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Organizations spend a lot of time and effort on strategy formulation.
Often, there are several different approaches or strategies that the organization could follow. But how do you decide which option is best? Do you rely on intuition, or take a more objective approach?
Not surprisingly, you need to base your decision on facts, not gut feelings. But how do you do this, particularly when the effects of different strategies can be so different?
The Quantitative Strategic Planning Matrix (QSPM) helps you address this question. It gives you a systematic approach for evaluating alternate strategies and helps you to decide which strategy is best suited to your organization. The tool was developed by Fred R. David, and was first published in the Long Range Planning Journal in 1986.
Understanding the Matrix
QSPM is based on three primary inputs:
- The Critical Success Factors of your business unit.
- The relative importance of each of these critical success factors.
- How you rate a particular strategy by each success factor.
These inputs are used to evaluate the relative attractiveness of different strategies. This relative attractiveness is expressed in terms of a number, the "Sum Total Attractiveness Score". The higher this score is, the more attractive the strategy is.
Follow the step-by-step guide below for constructing a QSPM. Start by printing our free worksheet, and use it to compute your answer.
Step 1: List the Critical Success Factors
Make a comprehensive list of the critical success factors that apply to your business unit. These can be divided into two groups: internal factors and external factors.
Internal factors can relate to your company's inherent strengths and weaknesses, whereas external factors can relate to the opportunities and threats in the market environment.
Internal factors could include the maintenance of sufficient production capacity; a strong flow of new technologies from R&D; efficient treasury management; and so on. Examples of external success factors include the rapid adaptation to new government policies; effective competitive analysis; and quick understanding of the implications of demographic trends.
At this stage, it's important that you try to generate a comprehensive list of the most important critical success factors. This helps to ensure that the key issues are addressed in the comparative analysis process.
Now use this list to fill the first column of your matrix. Make sure that each critical success factor is listed under the appropriate internal or external category.
Tip:
QSPM uses Critical Success Factors as the basis of analysis. This can be a good starting point for an existing organization. However, these will not yet exist for a start-up organization, and approaches like the use of core competences may be more appropriate for some organizations. Challenge the criteria you're using to make sure that you're using appropriate ones.
Step 2: Assign Weights
Assign a weight to each of these critical success factors, depending on how important it is to the success of your work unit. The higher the importance, the higher weight it will carry. The sum of all weights attached to internal factors should equal 1.0, as should the sum of factors attached to external factors.
Note down the weight you have assigned to each factor in the second column, adjacent to the name of that factor.
Tip 1:
Giving internal and external factors the same weight in the decision can seem arbitrary. Decide for yourself whether this is appropriate.
Tip 2:
If you’re struggling to assign weights, techniques like Paired Comparison Analysis can help.
Step 3: List the Strategies
Now record the different strategies and approaches that you want to compare as column headings in the top row of your QSPM. The best part about QSPM is that you can compare as many strategies as you like simultaneously.
Step 4: Assign Attractiveness Scores
For each strategy, work your way through the rows of your QSPM, assessing the attractiveness of the strategy as it affects each critical success factor. Score each CSF on a scale of 1 – 4, where the strategy is:
1 = Not attractive at all
2 = Slightly attractive
3 = Attractive
4 = Very attractive
Record this score in the Attractiveness Score (AS) column. This score represents how attractive the strategy is when looked at from the perspective of the listed critical success factor.
If a strategy does not impact one or more of the Critical Success Factors, then no AS is assigned for that factor for any strategy. In this situation simply put a dash instead of a score for all the strategies.
Tip:
QSPM uses the 1 – 4 scale above. You may prefer to rank using a different scale, for example -4 to +4, where -4 applies to a strategic approach that seriously harms progress towards a Critical Success Factor.
Step 5: Calculate the Weighted Attractiveness Scores
For each Attractiveness Score/Weight combination on your QSPM table, calculate the Weighted Attractiveness Score (WAS) by multiplying the weight by the AS you have assigned for that factor.
Step 6: Sum the Total Attractiveness Scores
Sum all the WASs for each column and arrive at the Sum Total Attractiveness Score for each strategy. Record it in the bottom row. This represents the desirability of that particular strategy.
Tip 1:
Many business decisions are made using financial models that take into account investment and expected outcomes, with options offering the greatest Return on Investment being chosen as the way forward.
While this is correct from one point of view, it excludes non-financial factors from the decision-making process. For example, it can cause the business to lose strategic focus, as the company follows financially attractive projects that may go against the long-term interest of the organization.
This is where it can be useful to bring a technique like QSPM into the decision-making process, to act as a "sanity check" on decisions made.
Tip 2:
If you're considering using this approach, you may also want to take a look at Decision Matrix Analysis , which does a similar thing in a more streamlined way.
Key Points
QSPM is a useful analytical tool that helps you determine the relative attractiveness of different strategies.
It asks you to identify the important external and internal critical success factors for your business unit, and then helps you assess these strategies in the light of these critical success factors. This effect is evaluated in numerical terms. The strategy that scores the highest is usually your best choice.
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