The Decision Stage: The QSPM

LO 6.8 Construct and apply the Quantitative Strategic Planning Matrix (QSPM).

Table 6-4 The Quantitative Strategic Planning Matrix (QSPM)

Strategic Alternatives

Key Factors Weight Strategy 1 Strategy 2 Strategy 3

Key External Factors

Economy

Political/Legal/Governmental

Social/Cultural/Demographic/Environmental

Technological

Competitive

Key Internal Factors

Management

Marketing

Finance/Accounting

Production/Operations

Research and Development

Management Information Systems

The top row of a QSPM consists of alternative strategies derived from the SWOT 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 compare several viable alternative strategies in a QSPM, perhaps including two
or more SWOT strategies, so you could designate your QSPM strategies using SWOT notation such as
SO4 versus WT3. Make sure your strategies are stated in specific terms, such as “Open 275 new stores in
Indonesia” rather than “Expand globally” or “Open new stores in Africa.” Specificity is vital because
ultimately a dollar value must be established for each recommended strategy; it would be impossible to
establish a dollar value for “expand globally.” If you cannot reasonably assign a dollar value to a QSPM
(or SWOT) strategy, then the strategy is too vague. Vagueness is disastrous in strategic planning because
no one knows what you really are suggesting/saying, and a $1 billion investment may be on the line.
Conceptually, the QSPM determines the relative attractiveness of various strategies based on the extent
that key external and internal factors are capitalized on or improved. The relative attractiveness of each
strategy is computed by determining the cumulative impact of each external and internal factor. Any
number of strategies can be included in the QSPM.

A QSPM for a retail computer store is provided in Table 6-5. This example illustrates all the components
of the QSPM: strategic alternatives, key factors, weights, attractiveness scores (AS), total attractiveness
scores (TAS), and the sum total attractiveness score. The three new terms just introduced—(1)
attractiveness score, (2) total attractiveness score, and (3) the sum total attractiveness score—are
defined and explained as the six steps required to develop a QSPM are discussed:

Table 6-5 A QSPM for a Retail Computer Store

STRATEGIC ALTERNATIVES

1 2

Buy New Land and Fully Renovate

Build New Ledger Existing Store

Store

----------------------------------------------------------------------------------------------------------------------------------------

Key Factors = Weight AS TAS AS

Opportunities

1. Population of a city growing 0.10 4 0.40 2 0.20

10%

2. Rival computer store opening 0.10 2 0.20 4 0.40

one mile away

3. Vehicle traffic passing store 0.08 1 0.08 4 0.32

up 12%

4. Vendors average six new 0.05 - -

computers up 8%

6. Small business growth in an 0.05 _ _

area up 10%

7. Desire for websites up 18% by 0.04 _ _

realtors

8. Desire for websites up 12% by 0.03 _ _

small firms

Threats

1. Best Buy opening new store 0.15 4 0.60 3 0.45

nearby in one year

2. New bypass for Highway 34 in 0.12 4 0.48 1 0.12

one year will divert traffic

3. Local university offers 0.08 _ _

computer repair

4. New mall being built nearby 0.08 2 0.16 4 0.32

5. Gas prices up 14% 0.04 — _

6. Vendors raising prices 8% 0.03 — —

Total 1.00

Strengths

1. Revenues from repair/service 0.15 4 0.60 3 0.45

2. Employee morale is excellent 0.10 _ —

3. Average customer purchase 0.07 2 0.14 4 0.28

increased from $97 to $128

4. Inventory turnover increased 0.05 _ _

from 5.8 to 6.7

in 20% increase in sales

6. In-store technical support 0.05 _ _

personnel have MIS college degrees

7. Store’s debt-to-total-assets 0.03 4 0.12 2 0.06

ratio declined to 34%

8. Newspaper advertising 0.02 - -

expenditures increased 10%

9. Revenues per employee up 0.02 - -

19%

Weaknesses

1. Location of store negatively 0.15 4 0.60 1 0.15

impacted by new Highway 34

2. Revenues from software 0.10 - -

segment of a store down 12%

3. Often customers have to wait 0.05 2 0.10 4 0.20

to check out

4. Store has no website 0.05 - -

5. Revenues from business 0.04 3 0.12 4 0.16

Down 8%

6. Supplier on-time delivery 0.03 - -

increased to 2.4 days

7. Carpet and paint in store 0.02 1 0.02 4 0.08

somewhat in disrepair

8. Bathroom in store needs 0.02 1 0.02 4 0.08

refurbishing

Total 1.00 3.64 3.27

Step 2 ASSIGN WEIGHTS TO EACH KEY EXTERNAL AND INTERNAL FACTOR. These weights are identical to
those in the EFE Matrix and IFE Matrix. The weights are presented in a straight column just to the right
of the external and internal factors.

Step 3 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, perhaps selecting two or more of your SO, WO, ST, and/or WT strategies.

Step 4 DETERMINE THE ATTRACTIVENESS SCORES (AS), defined as numerical values that indicate the
relative attractiveness of each strategy considering a single external or internal factor. Attractiveness
Scores (AS) are determined by examining each key external or internal factor, one at a time, and asking
the question, “Does this factor affect the choice of strategies being made?” If the answer to this
question is yes, then the strategies should be compared relative to that key factor. Specifically, AS
should be assigned to each strategy to indicate the relative attractiveness of one strategy over others,
considering the particular factor. The range for AS is 1 = not attractive, 2 = somewhat attractive, 3 =
reasonably attractive, and 4 = highly attractive. By attractive,” we mean the extent that one strategy,
compared to others, enables the firm to either capitalize on the strength, improve on the weakness,
exploit the opportunity, or avoid the threat. Work row by row in developing a QSPM. If the answer to
the previous question is no, indicating the respective key factor has no effect on the specific choice
being made, then do not assign AS to the strategies in that set. Use a dash (or 0 if using the template) 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 an AS score(s) to the other—in other words, if one strategy receives a dash (or 0)—
then all others must receive a dash (or 0) in a given row.

Step 5 COMPUTE THE TOTAL ATTRACTIVENESS SCORES. Total Attractiveness Scores (TAS) are defined as
the product of multiplying the weights (Step 2) by the AS (Step 4) in each row. The TAS indicate the
relative attractiveness of each alternative strategy, considering only the impact of the adjacent external
or internal critical success factor. The higher the TAS, the more attractive the strategic alternative
(considering only the adjacent critical success factor).

Step 6 COMPUTE THE SUM TOTAL ATTRACTIVENESS SCORE. Add TAS in each strategy column of the
QSPM. The Sum Total Attractiveness Scores (STAS) 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
STAS in a given set of strategic alternatives indicates the relative desirability of one strategy over
another.
In Table 6-5, two alternative strategies—(1) buy new land and build new larger store and (2) fully
renovate existing store—are being considered by a computer retail store. Note by the STAS’s of 3.64
versus 3.27 that the analysis indicates the business should buy new land and build a new larger store.

Note the use of dashes to indicate which factors do not affect the strategy choice being considered. If a
particular factor affects one strategy, but not the other, it affects the choice being made, so AS scores
should be recorded for both strategies. Never rate one strategy and not the other. Note also in Table 6-5
that there are no consecutive 1s, 2s, 3s, or 4s across any row in a QSPM; never assign the same AS score
across a row. Always prepare a QSPM working row by row. Also, if you have more than four strategies in
the QSPM, then let the AS scores range from 1 to “the number of strategies being evaluated.” This will
enable you to have a different AS score for each strategy. These are all important guidelines to follow in
developing a QSPM. In actual practice, the store did purchase the new land and build a new store; the
business also did some minor refurbishing until the new store was operational.

There should be a rationale for each AS score assigned. Note in the first row of Table 6-5 that the
“Population of city growing 10 percent” opportunity could be capitalized on best by Strategy 1, “Buy
New Land and Build New, Larger Store,” so an AS score of 4 was assigned to Strategy 1. Attractiveness
Scores, therefore, are not mere guesses; they should be rational, defensible, and reasonable.
Mathematically, the AS score of 4 in row 1 suggests Strategy 1 is 100 percent more attractive than
Strategy 2, whose AS score was 2 (since 4−2=2and 2 divided by 2=100 percent).

Positive Features and Limitations of the QSPM

A positive feature of the QSPM is that sets of strategies can be examined sequentially or simultaneously.
For example, corporate-level strategies could be evaluated first, followed by division-level strategies,
and then function-level strategies. There is no limit to the number of strategies that can be evaluated or
the number of sets of strategies that can be examined at once using the QSPM.

Another positive feature of the QSPM is that it requires strategists to integrate pertinent external and
internal factors into the decision process. Developing a QSPM makes it less likely that key factors will be
overlooked or weighted inappropriately. It draws attention to important relationships that affect
strategic decisions. Although developing a QSPM requires Attractiveness Scores (AS) decisions, those
small decisions enhance the probability that the final strategic decisions will be best for the
organization. A QSPM can be used by small and large, for-profit and nonprofit organizations, and even
can be used by individuals in making career choices.6

The QSPM has two limitations. First, it always requires informed judgments regarding AS scores, but
quantification is helpful throughout the strategic-planning process to minimize halo error and various
biases. Attractiveness Scores are not mere guesses. Be reminded that a 4 is 33 percent more important
than a 3; making informed small decisions is important for making effective big decisions, such as
deciding among various strategies to implement. Second, a limitation of the QSPM is that its factors and
strategy choices are based on underlying input and matching matrices/analysis.
How to Estimate Costs Associated with Recommendations

LO 6.9 Explain how to estimate costs associated with recommendations.

The SWOT, BCG, IE, SPACE, and GRAND matrices are used in strategic planning to generate feasible
alternative strategies that could benefit the firm. The term recommendation is used to refer to “any
alternative strategy that is selected for implementation.” Due to monetary and/or non-monetary
constraints, no firm can implement all alternative strategies proposed in the matching matrices, so firms
utilize the QSPM and expert judgment to select particular strategies. Perhaps the most important page
in a student’s strategic planning case project is his/her Recommendations Page—a page where
recommendations are listed along with an estimated dollar amount for the expected cost (or savings) of
each recommendation over the next three years. The dollar amounts should all be added to reveal a
total amount of new capital needed over the three years.

As indicated in Global Capsule 6, India is a country where many companies are building a new
manufacturing plant due to that country’s flourishing economy. So, how much does it cost to build a
manufacturing plant? Guidance is given in Table 6.6 for determining the estimated cost (or savings) of
various recommendations. Table 6.6 gives six example actions that could be recommendations for a
firm, along with a rationale and author comment for how dollar values can be estimated on a
recommendations page. As indicated, a cost per square foot approach may be used to estimate the total
cost of building manufacturing plants, retail stores, distribution centers, or warehouses. Another way to
estimate various costs is to find costs incurred for similar expenditures by other firms. Also, look in the
firm’s Form 10K because costs are often given for previous expenditures, and these dollar values can
give guidance for estimating costs associated with new recommendations. Avoid wild cost guesses; ask
“experts” in the field if needed.

Reference

David, F. R., David, F. R., & David, M. E. (2020). Strategic management concepts and cases: A competitive
advantage approach (17th ed.). Pearson Education. ISBN-13: 9780135203699