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Today, there exist two common tools for portfolio management: the IE matrix and the BCG matrix. The Internal-External (IE) matrix is a valuable tool that is used in strategic management and that belongs to the group of portfolio management tools (David, 2013). It is applied when a business needs to gain an insight into working conditions and strategic positioning. The IE matrix takes into consideration internal and external business factors which are then put together into one suggestive model. Like the BCG matrix, the IE matrix outlines an organizations position in a 3×3 matrix. The score from the EFE (external factor evaluation) is plotted on the y-axis while the score from the IFE (internal factor evaluation) is plotted on the x-axis. After this, a vertical line that is orthogonal to the x-axis is drawn through the IFE score, and similarly, a horizontal line is drawn through the y-axis. The point where those two lines meet will determine the strategy that a company should follow.
The BCG matrix model is somewhat similar to the IE matrix model. However, the latter only measures market growth and market share while building the former requires more information (DeFusco et al., 2015). The IE addresses some of the problems that are inevitable when using the BCG matrix model. For instance, some of its pitfalls are using only two dimensions and ignoring the fact that a large market share does not necessarily imply profitability at all times. The BCG suggests that market growth is the only indicator of the attractiveness of a market. On the contrary, values on each axis in the IE matrix model are multi-factor, which allows to capture the diversity of the business environment.
References
David, F.R. (2013). Strategic management concepts: A competitive advantage approach. Pearson.
DeFusco, R. A., McLeavey, D. W., Pinto, J. E., Runkle, D. E., & Anson, M. J. (2015). Quantitative investment analysis. John Wiley & Sons.
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