Quantitative Strategic Planning Matrix (QSPM) is a high-level strategic management approach for evaluating possible strategies. QSPM provides an analytical method for comparing feasible alternative actions. The QSPM method falls within so-called stage 3 of the strategy formulation analytical framework.
What is the Quantitative Strategic Planning Matrix?
The QSPM approach is a top-down planning process. QSPM represents a global overview of an enterprise’s existing strategic position in the market. QSPM takes into account fundamental business characteristics and industry structure. QSPM allows for a thorough analysis of a firm’s competitive output and internal strengths and weaknesses. When applying QSPM firms perform a thorough examination of current business situation, which leads to the creation of a strategic map for the organization identifying competitive advantage and opportunities for the future.
Why should you use QSPM instead of design strategy?
In the past years design strategy has been used often to assess company’s rough strategic situation. Design strategy is based on the well-known business attractiveness model developed by Michael Porter. According to Porter business attractiveness is determined by four factors:
- The extent to which a given industry’s output is needed or wanted by customers.
- The extent to which customer tastes and product requirements are changing.
- The extent to which the firms in any given industry can substitute for one another.
- The risk of new firms or new entrants in the industry.
Design strategy is extremely useful in uncovering the strengths and weaknesses of a business when it is applied to individual business units or segments. However many managers and planners have found design strategy too qualitative to be of much use in planning activities. The main weakness of design strategy is the fact that it is entirely based on the manager’s individual perspective. The QSPM approach is conceptual framework that allows it to be more objective and at the same time action-oriented. QSPM does not focus solely on strength and weaknesses of company but it looks at the industry structure and business context.
Step by step guide to building a QSPM
Incorporation of industry and business characteristics
When building a QSPM the first step is to incorporate industry’s basic information and the organization’s basic business characteristics. This information can be collected from published data, journals and external sources.
Analysis of external and internal environment
The external environment is influenced by those external factors which affect industry’s growth and profitability. The internal environment refers to both, the firm’s own operations and its relationships with other internal departments and externally with government. This step involves an indirect impact of competitors, stakeholders and the industry, as well as internal factors. Firms must assess their own strengths and weaknesses as well as the resources and capabilities in the external environment, including industry structure and business characteristics.
Impact and evaluation of external factors
External factors, such as the government, reorganization of the industry, barriers to entry and exit, new competing products, and new competitive technology, can influence the profitability of business units and the whole organization. The most important factor for success in the modern market is the strength of the firm’s position in relation to the external industry. Thus, the points for evaluating opportunities and threats are the key drivers of QSPM. Key drivers include factors that are in the firm’s control and factors that cannot be influenced. Also key drivers can have an impact on the competitive advantage of a firm. For example, the cost of key inputs, such as raw materials, might be a threat if it increases while technological change can be a threat or opportunity if it introduces new competing products.
Analysis of resource-based strategies
Analysis of resource-based strategies includes financial and managerial resources and capabilities. These resources involve market attractiveness, entry barriers, competitive strategies, and market segmentation, and affect customer perception. Firms’ internal resources include knowledge and experience, product range, the value chain and operations, and also market attractiveness as it directly impacts market share, sales, and market growth. A firm must analyze the importance of key drivers. Also it must assess the reasons for success or failure of existing strategic business units and analyze opportunities and threats in their environment.
Identifying strategic objectives
Strategic objectives provide a basis for the QSPM. Strategic objectives represent goals for business units with clear definition of criteria for success. The strategic objectives are the general targets for business units to achieve profitability, market share and market growth. During this step, firms also must identify the “how” each business unit will achieve its strategic objectives. This requires the setting of a strategic plan for each business unit to reach strategic objectives.
Assessment of business strengths and weaknesses
In this step a firm evaluates the existing strengths and weaknesses and the external opportunities and threats that might have a positive or negative impact on each business unit’s profitability. The firm should identify any gaps between its strategic objectives and the business units’ performance. Business units need to assess their own strengths and weaknesses in order to create the best possible business strategy.
Based on the analysis performed in previous steps firms can generate several alternative plans. This step involves defining alternative strategic options. It is important to note that these alternative plans should link to the operational plan and ought to address the achievement of strategic objectives. Strategic options should be realistic and manageable while addressing each element of the environment, such as industry attractiveness, market attractiveness and barriers to entry. Firms then analyze each alternative plan by performing a detailed quantitative analysis and establish which strategic option is optimal in terms of return on investment.
Adoption of an optimal strategy
The optimal strategy is the most profitable business strategy while allowing the firm to achieve its strategic objectives. Adoption of an optimal strategy involves the integration of business units’ strategic plans with the optimal business strategy. The resulting integrated plan and the chosen strategic option define the firm’s future strategic position.
Three key aspects of QSPM
The QSPM method is based on the following three key aspects:
Strategic business unit: –
Execution of strategy
How the business unit performs against the established objectives
How competitive advantage can be identified
The resource allocation
The organization and structure of the business unit
The strategic focus of the business unit
Assessment of strategic objectives
The qualitative analysis allows us to assess the various strategic objectives
The quantitative analysis would help us develop a strategic plan
The higher-level strategic plan
The higher level strategic plan addresses the criteria for selecting the strategy
Key strengths and weaknesses of an organization
The key strengths and weaknesses are the result of the qualitative assessments performed by managers
The quantitative assessments focus more on measuring the levels of performance and productivity
The overall potential
The overall potential is a quantified value reflecting the degree of success of an organization
Existing market size
The analysis of market size gives us a complete picture of the industry
The analysis is focused on professional and managerial skills, information base and internal capabilities and resources
The strategic & tactical position
The effectiveness of resources can be determined in the context of the environment
Resources that need to be invested
The firms use resources to achieve the goals and objectives
The strategic plan
The strategic plan is applied to achieve the strategic objective
Managing the risks
The risks can be minimised by the analysis of assumptions
The internal environment analysis is a collective result of the assessments performed by managers
The competitive environment
The competitive environment analysis helps understand the firm’s competitive position
The market potential
The market potential analysis allows the understanding of both the short and long term strategies
The competitive environment
The competitive environment comprises the competitive intensity of the market and the Porters Five Forces Model
The actions plan
The actions plan represents the action items generated during the analysis and how these are to be implemented
Rating table and returns
The rating table is used to assess the business plan to reveal the potentials
The key strengths and weaknesses of a firm can be identified by analysis of the rating table
The strategic options
The strategic options form the basis for the strategic business plan
The business strategies and plans
The business strategies and plans reflect a firm’s objectives
The resources and capabilities
The resources and capabilities measure the performance and productivity of the business
The success of a business plan
The success of a business plan is evaluated by assessing the level of performance of a business
The strategic issues and options
The strategic issues and options identify the strategic objectives and the plan to achieve them
The overall importance to an organization
The overall importance to an organization is a quantitative measure of the value of a business
The implementation of a strategic plan is evaluated by quantifying the costs
The evaluation measures the business performance to see whether it meets the objectives
Key points of the QSPM
The QSPM is based on the following key points:
- People are the most important element of the QSPM
- External threats and opportunities can influence the competitive advantage of a business unit
- Firms must analyze their existing resources in relation to the external industry in order to develop a competitive advantage
- Managers must develop and implement a strategic plan for each business unit
- Organizational structure must be aligned with the strategic objectives of the organization
- Strategic plan must be implemented in order to achieve the strategic objectives
- Return on investment must be maximized
- The management must be involved in analysis and setting the strategic business objectives
- Stakeholders should evaluate the corporate performance
The QSPM is also referred to as the firm’s strategy planning process. It is a comprehensive modeling technique used for strategy formulation. The QSPM model includes a series of steps and sub- steps. The QSPM model can be used by large corporates, small firms and nonprofit organizations.
The QSPM is a well-developed tool to assist in the analysis of the external and internal factors. However, the QSPM model has been used primarily by experienced managers and executive level individuals. The QSPM is not a simple task. It has detailed analysis and it comprises a series of comprehensive steps that are complex and time-consuming. However, learn this model and the investment will truly pay off. The QSPM model is going to change your business or planning life. This is one model that is going to bring you huge productivity gains in the long run.
Six steps of the QSPM model
The QSPM method has six steps that are to be followed in order to develop a profitable, competitive business model. These steps are:
Every strategy development process needs a clear vision of the future. The vision statement is developed from the external and internal environment of the organization. The vision represents the long-term desired business position and objectives. The vision statement should be clear; short and measurable.
An example of a vision statement is:
At XYZ corporation we want to be a leader in the adoption and promotion of advanced portable technologies in a competive and dynamic market. This vision will be achieved by customer-centric innovations and branding.
The mission statement is developed from the vision statement. The mission statement is a clear, short and measurable statement about how a firm will achieve the objectives of its vision. The mission is a specific and focuses on the current business position and is an integral part of the strategic plan.
An example of a mission statement is:
At XYZ corporation we aim to present a portfolio of portable digital technologies, fully capable of allowing creative productions pursuits to be completed.
The necessary strategic issues can be identified by analyzing the external and internal environments of the organization. The firms should uncover the issues that need to be addressed before implementing the business strategy and should develop a management system to address them.
An example of a strategic issue is:
How can XYZ corporation become a market leader in a highly competitive market
The strategic objectives are the specific actions the managers must take in order to achieve the mission statement. The strategic objectives are specific and represent the immediate actions the firm needs to take in order to achieve the mission statement.
An example of a strategic objective is:
To develop an innovative state of the art product portfolio that will establish XYZ corporation as a leader in our market.
Strategic action plans
Action plans should be set so as to implement the goals and objectives of the strategic plan. The action plans represent the actions and steps the corporation will take to fulfill the strategic objectives. Action plans should be short, specific and measurable.
An example of a strategic action plan is:
At XYZ corporation, the management team will involve the board of directors in developing a five-year plan.
The strategic alternatives
Strategic alternatives are the options or choices available to the decision makers. They allow the executives to put together an alternative strategy that can be implemented in the future.
An example of a strategic alternative is:
The management team presents three strategic alternatives to the board of directors. One is to expand into the portable digital technologies markets. Another is to enter the computer products market. The final one is to develop a new market.
The diagram represents the progression of the steps used in the QSPM. In order to create the diagram, you will need to draw a process chart that includes the analysis of external and internal environmental factors, the identification of organizational issues, the development of business strategies and the implementation of the action plans.
A simple way to create a QSPM diagram is to use the template provided in the Diagram section. It is a basic QSPM diagram that you can use in your planning efforts.
Pro’s and Con’s of the QSPM model
The QSPM model has strengths that can improve the strategic management modeling process. However, there are some compromises that can interfere with this process.
The Business School Case Study
Was the QSPM developed using academic rigor? Academic rigor is the test of whether an activity can be considered academic. Academic rigor refers to a systematic procedure for systematic research. Academic rigor is used to test whether a book, article or an online document contains credible facts. It is the quality that guarantees the integrity of the content. Academic rigor is the essence of modern academic work.
It is very difficult to determine whether a model such as the QSPM has been developed using academic rigor. Although the compilation of the QSPM model is attributed to the Institute of Management Consultants, it is not a recognized institution in the academic world. It is a nonprofit organization that promotes the interests of management consultancy professionals.
In fact, Business Achievement is not a recognized online academic platform. It is a platform that promotes the QSPM model. It is a platform that promotes the benefits of the QSPM model. It does not provide an impartial assessment on whether the QSPM is a reliable model.
This is where, as an online learner, you need to make a decision. You can follow the advice of an anonymous writer and try and implement the QSPM. This is your right. However, you should be aware that although the QSPM is an excellent model, you may experience some frustrations and deadends on the way.
Writing your QSPM analysis
You should evaluate the extent to which the QSPM model facilitates the analysis of the wide range of SWOT analysis factors.
You should evaluate the organizational structure of the QSPM model and its organization of planning factors.
One of the most common errors is when the planners fail to develop a deep understanding to critical internal and external environmental aspects. As a result, the planners make decisions that are not fully aligned with the overall mission of the firm. This leads to a lack of alignment between the external environment and internal environment of the firm. This is a critical problem that will inevitably lead to ambiguity.
Real life problems
At the Grisoltz Quality shoes, the senior management team has planned to expand the current factory. This is going to necessitate an increase in staff. At present, the Grisoltz Quality shoes’ current factory only employs 200 staff members. The management team however, has planned to employ an additional 300 staff members. As a result, the management team is going to build an additional factory. The management team is going to build the additional factory in the neighboring district.
The senior management team believes that the expansion will enhance the client base and improve sales. The management team believes that the new factory will require a new management team. As a result, the management team has planned to introduce an additional shift. This will require the company to employ 20 new staff members. The management team has planned to employ 10 mechanical engineers and 10 factory managers that are skilled in production activities. They will be required to assist in the implementation of a number of new production activities.
The senior management team has decided to implement the additional shift to attract new clients. The management team has decided to implement additional shifts so as to lower production costs. The management team has decided to identify new clients who are willing to place orders for larger quantities of shoes.
One of the most significant problems confronting the Grisoltz Quality shoes is the lack of flexibility in the production process. As a result, the manufacturing process requires additional resources. In addition, the additional shifts will reduce the levels of attention the shoe production crew gives to the manufacturing process. This will result in the production and delivery of poor quality shoes. As a result, the management team has decided to involve the training team. The training team will conduct an in-house training program for the employees. The training team will assess the skills of the employees and provide them with additional training.
One of the most pressing challenges confronting the Grisoltz Quality shoes is the delay in delivery. There are several aspects specifying the delay in delivery such as:
The management team has not carried out adequate research.
The management team has not researched opportunities to improve the existing manufacturing process.
The management team has not researched ways of improving the levels quality of the shoes
The management team has not researched possible opportunities to reduce production costs.
The organization has not carried out a SWOT analysis.
The organization has not identified the critical external environmental factors.
The organization has not identified the corporate strengths and weaknesses.
Critical environmental factors include:
The prices of raw materials. Materials, such as leather, are becoming more expensive. As a result, clients can no longer afford premium shoes. At the same time, clients are requiring shoes of a higher standard. Clients are also demanding lower prices.
The prices of labor. The average hourly rate of labor is becoming more expensive. At the same time, there is a surplus supply of labor force.
Demands for better quality shoes and more competitive prices are increasing. These factors are forcing the organization to invest in additional resources. As a result, the organization will face greater production costs.
Currently, the marketing team focuses on selling and promoting to a small number of its clients. At the same time, the Grisoltz Quality shoes has been unable to identify new clients. As a result, the management team has decided to revisit its marketing strategy. The management team has decided to order a better analysis of the organization’s competitors.
Currently, the marketing team has identified over 500 competitors. The marketing team has conducted an analysis on the pricing of its clients’ competitors. However, the marketing team has not carried out a careful evaluation of the strategies of the competitors.
The marketing team has carried out a SWOT optimization process on its own organization. However, the marketing team did not complete the process with the inputs of the management team. The marketing team has only considered half of the management team’s entries.
The marketing team had also failed to identify the management team’s strengths and weaknesses. In addition, the marketing team has conducted a very poor evaluation of the potential positive and negative impacts of marketing the new product.
The management team has also not identified the primary concerns of their clients. The management team has not carried out an analysis of the SWOT of their primary competitors.
Now, as a student, it is your responsibility to develop a more effective QSPM model. You should conduct a comprehensive assessment on the effectiveness of the QSPM model. In addition, you should evaluate the effectiveness of the QSPM model by analyzing a number of real life problems. In addition, you should select a number of real life environmental problems.