IE Matrix

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Figure 6-9 An Example BCG Matrix

The BCG Matrix, like all analytical techniques, has some limitations. For example, viewing every business

as a star, cash cow, dog, or question mark is an oversimplification; many businesses fall right in the

middle of the BCG Matrix and thus are not easily classified. Furthermore, the BCG Matrix does not reflect

if various divisions or their industries are growing over time; that is, the matrix has no temporal qualities,

but rather it is a snapshot of an organization at a given point in time. Finally, other variables besides

relative market share position and industry growth rate in sales, such as the size of the market and

competitive advantages, are important in making strategic decisions about various divisions.

Another example BCG Matrix is provided in Figure 6-9 . As you can see, Division 5 had an operating loss

of $188 million as indicated by its red shading. The remaining pie slices add up to over 100 percent

profits to account for negative net income associated with Division 5 (This is a different way to portray

divisional losses in a BCG matrix analysis).

Figure 6-9 Full Alternative Text

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Figure 6-10 The Internal-External (IE) Matrix

The Internal-External (IE) Matrix

The Internal-External (IE) Matrix positions an organization’s various divisions (segments) in a nine-cell

display, as illustrated in Figure 6-10 . The IE Matrix is similar to the BCG Matrix in that both tools involve

plotting a firm’s divisions in a schematic diagram; this is why both tools are forms of portfolio analysis.

In both the BCG and IE Matrices, the size of each circle represents the percentage of revenues or number

of stores each division contributes, and pie slices reveal the percentage of operating profits contributed

by each division. But there are four important differences between the BCG Matrix and the IE Matrix, as

follows:

1. The x- and y-axes are different.

2. The IE Matrix requires more information about the divisions than does the BCG Matrix.

3. The strategic implications of each matrix are different.

4. The IE Matrix has nine quadrants versus four in a BCG Matrix.

Source: Based on: The IE Matrix was developed from the General Electric (GE) Business Screen Matrix. For a description of the GE Matrix, see Michael Allen, “Diagramming GE’s Planning for What’s WATT,” in R. Allio and M. Pennington, eds., Corporate Planning: Techniques and Applications l par; New York: AMACOM, 1979.

Figure 6-10 Full Alternative Text

For the above reasons, strategists in multidivisional firms often develop both the BCG Matrix and the IE

Matrix in formulating alternative strategies. A common practice is to develop a BCG Matrix and an IE

Construct and apply the Internal-External (IE) Matrix.LO 6.6

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Figure 6-11 An Example IE Matrix

Matrix for the present, and then develop projected matrices to reflect expectations of the future. This

before-and-after analysis can be quite effective in an oral presentation, enabling students (or strategists)

to pave the way for (justify or give some rationale for) their recommendations across divisions of the

firm. Also, commonly a BCG Matrix will be developed by region and an IE Matrix by product, or vice versa.

The IE Matrix is based on two key dimensions: (1) the IFE total weighted scores on the x-axis and (2) the

EFE total weighted scores on the y-axis. Recall that each division of an organization should construct an

IFE Matrix and an EFE Matrix for its part of the organization, but usually in performing case analysis,

strategic-management students simply estimate divisional IFE and EFE scores, rather than prepare those

underlying matrices for every division. Regardless, it is the total weighted scores derived from the

divisions that allow construction of the corporate-level IE Matrix. On the x-axis of the IE Matrix, an IFE

total weighted score of 1.0 to 1.99 represents a weak internal position; a score of 2.0 to 2.99 is

considered average; and a score of 3.0 to 4.0 is strong. Similarly, on the y-axis, an EFE total weighted

score of 1.0 to 1.99 is considered weak; a score of 2.0 to 2.99 is average; and a score of 3.0 to 4.0 is

strong. Circles, representing divisions, are positioned in an IE Matrix based on their (x, y) coordinate.

Despite having nine cells (or quadrants), the IE Matrix has three major regions that have different strategy

implications, as follows:

REGION 1—The prescription for divisions that fall into cells I, II, or IV can be described as grow and

build. Intensive (market penetration, market development, and product development) or integrative

(backward integration, forward integration, and horizontal integration) strategies can be most

appropriate for these divisions. This is the best region for divisions, given their high IFE and EFE

scores. Successful organizations are able to achieve a portfolio of businesses positioned in Region

1.

REGION 2—The prescription for divisions that fall into cells III, V, or VII can be described as hold and

maintain strategies; market penetration and product development are two commonly employed

strategies for these types of divisions.

REGION 3—The prescription for divisions that fall into cells VI, VIII, or IX can be described as harvest

or divest.

An example four-division IE Matrix is given in Figure 6-11 . As indicated by the positioning of the four

circles, grow and build strategies are appropriate for Divisions 1, 2, and 3. But Division 4 is a candidate

for harvest or divest. Division 2 contributes the greatest percentage of company sales and thus is

represented by the largest circle. Division 1 contributes the greatest proportion of total profits; it has the

largest-percentage pie slice.

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Figure 6-12 The IE Matrix

Figure 6-11 Full Alternative Text

An example five-division IE Matrix is given in Figure 6-12 . Note that Division 1 has the largest revenues

(as indicated by the largest circle) and the largest profits (as indicated by the largest pie slice) in the

matrix. It is common for organizations to develop both geographic and product-based IE Matrices to

more effectively formulate strategies and allocate resources among divisions. This latter idea minimizes

the limitation of these matrices being a “snapshot in time.”

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Figure 6-12 Full Alternative Text

Important NOTE: Whenever a particular company is known, such as in doing case analysis or in the real

world, be more specific with proposed strategies rather than using generic terms in regards to resultant IE

Matrix strategies. Couch your strategies in quantitative and divisional terms to the extent possible. (This

is true also with strategies derived from the BCG, SPACE, GRAND, and even SWOT analyses; specificity is

golden—avoid vagueness)

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