Building business strategy for bank for investment and development of Vietnam (BIDV) Nghe An branch from 2010 to 2015

1


GRIGGS UNIVERSITY
GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION
PROGRAM




CAPSTONE PROJECT REPORT

BUILDING BUSINESS STRATEGY FOR
BANK FOR INVESTMENT AND
DEVELOPMENT OF VIETNAM (BIDV),
NGHE AN BRANCH FROM 2010 TO 2015


Group: 5
1.Vo Thi Minh Sinh - Leader
2. Hoang Viet Hung - Member
3. Nguyen Văn Do - Member
4. Nguyen Van Hai 2 - Member
5. Nguyen Khac Diep - Member



HA NOI, 2010

2
TABLE OF CONTENTS

TABLE OF CONTENTS 2
LIST OF ABBREVIATION 5
LIST OF TABLES 6
LIST OF FIGURES 7
PREFACE 8
CHAPTER I 11
BUILDING BUSINESS STRATEGY FOR BUSINESS UNIT 11
1.1. Business strategy 11
1.1.1. Definition 11
1.1.2. Roles of business strategy 12
1.1.3. Types of business strategies 14
1.1.3.1. Concentrate Growth Strategy 14
1.1.3.2. Basic competitive strategy 14
1.1.3.3. The competitive strategies for organizations. 15
1.2. Strategy building procedure 17
1.2.1. Mission and Goals 18
1.2.2. External environment analysis 19
1.2.3. Internal environment analysis 20
1.2.4. The analysis technique and strategic selection. 21
1.2.4.1. External factor evaluation matrix (EFE) 21
1.2.4.2. Internal factor evaluation matrix (IFE) 22
1.2.4.3. Competitive profile matrix 23
1.2.4.4. SWOT Analysis 23

1.2.4.5. Internal – External Matrix 25
1.2.4.6. QSPM Matrix 26
CHAPTER II 27
THE FACT OF BUSINESS ENVIRONMENT OF BANK FOR INVESTMENT AND
DEVELOPMENT OF VIETNAM, NGHE AN BRANCH 27
2.1. Typical characteristics of banking services business and experience from
building business strategy of domestic and foreign banks 27
2.1.1. Typical characteristics of banking services business 27
2.1.2. Experiences from building business strategy of domestic and foreign
banks 29
2.1.2.1. Experience from building business strategy of Industrial and



3
Commercial bank of China (ICBC) 29
2.1.2.2. Experience from building business strategy of Vietnam bank for
Agriculture and rural Development 30
2.1.2.3. Lesson for building business strategy of BIDV, Nghe An Branch 31
2.2. Overview of Bank for Investment and Development of Vietnam, Nghe An
Branch 32
2.2.1. General introduction 32
2.2.2. Functions, tasks and business activities 32
2.2.3. Core products and services 32
2.2.4. Structure of BIDV Nghe An 33
2.3. Analysis of external factors influencing the operations of BIDV, Nghe An
branch 33
2.3.1. Mega-environment/ Macro environment 33
2.3.1.1. Econonomic element: 34
2.3.1.2. Sociocultural element 37

2.3.1.3. Legal-political element 40
2.3.1.4. Natural element 41
2.3.1.5. Technological element 42
2.3.2. Task environment/ Micro environment 44
2.3.2.1. Rivalry 45
2.3.2.2. Bargaining power of customers 51
2.3.2.3. Bargaining power of suppliers 53
2.3.2.4. Threat of new entrants 54
2.3.2.5. Threat of substitute products/services 54
2.3.3. Evaluation on opportunities and threats 55
2.3.4. Matrix evaluation of external factors (EFE) 56
2.4. Analysis on internal factors of BIDV Nghe An 58
2.4.1. Human resources 58
2.4.2. Marketing 61
2.4.3. Analysis of BIDV business activities 64
2.4.3.1. Capital mobilization 64
2.4.3.2. Credit 66
2.4.3.3 Services 70
2.4.4. Organizational structure and management capacity 71
2.4.5. Financial capability analysis 72
2.4.6. Information systems analysis 75
2.4.7. Strengths, weaknesses assessment 75
2.4.8. Matrix evaluating the internal evaluation (IFE) 76
2.5. The need to build the business strategy of BIDV Nghe An. 79
CHAPTER III 81



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BUSINESS STRATEGY OF BIDV, NGHE AN BRANCH FROM 2010 TO 2015 81

3.1. Strategic plan selection 81
3.1.1. SWOT Matrix 81
3.1.2. IE Matrix 84
3.1.3. Strategic selection of QSPM Matrix 86
3.2.Contents of business strategy of BIDV, Nghe An branch from 2010 to 201588
3.2.1. Business targets 88
3.2.2. Contents of business strategy of BIDV- Nghe An branch from 2010 to
2015 88
3.3. Implementation solutions of BIDV Nghe An 89
3.3.1. Human resource development and training 89
3.3.2. Marketing 91
3.3.3. Technology 93
3.3.4. Restructure business activities of BIDV 94
3.3.5. Product developments and supervisions 95
3.4. Implementation phases 96
3.4.1. Phase 1 (2011 – 2012) 96
3.4.2. Phase 2 (2013 – 2014) 97
3.4.3. Phase 3 (2015) 98
3.4.4. Strategic solutions implementation (Action plan): 100
3.5. Recommendations 104
3.5.1. For Congress, Government 104
3.5.2. For State Bank Of Vietnam 104
3.5.3. For Bank of Investment and Development of Vietnam 105
CONCLUSION 106
REFERENCES 107
APPENDIX 109

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LIST OF ABBREVIATION

Acronyms
English
Vietnamese
NHTMVN
Vietnam Commercial Bank
Ngân hàng thương mại Việt Nam
VCB
Joint Stock Commercial Bank
for Foreign Trade of Vietnam
Ngân hàng thương mại cỏ phần ngoại
thương Việt Nam
ACB
Asia Commercial Bank -
Nghe An Branh
Chi nhánh Ngân hàng Á châu Nghệ An
NN&PTNT
Vietnam Bank for Agriculture
and Rural Development
Ngân hàng Nông nghiệp và phát triển

Nông thôn
BIDV Nghe
An
Bank for Investment and
Development of Vietnam -
Nghe An Branch
Chi nhánh Ngân hàng Đầu tư và Phát
triển Nghệ An
BIDV
Bank for Investment and
Development of Vietnam
Ngân ha
̀
ng Đầu tư va
̀
Pha
́
t triê
̉
n Viê
̣
t
Nam




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LIST OF TABLES

Table 2.1 The number of credit institutions at the time of 31/12/2009 45
Table 2.2 Network activities of credit institutions at the time of 31/12/2009 46
Table 2.3 The factors affecting the choice of bank customers 47
Table 2.4 Assessing the competitiveness of Nghe An BIDV compared with other banks
48
Table 2.5. The number of customers in Nghe An BIDV 2007-2009 52
Table 2.6. Matrix EFE of BIDV Nghe An 56
Table 2.7: Number of staff in BIDV Nghe An, 2007-2008 59
Table 2.8. capital mobilization and Capital mobilization market share of Nghe An
BIDV from 2007 to 30/6/2010 64
Table 2.9. Outstanding of Nghe An BIDV and banks in the rgion of Nghe An from
2007 to 30/6/2010 67
Table 2.10. income of service activities of Nghe An BIDV from 2007 to the end of the
first half of 2010 70
Table 2.11. Total assets and capital mobilization in 2007-2009 73
Table 2.12. Pre-tax profit of the branch 2007-2009 73
Table 2.13. Pre-tax profit of the branch 2007-2009 74
Table 2.14. IFE Matrix of BIDV Nghe An 77
Table 3.1. SWOT matrix 81
Table 3.2: QSPM Matrix 86
Table 3.3: Selected strategy is in prior order 87
Table 3.4 : Estimated financial criteria from 2011 to 2015 109
Table 3.4 : Estimated financial criteria from 2011 to 2015 110
Table 3.5. Income statement from 2011 to 2015 110





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LIST OF FIGURES

Figure 1.1 Tasks of strategic management 13
Figure 1.2 Business strategy building procedure 18
Figure 1.3. External environment 20
Figure 1.4. SWOT analysis 24
Figure 1.5: Importance Mark in IE Matrix 25
Figure 2.2 Market share of capital mobilization of BIDV Nghe An comparing with
other banks in Nghe An province in 2009 49
Figure 2.3 Market share of services of Nghe An BIDV and other banks (2009) 51
Figure 2.4 Customer structure of BIDV Nghe An in 2009 52
.Figure 2.5 Human resource structure of BIDV Nghe An, 2009 59
Figure 2.6. Human resource structure of BIDV Nghe An towards experiences 2009 60
Figure 2.7: Capital mobilization structure of Nghe An BIDV compared with other
banks in the same area 65
Figure 2.8: outstanding credit structure of Nghe An BIDV and banks in the region of
Nghe An Province 67
Figure 2.9: structure of outstanding loan of groups 68
Figure 3.1. IE matrix of BIDV Nghe An 85
Figure 3.2. IFE matrix - EFE matrix of BIDV Nghe An 85
Figure 2.1 Organizational structure of BIDV Nghe An 109

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PREFACE

1. The necessity of selecting the research topic
Today, International economic integration is an inevitable trend for
economically developing countries wanting rapid access to advanced economies. For
Vietnam, international economic integration is important and is the proper direction to
position Vietnam in the International business arena by offering many opportunities for
sustainable and rapid development of the economy.
Confronted with the requirements of development and economic integration of
Vietnam and the world, the Vietnamese government has made commitments to
international financial institutions to open financial markets and banks in Vietnam.
Competition and international economic integration requires commercial banks to
change traditional business practices to meet the requirements of new international
business climate. In the context, the commercial banks have to modernize, play a key
role in the monetary financial market, create competitive capacity, and quickly adapt
the process of integration and development.
To achieve the initiative in the integration process, overcome challenges, and
take advantage of good opportunities requires NHTMVN to analyze their strengths and
weaknesses. This will dictate appropriate strategy for each stage of development to be
consistent with the trend on the principle of ensuring national interests and enterprises.
In the general context, to survive and grow, BIDV Nghe An belongs to BIDV,
also needs to build and implement updated business strategy. BIDV Nghe An focuses
on scale expansion, technological modernization, diversification and improvement of
modern banking products and services based on advanced technologies; market- based
management reform; building, standardizing the entire business operation process and

risk management; renewal management, gradually building prestigious bank in area
and over the world; competitive capacity, efficiency, safety, availability of capital,



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investment expansion to meet the needs of industrialization and modernization of the
country.
Successful building and implementation of business strategy is an urgent need,
and is a mission for the existence and development of banks in general and BIDV Nghe
An in particular. From such a practical situation, the team has chosen the topic:
"Building a business strategy for the Bank for Investment and Development in Nghe
An 2011 to 2015 and implementing solutions” We hope that the research will
contribute to improve business efficiency and put BIDV Nghe An on a new position in
BIDV system in detail and the system of commercial banks in Vietnam in general.
2. Research Purposes
Based on the research methodology, the authors give further analysis, generalize
the basic theory of business strategy, along with analysis and assess the actual
operation of BIDV Nghe An in order to build business strategy for the BIDV Nghe An
from 2011 to 2015 and propose some implementation solutions which bring the BIDV
Nghe An to be one of the strong branches among system of BIDV and Nghe An
province.
Research objectives
- To clarify the methodology of business strategy and business strategy building
procedure of banks.
- To assess the status of business operations and the factors affecting the business
strategy of BIDV Nghe An.
- To build business strategy for BIDV Nghe An from 2011to 2015 and solutions to
implement the strategy.
3. Objects and scope of research

- Objects of the research includes BIDV Nghe An staffs, customers, products,
business operations, and factors affecting the business strategy of BIDV Nghe An.



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- The research scope of the project is limited in building business strategy for BIDV
Nghe An 2011-2015.
4. Research methodology
- The approaches: The topic uses integrated approaches such as the particular approach,
historical approach, quantitative and qualitative approach.
- Method of processing and data analysis: Topic uses statistical methods of description,
analysis and synthesis to evaluate business performance of BIDV Nghe An; Using EFE
, IFE, SWOT, IE matrix
- Sources of information: Topic is used secondary information from newspapers, the
Internet and reports from BIDV Nghe An, State Bank of Nghe An Province.
5. The theoretical meaning and practice
Topic is based on the theories relating to strategic management and applies the
theories to analysis strength - weakness, opportunity - threat of BIDV Nghe An, then to
develop business strategies and to propose solutions for these strategies, especially in
the context of Vietnam's accession to WTO and fully implement commitments on the
banking sector in 2015.
6. Structure: The research paper includes the following three chapters:
 Chapter 1: Methodology of rationale of the business strategy of business
 Chapter 2: Analyzing business environment fact BIDV Nghe An in the recent
past.
 Chapter 3: Business strategy of BIDV Nghe An from 2011 to 2015 and
implementing solutions.

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CHAPTER I
BUILDING BUSINESS STRATEGY FOR BUSINESS UNIT

1.1. Business strategy
1.1.1. Definition
In the market economy, every business will start its business operation process
by establishing goals to be achieved in the long term. And to be able to achieve these
objectives, the leaders need to set out the different means and the ways to achieve that
goal; it also means that managers must build a specific business strategy for their
enterprises.
There are many different opinions on business strategy, Fred R. David said:
"Strategy is the means to achieve long-term goals." Meanwhile, Bruce Henderson,
strategist at the same time as founder of Boston Consulting Group has linked the
concept of strategy with competitive advantage. Henderson wrote, "The strategy is a
prudent plan of action to combine and develop competitive advantage of the
organization. The difference between you and competitor is the basis for your
advantage. "
According to Chandler – who is one of the first to initiate strategic management
theory- said "business strategy of a business is determining the long term and basic
objectives and purposes and apply a sequence of actions as well as the allocation of
necessary resources to implement this goal.
Therefore, it is obvious that there are many different views on the strategy. Each
concept included different aspects and is according to level. In Our opinion, to
understand and the most common, strategy may be understood as the means or a
written explanation on the operation orientation to achieve business objectives set out
in the long term. There are three levels of business strategy needed identified include:

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- Corporate level strategy: Toward the purpose and scope of the organization
overall.
- Business level strategy: Related to how to compete successfully in the specific
market.
- Functional level strategy: Help the corporate level strategy and the Business
level strategy effectively implement due to all components such as resources,
processes, people, and the necessary skills.
1.1.2. Roles of business strategy
Business strategy is especially important for the formation, existence, and
development of the business. Business strategy is seen as a guideline for the operation
of enterprises, is an important element to create success for enterprises. The role of
business strategy is reflected in the following:
Business strategy helps businesses identify the purpose and orientation of the
enterprise, is a basis, a guideline for all business activities of enterprises. Without
strategy, enterprises will not identify the target, its orientation during the operation,
which will not mobilize human and material resources to promote the strengths of
business.
Business strategy helps businesses understand and take advantage of business
opportunities, while there are proactive solutions to overcome the risks and threats in
the process of business competition. Thanks to business strategy, enterprises can
provide plans to succeed in the competitive process, particularly in market economy
and integration. Through business strategy, enabling businesses to apply limited
resources to generate superior results to achieve goals set out, to help businesses
identify the path and direction to create competition advantages against rivals.
Business strategy contributes to improving the efficient utilization of resources,
enhancing the competitive position of enterprises, and ensuring the sustainable
development of enterprises. Through business strategy, helping businesses make the

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best use of financial resources, human resources, infrastructure, information
technology, and brand. All these factors will maximize the business power and use the
most effective way to achieve the objectives set out.
Business strategy creates a solid basis for making policy and reacting in
accordance with the market fluctuation. Changes in the business environment generate
opportunities and threats in the future, business strategy will help businesses take
advantage of opportunities and reduce risk, help businesses better prepare to deal with
and lead the market changes.
Business strategy helps enterprises reduce risk and enhance the ability of
businesses to take advantage of business opportunities when they appear.
Business strategy plays a central role in the development of unique products, which
helps empower businesses and increase the confidence of customers and partners for
businesses.
Figure 1.1 Tasks of strategic management











(Source: Lecture of strategic management subject – Associate Professor.Dr. Ngô

Kim Thanh)


Develop
strategic
vision and
mission


Set
targets

Build
strategy
to achieve
the
targets

Assess
implemen
t,
monitor,
and
repair
adjustment

Improve/
change
(if
necessary)

Repair
(if
necessary)


Repair
(if
necessary)

Improve/
change
(if
necessary)

Restore
1,2,3,4
(if
necessary)

Enforce
and
administr
ate
selected
strategy



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1.1.3. Types of business strategies
1.1.3.1. Concentrate Growth Strategy
Concentrated Growth strategy is strategy directly aimed at serving the needs of the
customer groups or restriction segment, including three basic strategies:
Market penetration is strategy to exploit existing market and existing customer
base of business through such forms as increase in the number of sales employees, and
increased spending for advertising and promotion strategy. Market penetration aims to
increase market share for products or services available in a defined market. This
strategy is used when the current market is not saturated and still contains potential for
product and service of the enterprise; market shares of competitor‟s declines but sales
of whole sector increases
Market development: is a strategy related to the development of an existing product
or service in a new market or geographic area. This strategy is used when enterprises
have the ability to research and penetrate market, especially in foreign markets;
enterprise production capacity has not been depleted and distribution network in new
markets is reliable, good quality, reasonable cost.

Product development: through investment in research and development, the
enterprise has the capacity to launch an improved product, modifying from the existing
products. This strategy is used when the enterprise's products are saturated or during
preparation of saturation (products are in the final stages of product life cycle);
enterprises are operating in high growth sectors, improvements, and application of high
technology competitive situation.
1.1.3.2. Basic competitive strategy
a. Cost leadership strategy
Cost leadership strategy is a strategy to provide products or services that has
characteristics accepted by customers with the lowest cost in relation to all competitors.
The purpose of cost leadership strategy is to serve better than competitors, with the



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purpose of providing products and services with the lowest possible cost compared to
other competitors.
b. Differentiation strategy
Differentiation strategy is to create strategic competitive advantage of
companies by creating products (goods or services) that the customer perceives as
being different compared to products offered by other competitors This difference
best serves customers when the competitors can not do the same thing. With this
strategy the company must offer products with unique and specific features and create
high value to consumers. The difference is new to competitor. The company's products
have outstanding characteristics, and customers may be willing to accept the products
of company with a higher level of competition for differences.
c. Focused strategy
Focused strategy is the third generally competitive strategy. The main difference
with the two strategies is that it directly serves the needs of the customer group or a
restricted segment. A Focused strategy will be directed at specific market share that

can be defined in terms of geography, customer types, or by segments of the products.
For example, a geographical gap can be determined by region or even by location,
enterprise can select a customer type upper, middle, lower or young, etc.
1.1.3.3. The competitive strategies for organizations.
Though at the same company, each business unit has different market share in
the market
a. Market- leading unit
- Strategies to expand the total market demand: Searching for new geographical
areas to sell, new clients, developing new tools, encouraging the use of more products.
- Defense Strategy: Helping business unit lead the market and keep its position on
the current market. The market leading unit has always been threatened by other



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competitors, especially those units with a challenging position in the market. Thus,
business units have continued to defend against the attacks of competitors.
- Market share expansion strategy: By purchasing or acquiring small competitors‟
business units, attempt to capture the market share of major competitors.
b. Business units with market challenges
Taking advantages of the market leading business and other competitors to
increase market share or enabling to do business parallel with the competitors and not
touching the other competitors. To implement attack strategy, business units need to
perform the following steps:
- Determine which of your competitors to attack and targets of attack strategy.
- Select appropriate strategy to attack on the front, flank, or siege
c. Business unit under markets:
This business unit does not want to deal with rivals or to challenge the leading
market due to insufficient resources, fear of loss, costly expenses .etc . They sought to
evade competitors by following the market-leading players through the simulation

strategies:
- Simulation of full products, how to distribute, advertising and marketing
activities, supplying products to the sensitive target market to low price.
- Simulation of some core content in mixed marketing of leading competitors and
held a number of differences in packaging, pricing, advertising, sales network.
- Simulation is improved to adapt to market by relying on mixed marketing of
market-leading rivals to create its own unique enhancements of mixed marketing to
adapt to the needs and expectations of market target.
d. Market haven business unit
- These units are always looking for only one few safe and potentially lucrative
segments to harbor. To succeed on narrow market segments, they often make typical
specialization strategies.



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- Specialization based on the end user: Depending on the industry in which business
units hiding market to choose a customer type wishing to use the product or service.
- Specialization in stages in the process of production, product distribution: the
business unit can choose details of components of a completed product, a
complementary product
- Specialization based on customers: Specialization by customer: Select customers
by demographic criteria to serve customers with high, medium, or low income, or age
of customers
- Specialization based on sales region: Select a geographic area to serve as domestic
or international market
- Specialization based on feature of products: High quality and luxurious or average
- Specialization based on products of each sector: According to one or several items
in large industries
- Specialization based business services that competitors do not offer

1.2. Strategy building procedure
Business strategy has to ensure existence and development of the enterprise. The
strategy is unique, is built on competitive advantage foundation, performing the link
between business and environment, emphasizing the development of business.
Business strategy building procedure is the first step in strategic management. The
procedure of building strategy includes the following contents:










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Figure 1.2 Business strategy building procedure

(Source: Lecture of strategic management subject – Associate Professor.Dr. Ngô
Kim Thanh)
1.2.1. Mission and Goals
Every corporation must determine the mission and goals of their operation. In
another words, business must show their purpose to exist. A good business objective
needs to be developed through a serious working process by taking the opinion of staff
committee. The mission of an organization is the operation purpose, is the reason for
the establishment, existence and development of an organization. The mission of a
business answers the question: what is the organization start up and exist for? The



Mission & Goals
External factors
analysis
(Opportunities and
threats)
Selection and

building strategies
Internal factors
analysis (core
resources, capacity)

Business strategy
Corporation strategy
Strategy change
Suitability of strategy,
structure, and control
Organizational
structure
Control design
Functional strategy



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objectives are the specific performance which the organization wants to achieve in a
certain period of time.
1.2.2. External environment analysis
To ensure business strategy to bring high feasibility, after determining the
business goals, enterprises must analyze and assess the influence of external
environmental factors to the implementation of their business‟ objectives.
The process of analyzing the external environment includes analysis of macro
and micro. Analysis of the macro includes the following elements: economic elements:
character and targets, direction of economic and social development, GDP and GDP
per capita, inflation, personal income, interest ; Legal- political elements: political
sustainability, the perfection of law, the Government behavior to competition,
monopoly and economic sectors, the Government and enterprise relationship ; Social

and cultural elements: change in acknowledge of cultural value, living style, education,
health service, income distribution, geography and society, quantity and family
structure ; Technological elements; Natural elements and global elements.
Micro environment includes Analysis of rivals which understand competitors‟
strategy, targets, strengths, and weaknesses; besides, business analyzes customers‟
characteristics, development trend and also analyzes groups, scale, needs, and direction
of customers.
Analysis of environmental factors will allow businesses to clearly identify
opportunities and threats that businesses will face, thus helping business give the
direction, appropriate solutions to take advantage of the chances and overcoming
challenges. The researchers gave EFE matrix to evaluate the external factors.




20
Figure 1.3. External environment

(Source: Lecture of strategic management subject – Associate Professor.Dr. Ngô
Kim Thanh)
1.2.3. Internal environment analysis
Internal analysis is the next step of the process of building a business strategy to
find out the strengths and weaknesses of the organization. By using the Internal
analysis, the enterprise can launch the strategy to achieve competitive advantage, and
take advantage the strength of the business, the strength of the resources and capability
of building and maintaining sustainable competitive advantage for businesses
Internal analysis is focused to assess and analyze the following: financial
performance: human resource, management, organizational structure, marketing,
research and development, information technology; internal control.
Internal analysis enables enterprises to realize the strengths and weaknesses of
the business, from which to build strategies to optimize the strengths and weaknesses.

Technological
element

Threat of new
entrants
Threat of
substitute
products/services
Bargaining
power of
suppliers

Rivalry

Bargaining
power of
customers

Legal-political
element
Natural
element
Sociocultural
element

Economic element
Internation
al element











21
1.2.4. The analysis technique and strategic selection.
After identifying the goals and mission, external and internal factors analysis, to

develop business strategy, business analyzes and selects strategy. This process uses the
following matrix:
1.2.4.1. External factor evaluation matrix (EFE)
To assess the external factors that affect business, people use the external factor
evaluation matrix. EFE evaluates, synthesize and summarize the main opportunities
and risks from the major external factors. These factors affect the business operation.
Thereby business administrators will be able to assess the level of response to their
business opportunities, risks in order to make suitable judgments. If they are favorable
or difficult to the company. To build this matrix we have to follow five steps below:
- Step 1: List factors: Gather a list of external factors then divide factors into two
groups: opportunities and threats.
- Step 2: Assign weights: Assign a weight to each factor. The value of each
weight should be between 0 and 1 (or alternatively between 10 and 100 if you
use the 10 to 100 scale). Zero means the factor is not important. One or hundred
means that the factor is the most influential and critical one. The total value
of all weights together should equal 1 or 100.
- Step 3: Rate factors: Assign a rating to each factor. Rating should be between 1
and 4. Rating indicates how effective the firm‟s current strategies respond to the
factor. 1 = the response is poor. 2 = the response is below average. 3 = above
average. 4 = superior. Weights are industry-specific. Ratings are company-
specific.
- Step 4: Multiply weights by ratings: Multiply each factor weight with its rating.
This will calculate the weighted score for each factor.



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Step 5: Total all weighted scores: Add all weighted scores for each factor. This
will calculate the total weighted score for the company.[
1

] A total important point in
maximum of 4.00 and the lowest is 1.00. Total average score of 2.50. Total important
points lower than 2.50 indicates that business has poor response to changes from the
external environment and on the contrary, the total important point higher than 2.50
indicates the company is quite sensitive to business environmental business.
1.2.4.2. Internal factor evaluation matrix (IFE)
Matrix has been developed to identify the strengths and weaknesses of the
business. The process of setting up a matrix is similar to the process of developing the
external factors evaluation matrix, but substitute above assessed factors by the
strengths and weaknesses of the business.
Creating an IFE matrix is an intuitive process which works conceptually very
much the same way like creating the EFE matrix. The IFE matrix process uses the five
steps below.
- Step 1: Key internal factors: Making a list os factors is crucial to the
competitiveness of the company (between 10 and 20 elements).
- Step 2: Weighting: Assigning a weight to each factor. The value of each weight
should be between 0 and 1on a scale from 0.0 to 1.0 (increasing level of
importance) with a total score of the factors of 1.0. Critical levels are based on
the importance of the factor to the company, regardless of these factors with
strengths or weaknesses.
- Step 3: Rating: Classifying from 1 to 4 for each factor that represents a score
showing the internal characteristics of the company to that factor. Score 1 is a
major weakness (rating = 1); score 2 is a mior weakness (rating = 2),while score
3 is a minor strength (rating = 3), and score 4 is a major strength (rating = 4).

[
1
] How do I create the EFE matrix. Retrieved September 20, 2010, from i-
pedia.com/EFE+matrix+external,

23
Therefore, these scores reflect the competitiveness of each factors of the
business compared with competitors in the sector.
- Step 4: Multiplying: Scoring each factor by multiplying the importance of that
factor with the corresponding classification scores. (The scores can be seen in
step 2 and step 3).
- Step 5: Summing: The total score in the matrix is given by adding the scores of
all corresponding factors of each company. This total score shows the absolute
competitiveness of the company.
The highest total score is 4, the lowest is 1 and the average score is 2.5. Accordingly, if
the total score of all factors in the list of the IEF matrix is from 2.50 or more, the
business has an absolute competitiveness above average. This also indicates the
business has a strong internal environment. In contrast, the total score in the IFE matrix
is smaller than 2.50, the absolute competitiveness of enterprises is lower than average,
suggesting that the business has a weak internal environment.
1.2.4.3. Competitive profile matrix
In all events and trend, environment can affect the formation of business
strategy; which the effect of competition is often considered the most important.
Competitive profile matrix is used to identify major competitors and their advantages
and disadvantages.
1.2.4.4. SWOT Analysis
The aim of using SWOT analysis is to give the strategies which can be applied
to match with the strengths, weaknesses, opportunities, and threats of the business
entity. This does not mean all listed strategies are carried out by the business entity.
The process of using SWOT analysis of the business entity given following:
- Listing the external opportunities and threats and the strengths and weaknesses of
the business entity.

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- Combining the internal strengths with the external opportunities is to construct
SO strategy.
- Combining the internal weaknesses with external opportunities is to construct
WO strategy.
- Combining the internal weaknesses with external threats is to construct ST
strategy.
- Combining the internal weaknesses with the external threats is to construct WT
strategy.
Figure 1.4. SWOT analysis
SWOT MATRIX
Internal Factors
Strengths (S)
1.
2. List out the strengths
3
Weaknesses (W)
1.
2. List out the strengths
3…
External
factor

Opportunities
(O)
1.
2. List out
opportunities

3.
SO Strategy: Bring into
the internal strengths is to
make use of opportunities
from the external
environment.
WO Strategy: Overcome
the weaknesses of the
business entity by
making use of the
opportunities.
Threats (T)
1.
2. List out the
threats
3.

ST Strategy: Make use of
the internal strengths is to
get over the threats from
the external environment.
WT Strategy: Decrease
the effects of threats
from the external
environment and restrain
the weaknesses
simultaneously.

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1.2.4.5. Internal – External Matrix
IE Matrix (Internal – External Matrix) puts the different capacities of one
business entity in one table divided into 9 squares. This figure constructed bases on 2
main aspects:
- Sum of important mark of IFE is indicated in X axis
- Sum of important mark of EFE Matrix is indicated in Y axis
- The company has to construct IFE and EFE Matrix which is the foundation to
establish its own IE Matrix.
- X axis show the importance of IFE Matrix
 If Mark is from 1.0 – 1.99, means: The internal factors are weak
 If Mark is from 2.0 – 2.99, means: Average
 If Mark is from 3.0 – 4.0, means: Strong
 -Y axis show the importance of EFE Matrix
 If Mark is from 1.0 – 1.99, means: weak
 If Mark is from 2.0 – 2.99, means: Average
 If Mark is from 3.0 – 4.0, means: Strong
Figure 1.5: Importance Mark in IE Matrix
IE MATRIX
Importance Mark in IE Matrix
Strong
3.0 -4.0
Average
2.0 – 2.99
Weak
1.0 – 1.99
Importance
Mark in EFE
Matrix

Strong 3.0 – 4.0
I
II
III
Average 2.0 – 2.99
IV
V
VI
Weak 1.0 – 1.99
VII
VIII
IX

 If the company capacity is allocated in squares I, II, IV: should be developed
and constructed