QSPM matrix analysis is important for strategic, high-level management since it provides an effective analytical method for comparing alternative strategic options. In that regard, it is used by businesses to determine the best market strategies through reliable, statistical analysis. Quantitative strategic planning matrix (qspm) is divided into three stages.

Initially, the factors that are crucial for implementing a given business strategy are determined, in order to select important factors for the QSPM matrix analysis. Secondly, a SWOT analysis is done to weigh the pros and cons of the strategy. This is done by analyzing internal strengths and weaknesses, external threats and opportunities, as well as their significance or impact on the strategy.

The analysis of internal and external factors is done separately. IFE matrix analysis is used to analyze internal factors, that is, the strengths and weaknesses of the business strategy. EFE matrix analysis, on the other hand is used for the analysis of external factors, namely, threats and opportunities. Finally, the information obtained is analyzed using the QSPM matrix for purposes of decision-making (David et al, 2009). QSPM matrix analysis combines the results of the IFE matrix analysis and those of the EFE matrix analysis. The combination gives an impression of how external and internal factors combine to influence a strategy.

Basically, the QSPM matrix analysis helps managers to consider the several internal and external key factors of the expansion strategy to inform decision-making. For instance, Amazon has announced in its latest press releases for its plan to launch a global partner program and expansion by opening a store in India. The suitability of these strategies can be analyzed quantitatively through a QSPM matrix to determine the best possible strategic option.The QSPM matrix analysis of Amazon’s strategy to expand into the Indian market is shown in the figure below.

 

Steps for Developing a QSPM Model for Analyzing Amazon’s Strategy

The QSPM matrix is derived through six consecutive steps that must be followed by Amazon in order to develop an effective QSPM model for developing a profitable business strategy. The steps to be used for developing Amazon’s QSPM model in order to direct its market entry strategy include;

Step 1: Amazon’s Vision Statement

Developing a business strategy starts with the identification of a clear vision regarding on organizations’ future aspiration. Amazon’s vision statement should be in line with the organizations’ internal and external environment. It should also project the future aspirations and objectives of the organization to expand its market share through expansion into the Indian digital technologies market. The objectives should be short, clear, and measurable. They should also reflect the organizations’ desired position in the long-term.

An example of such a vision statement is;

Amazon aims to be the market leader in the adoption and marketing of innovative digital technologies in a competitive and dynamic digital technologies market. The vision will be realized by ensuring consumer- focused innovation, branding, and marketing.

Step 2: Amazon’s Mission Statement

The mission statement of a given business organization should be derived from its vision statement. Equally, the mission statement should be a short, clear and measurable outline of the manner in which an organizations’ vision will be achieved. The mission statement is integral to an organization’s strategic plan. It should be specific an specifically based on an organization’s market position.

A good example of a mission statement is;

Amazon aims to build a portfolio of innovative digital technologies and to expand its capacity for the creative and innovative production of digital technologies.

Step 3: Identification of Amazon’s Strategic Issues

The strategic issues facing Amazon, or any other business organization, should be determined by analyzing its internal and external environments.  with the view of identifying those issues that must be addressed before the business strategy is implemented. After identifying these issues, the organization should set up a managerial system for addressing them.

A good example of a strategic issue to be addressed is:

How can Amazon gain market leadership in the highly competitive digital technologies market?

Step 4: Setting Strategic objectives

Strategic objectives refer to the specific steps managers must follow so as to accomplish their stated mission. Strategic objectives should specify the immediate actions that must be accomplished by the organization in order to meet the mission statement.

A good example of a strategic objective is;

To come up with an innovative, creative product portfolio in order to transform Amazon into a leader in the digital technologies market.

Step 5: Developing Strategic Action Plans

Strategic action plans have to be set to act as a guide for implementing the goals and objectives set out in the strategic plan. The strategic action plans reflect the actions and steps that should be followed by the corporation in order to meet it’s strategic objectives. Strategic action plans need to be short, precise and measurable.

A good example of a strategic action plan is;

Amazon’s management will engage its board of directors in developing the company’s five-year action plan.

Step 6: Setting Strategic Alternatives

Strategic alternatives are the available choices that can be picked by a company’s decision makers. Strategic alternatives enable an organization’s managers to formulate an alternative strategy that can be implemented in future.

A good example of an alternative strategy is:

Amazon’s management presents three alternative strategies to its board of directors.

The first one is to expand its share by venturing into the Indian digital technologies market and setting up an online shop for the Indian market.

The second is to venture into the Indian high-end computer devices market through partnership.

The third is to develop a new digital technologies market by developing new innovative digital technologies for the Indian digital market.

Identifying the Key Factors of a QSPM Matrix

In QSPM matrix analysis, the key external factors to consider include economy, political/government policies, cultural and demographic styles, technology availability, and competition, among others. These are analyzed using the EFE matrix.

On the other hand, internal factors in a QSPM matrix may include issues on marketing, accounting, production operations, and information systems. These factors are used in IFE matrix analysis.

IFE Matrix Analysis: Internal Factor Evaluation Matrix Analysis

IFE Matrix Analysis or Internal Factor Evaluation Matrix analysis, is among the most ideal tools for strategic management. IFE Matrix analysis is useful for the internal auditing of organizations. The Internal Factor Evaluation matrix is employed in the internal analysis of various business functions like finance, marketing, IT, accounts, operations, Human Resources, etc, depending on the nature of the organization and its size.

Components of the IFE Matrix

1. 1. 1. 1. 1. Internal Factors

The Internal factors of IFE matrix comprise of the detailed results of the internal audit of an organization. Considering that each organization has its strengths and weaknesses, internal factors are subdivided into strengths and weaknesses.

• • • • • Strengths

A company’s strengths include its strong attributes or advantages that enable the organization to outshine its weaknesses or challenges. They also help a company to maximize or take advantage of the opportunities that exist in the external environment or market. Such strengths can either be tangible or intangible. They include factors line human resource capital, financial capital, brand image, etc.

• • • • • Weaknesses

An organization’s Weaknesses include the risk areas or disadvantages that should be promptly addressed in order to mitigate their impact. Weaknesses should be minized because an organization’s competitors are constantly looking out for the loopholes existing within its strategy and making effort to capitalize on the weaknesses so identified.

How to differentiate strengths from weaknesses in IFE Matrix Analysis

Strengths and weaknesses in an Internal Factor Evaluation matrix are organized into different portions. This means that an organization’s strengths are listed under Internal factors first. After that, weaknesses are listed second under Internal factors. However, if both internal factors are mixed up in their listing, the rating attached to those factors is used to differentiate between strengths and weaknesses.

2. Rating

In an IFE matrix, rating is used to differentiate between internal strengths and Internal weaknesses. Internal weaknesses in an IFE matrix are further subdivided into two lesser categories as major weaknesses and minor weaknesses. Similarly, internal strengths are subdivided into major and minor strengths.

Important points considered when rating Internal factors of the IFE matrix

• • • • • Each factor is assigned a rating
        • Major weaknesses are represented by 1.0
        • Minor weaknesses are represented by 2.0
        • Major strengths are represented by 4.0
        • Minor Strengths are represented by 3.0

The major internal weaknesses of an IFE matrix need to be converted by the organization into minor weaknesses, then converted further into strengths and, subsequently, major strengths. Compared to major strengths, the minor weaknesses of an IFE matrix need less effort for them to be converted into strengths. The rating of of a company’s strengths and weaknesses ranges from a minimum of 1.0 for the worst factors to a maximum of 4.0 which is assigned to the best internal factor.

3. Weight

In an IFE matrix, the weight attribute is used to indicate the relative importance of each factor in terms of its usefulness in contributing to the success of an organization in the market. The weight attribute of each factor ranges from 0.0, which means the internal factor is not important, to 1.0, which means the internal factor is not important. In the IFE matrix analysis, the sum of all the weights assigned to the internal factors must add up to 1.0, contrary to which the analysis would be considered erroneous.

4. Weighted Score

In an IFE matrix, the weighted score value refers to the result that is acquired after multiplying the rating of each factor with its associated weight.

***Total Weighted Score

The total sum of all of the weighted scores is the same or equal to the total weighted score. In internal factor matrix analysis, the final value of the total weighted score is supposed to range from 1.0 (for low value factors) to 4.0 (for high value factors). The average weighted score for any given IFE matrix analysis is 2.5. Any company whose total weighted score falls below 2.5 is considered weak. Where a company’s total weighted score rises above 2.5, its position in the market is considered strong. A strong total weighted score from an IFE matrix analysis indicates that a business organization has a strong position over its competitors. The results of the Internal Factor Evaluation Matrix are used alongside those of the EFE Matrix Analysis in QSPM Matrix Analysis. ***You can order for a custom essay paper on IFE Matrix Analysis from our reliable essay writing service

EFE Matrix Analysis: External Factor Evaluation Matrix Analysis

EFE Matrix analysis or External Factor Evaluation Matrix analysis is used in the strategic analysis of the external environment of a business organization. Specifically, it is used to identify and analyze an organization’s threats and opportunities. In other words, EFE matrix analysis is used in the evaluation of an organization’s external environment to determine the strengths and weaknesses of an organization. The External Factor Evaluation matrix is used in combination with the IFE matrix to generate a summarized report of an organization’s external and internal environment.

Below is an example of an External Factor Evaluation matrix analysis. From the scores of the EFE matrix example, it is clear that the company’s response to market opportunities is quite poor. This is because only one of the selected opportunity factors has a rating of 3 (above average response). The rest have a rating of 2 (average response) or 1 (poor response). However, the company has a good preparedness for market threats. It is best prepared for the threat of expiring contracts.

External Factors Matrix

The sections below expound on the formulation and analysis of an EFE matrix. It contains a detailed description of the key external factors of an EFE matrix. Additionally, it explains the selection of factors and assignment of ratings, weights, and scores.

Key External Factors in EFE Matrix Analysis

In order to get accurate information from an EFE matrix analysis, it is crucial to first identify the external threats and opportunities that exist in the business environment. The identified opportunities and threats should be relevant to the organization of interest. In External Factor Evaluation matrix analysis, these external threats and opportunities are known as factors. The key external factors that exist within the organization’s external environment can be identified using tools like Porter’s Five Forces analysis, PESTLE analysis, Profile Matrix, etc. Worth noting is the fact that, for an effective EFE matrix analysis, one should identify and select as many factors as possible.

1. Weight of External Factors in EFE Matrix Analysis

In EFE matrix analysis, each of the selected factors is assigned a weight, with the least important factor being assigned a weight of 0.0 and the most important, 1.0. In other words, the weights for each factor can only range between 0.0 to 1.0.

The weight of each factor represents the importance of the factor and its ability to bring success to a business organization or improve its competitiveness in the market. The idea behind weights is that, if no weight is assigned, all factors would be taken to have equal significance and ability to bring success to a business, a scenario that is impractical in the real business environment.

Worth noting is the fact that the sum of all the weights for all selected factors must add up to 1.0. Moreover, it is important to avoid putting too much emphasis on some factors at the expense of others because an organization’s success in the market is hardly determined by a single or some few factors. In that regard, it is important that the weight of each factor be assigned subjectively and also be above 0.0.

2. Rating of a Business Strategy

In EFE matrix analysis, the rating of external factors refers to the effectiveness of an organization’s strategy and its responsiveness to threats and opportunities in the market. The responsiveness of a business strategy is rated from 1 to 4, where 1 means poor response, 2 means average response, 3 means an above average response, while 4 denotes a superior response. Assigning ratings to each of the selected factors should be done in a subjective manner.

3. Weighted Score of Selected External Factors

The weighted score of an External Factor Evaluation matrix is acquired by multiplying the weight and rating of each factor. A weighted score for each of the selected key external factors must be calculated. The weighted scores of each of the factors is then summed up to acquire the total weighted score of the entire business strategy. The total weighted score ranges from 1 to 4, where a score of 2.5 is the average. A high total weighted score from an EFE matrix analysis means that strategy adopted by a business entity at a given time is ideal for capitalizing on existing (external) market opportunities and cushioning against threats. Just like IFE Matrix Analysis, EFE Matrix Analysis is one of the prerequisite steps of QSPM Matrix Analysis.

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Formulating the QSPM Matrix

Subsequently, the information obtained from EFE matrix and IFE matrix is used in QSPM matrix analysis. The weights assigned to each of the factors are also copied as they are in the EFE and IFE matrix. The factors selected for QSPM matrix analysis are then presented as below.

 

The attractiveness scores (AS) assigned to the selected factors indicate the relative attractiveness of each strategy. Noteworthy, this attractiveness is associated to the suitability of the selected internal and external factors to add a competitive advantage to a business organization. Moreover, attractiveness scores in QSPM matrix analysis indicate the ability of a business strategy to capitalize on existing opportunities, counter threats, and, subsequently, ensure the growth of a business entity. Ideally, the scores are assigned depending on how each factor affects the selected strategy.

For instance, a score of 1 represents factors that are not attractive. Similarly, 2 is used for somewhat attractive factors, while 3 represents reasonably attractive factors. Finally, 4 denotes highly attractive factors. Subsequently, the total attractiveness scores (TAS) in QSPM matrix analysis are derived by multiplying the weights of each selected factor by their attractiveness scores. Consequently, the relative attractiveness of the business strategy, in consideration of an organization’s internal and external factors, is acquired. In that case, Amazon’s strategy of entering into the Indian digital technologies market should focus on maximizing on the factors that have the highest attractiveness scores as per the results of its QSPM matrix analysis. The highest total attractiveness score in QSPM matrix analysis is 4, with a score of 2.5 being the average total attractiveness score.  In other words, Amazon should develop a market entry strategy that generates the highest total attractiveness score, above 2.5, in a QSPM matrix analysis.