Quantitative Strategic Planning Matrix (QSPM) is a strategic management tool used in the evaluation of strategic options and determination of relative attractiveness of strategies. The QSPM technique determines which of the selected strategic options is feasible, and it actually prioritizes these strategies. A basic tenet of the QSPM is that firms need to systematically assess their external and internal environments, conduct research, carefully evaluate the pros and cons of various alternatives, perform analyses, and then decide upon a particular course of action.
The Quantitative Strategic Planning Matrix (QSPM) consists of three stages that are used in the strategies formulation process. The first step is to define key strategic factors. Then, once this has been determined, a SWOT analysis, or other similar form of analysis, is performed to objectively weigh the pros and cons of each strategic factor in numerical form. Finally, based on the information found in the analysis, a decision is made on which strategy would be best to pursue. The quantitative strategic planning matrix is useful since it allows strategists examine various strategies according to the established external and internal critical success factors.
Left column of a Quantitative Strategic Planning Matrix (QSPM) consists of key external and internal factors (from Stage 1), and the top row consists of feasible alternative strategies (from Stage 2). Specifically, the left column of a QSPM consists of information obtained directly from the EFE Matrix and IFE Matrix. In a column adjacent to the critical success factors, the respective weights received by each factor in the EFE Matrix and the IFE Matrix are recorded. The top row of a QSPM consists of alternative strategies derived from the TOWS Matrix, SPACE Matrix, BCG Matrix, IE Matrix, and Grand Strategy Matrix. These matching tools usually generate similar feasible alternatives. However, not every strategy suggested by the matching techniques has to be evaluated in a QSPM. Strategists should use good intuitive judgment in selecting strategies to include in a QSPM.
Conceptually, the Quantitative Strategic Planning Matrix (QSPM) determines the relative attractiveness of various strategies based on the extent to which key external and internal critical success factors are capitalized upon or improved. The relative attractiveness of each strategy within a set of alternatives is computed by determining the cumulative impact of each external and internal critical success factor. Any number of sets of alternative strategies can be included in the QSPM, and any number of strategies can make up a given set, but only strategies within a given set are evaluated relative to each other. For example, one set of strategies include concentric, horizontal, and conglomerate diversification, whereas another set may include issuing stock and selling a division to raise needed capital. These two sets of strategies are totally different, and the QSPM evaluates strategies only within sets.
The six steps required to develop a Quantitative Strategic Planning Matrix (QSPM) are discussed below.
- Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM. This information should be taken directly from the EFE Matrix and IFE Matrix. A minimum of 10 external critical success factors and 10 internal critical success factors should be included in the QSPM.
- Assign weights to each key external and internal factor. These weights are identical to those in the EFE Matrix and the IFE Matrix. The weights are presented in a straight column just to the right of the external and internal critical success factors.
- Examine the Stage 2 (matching) matrices and identify alternative Strategies that the organization should consider implementing. Record these strategies in the top row of the QSPM. Group the strategies into mutually exclusive sets if possible.
- Determine the Attractiveness Scores (AS), defined as numerical values that indicate the relative attractiveness of each strategy in a given set of alternatives. Attractiveness Scores are determined by examining each key external or internal factor, one at a time, and asking the question, “Does this factor affect the choice strategies being made?” If the answer to this question is yes, then the strategy should be compared relative to that key factor. Specifically, Attractiveness Scores should be assigned to each strategy to indicate the relative attractiveness of one strategy over others, considering the particular factor. The range for Attractiveness Scores is I = not attractive, 2 = somewhat attractive, 3 = reasonably attractive, and 4 = highly attractive. If the answer to the above question is no, indicating that the respective key factor has no effect upon the specific choice being made, then do not assign Attractiveness Scores to the strategies in that set. Use a dash to indicate that the key factor does not affect the choice being made. Note: If you assign an AS score to one strategy, then assign AS score(s) to the other. In other words, if one strategy receives a dash, then all others must receive a dash in a given row.
- Compute the Total Attractiveness Scores. Total Attractiveness Scores are defined as the product of multiplying the weights (Step 2) by the Attractiveness Scores (Step 4) in each row. The Total Attractiveness Scores indicate the relative attractiveness of each alternative strategy, considering only the impact of the adjacent external or internal critical success factor. The higher the Total Attractiveness Score, the more attractive the strategic alternative (considering only the adjacent critical success factor).
- Compute the Sum Total Attractiveness Score. Add Total Attractiveness Scores in each strategy column of the QSPM. The Sum Total Attractiveness Scores reveal which strategy is most attractive in each set of alternatives. Higher scores indicate more attractive strategies, considering all the relevant external and internal factors that could affect the strategic decisions. The magnitude of the difference between the Sum Total Attractiveness Scores in a given set of strategic alternatives indicate the relative desirability of one strategy over another.
Although developing a Quantitative Strategic Planning Matrix (QSPM) requires a number of subjective decisions, making small decisions, especially if they are made in a team, enhances the probability that the final decisions will be best for the organization. This fact is also a source of critics. Constant discussion and possible conflicts during strategy analysis may arise because of genuine differences in interpretation of information and varying opinions. However, the ratings and attractiveness scores require intuitive judgmental decisions, even though they should be based on objective information.
Related Strategic Management Tools:
- Internal Factor Evaluation (IFE) Matrix
- External Factor Evaluation (EFE) Matrix
- Internal-External (IE) Matrix
- SWOT Analysis – A Strategic Planning Tool
- Boston Consulting Group(BCG) Growth-Share Matrix
- The Strategic Position and Action Evaluation Matrix (SPACE)