Increase in obesity rate||0.07 (7%)||2||0.14|
|Relationship with franchisee and suppliers||0.05 (5%)||3||0.15|
|Total Weighted Score||1.0(100%)||2.65|
The score of 2.65 is above average which means that the company is performing well but there is still enough of improvement.