Internal Factor Evaluation
Internal Factor Evaluation (IFE) Internal factors are the outcome of the detailed internal audit by a firm. Every company has some weaknesses and strong points; therefore the internal factors are divided into two categories namely strengths and weaknesses. Weight attribute in IFE matrix indicates the relative importance of factor to being successful in the firm’s industry. Ratings, which is a major weakness, is represented by 1.0; minor weakness is represented by 2.0; minor strength represented by 3.0; major strength represented by 4.0. Weights and ratings are assigned subjectively. The sum of all weighted score is equal to the total weighted score; the final value of the total weighted score should be between 1.0 (low) to 4.0 (high). The average weighted score for IFE matrix is 2.5. Any company that has a total weighted score below 2.5 is considered as weak. The company that has a total weighted score higher than 2.5 is considered as strong in position.
1 2 3 4 5
Strong brand name, image, and reputation Large market share Strong financial performance and position Strong management team Strong global company
0.15 0.12 0.13 0.15 0.10
4.00 4.00 4.00 4.00 4.00
0.60 0.48 0.52 0.60 0.40
1 2 3 4 5
Weaknesses High employee turnover rate Poor product differentiation No healthy menu Unhealthy food image- Negative publicity Decrease in profit
0.05 0.05 0.09 0.09 0.07
2.00 2.00 1.00 1.00 1.00
0.10 0.10 0.09 0.09 0.07
Strengths Strengths are the strongest areas or attribute of the company, which are used to overcome weaknesses and to take advantage of the external opportunities available in the industry. The strengths could be tangible or intangible.
Strong brand name, image, and reputation With a rate of 4, McDonald’s Corporation is one of the largest and most globally recognizable brands. Everyone knows McDonald’s, whether they are
from upper class, middle class or lower class. They have established strong brand name and image that stands out in the marketplace and positions the company as an irreplaceable lifelong partner to their clients. This was given with the highest weight because we believe that it would have the greatest effect on the company’s success.
Large market share With a rate of 4, McDonald’s is considered as the largest player in size and global reach. When Wendy’s or Burgers King was losing market share in 2006, McDonald’s still increased its market share. In a global market, McDonalds market share in the recent time is about 19% while Yum! Brands are 9% and both Wendy’s and Burger King is 2%. In the Philippines, there is a fierce competition between Jollibee and McDonald’s. McDonald’s still aiming to replace Jollibee to the top place. Having a weight that is third form the heaviest, we believe that this will definitely have a great effect on the company’s success.
Strong Financial Performance and Position With a rate of 4, since the company is so large, with so many locations around the world, its total sales and earnings in different regions tend to offset one another. It has locations in nearly 120 countries, so if domestic sales are collapsing, it’s possible that they could be strong in South America or Europe. As a result, the company doesn’t rely on one key source of income, unlike many of its rivals. This has a weight that is second to the highest because we believe that it has a great effect on the company but not as great as the strong brand name and the strong management team.
Strong management team With a rate of 4, Strong management team is a McDonald’s recipe for success. McDonald’s teamwork and strong leadership among managers contribute to achieving their company’s objectives. It helps them focus to a common purpose and it eliminates any uncertainties or reservations. Also, they develop a department to support the changing needs of business operations, which ate being reported to the restaurant’s general manager. This new and holistic management approach enables managers to consistently run great restaurants. This was given an equal weight with the highest of all because we believe that its effect on the company’s success is equal with its strong brand name, image, and reputation.
Strong global company With a rate of 4, McDonald’s operates in more than 120 countries and they are also the largest fast food chain in the world. They operate in many diverse cultures. Although a multinational giant, McDonald’s adapts its business and menu to the different countries they operate in. They respect cultural differences and every country has its own policy of developing menu items. This has the lowest of all the weights in the strengths because McDonald’s, being a global company, has competitors that are also global companies.
Weaknesses Weaknesses are the risky areas that need to be addressed on priority to minimize its impact. The competitors are always searching for the loopholes in the company and put their best effort to capitalize on the identified weaknesses.
High employee turnover With a rate of 2, Although McDonald’s has many good managers as well as skillful employees; the turnover rate is still high. Every year, many of their employees quit their jobs, especially part time employees such as students because of low salary as well as too high working pressure. Not every new employee can work at the same pace and can handle the pressure as the one who's working there for months; therefore it negatively affects the efficiency of the restaurant. Also, high turnover rate comes with a cost. Each employee who resigns costs your company money. All of the money invested into that employee through training, education and licensing walks out the door with the employee. This has the lowest weight amongst all the weaknesses because the employees are important for the company but it is not as essential as the other weaknesses with regard to the company’s success.
Poor product differentiation With a rate of 2, McDonald’s are no longer able to substantially differentiate itself from other fast food chains and chooses to compete with price rather than by additional features. Although McDonald‘s has its own range of unique products such as BigMac, McDouble, Flat-O-Fish and others, the extent of McDonald‘s product differentiation is well below its full potential and this fact is one of the major weaknesses associated with the brand.
This is tied to the lowest weight because, even though McDonalds has the same menu with its competitors, it is still the factor that gives McDonalds its
No healthy menu With a rate of 1, McDonald’s use trans-fat and beef oil in their food, although it is not illegal, it affects badly on customer’s health because trans-fat is causes of any kind of cancer. Consequently, a number of customers who care about their health stop eating at McDonald’s restaurants. There are chemicals and ingredients that are found in McDonald’s food which are not healthy. Our bodies are not designed to digest and consume chemicals that cause harm. Greasy, artificial foods are not the foods healthy people will be consuming. Thus, It makes the revenue of company decreases. This has the highest weight of all the weaknesses because, as a food company, having a menu that is healthy for the customers is necessary.
Unhealthy food image- Negative publicity With a rate of 1, McDonald’s has always maintained the perception that its food is unhealthy, loaded with fat, carbs, salt, and sugar. Well, these perceptions are generally on point, as most items on its standard menu are relatively unhealthy. The chain has been widely criticized for promoting unhealthy eating habits, leading many of its customers to put on pounds. This has a weight that is the same with the highest of all the weaknesses because the company’s image is really important and publicity is what people base their choices on.
Decrease in profit With a rate of 1, McDonald’s has to compete with many strong brand names in the fast food industry such as Jollibee, Wendy’s, Burger King, Mang Inasal and KFC. This fierce competition makes McDonald’s lose a large number of customers who prefer other brands. Such a decline is being caused as a cumulative impact of other McDonald‘s weaknesses discussed above. This has a weight that is in between of the highest and the lowest because the profit is one of the measures of how a company is doing.
Overall, McDonald’s receives a total weighted score of 3.05, which indicates that McDonald’s has a strong internal position.