QSPM Matrix Analysis Definition, Procedure, Template and Example of Amazon
Quantitative strategic planning matrix analysis is an important tool for advanced, high-level strategic management. The analysis provides an effective analytical method for comparing the alternative strategic options that are available to business managers.
What is the use of Quantitative Strategic Planning Matrix (QSPM)
In that regard, QSPM analysis is used to determine the best market strategies for implementation through the reliable, statistical analysis of the suitability of multiple strategic options. The result of quantitative strategic planning matrix analysis in strategic management is the determination and selection of the most appropriate strategy for achieving a desired business outcome.
What are the Stages of QSPM Analysis
Quantitative strategic planning matrix (qspm) is divided into three stages. In the first step of the analysis, a list of all factors that are crucial for the implementation of a given business strategy is prepared, following which the most important of those factors are selected for analysis in a QSPM matrix.
Secondly, a SWOT analysis is done to weigh the pros and cons of adopting the selected business strategy. This is done by analyzing an organization’s internal strengths and weaknesses, external threats and opportunities, as well as their significance or impact on the strategy.
IFE Matrix and EFE Matrix SWOT Analyses
The analysis of internal and external factors is done separately.
Internal Factors Evaluation matrix analysis or IFE matrix analysis is used to analyze internal factors, that is, the strengths and weaknesses of the organization in relation to the proposed business strategy.
Internal factors may include issues on marketing, accounting, production operations, and information systems. These factors are used in IFE matrix analysis.
External Factors Evaluation or EFE matrix analysis, on the other hand, is used for the analysis of external factors, namely, threats and opportunities within the organization’s external environment that are likely to influence the viability of the business strategy.
Finally, the information obtained from the internal and external analyses is jointly analyzed. QSPM matrix analysis combines the results of the IFE matrix analysis and those of the EFE matrix analysis. The combination analysis gives an impression of how external threats and opportunities and internal strengths and weaknesses combine to influence the viability of a business strategy.
Basically, QSPM matrix analysis helps managers to consider key internal and external business factors and their influence on a given expansion strategy in order to inform decision-making.
QSPM Matrix Example of Amazon
The application of QSPM matrix analyses for decision making in strategic management is elaborated using the QSPM example of Amazon’s market expansion strategy.
Amazon’s market expansion strategy has been announced through press releases of its plan to launch a global partner program for the market expansion of its digital technologies portfolio by opening an Amazon store in India.
The suitability of the expansion strategy by Amazon can be analyzed quantitatively through a QSPM matrix to determine the best possible strategy for achieving Amazon’s market expansion strategy in India.
How to Create a QSPM Matrix Model for Analysis of Amazon
Creating a QSPM matrix is done through six consecutive steps that must be followed by Amazon in order to develop an effective QSPM model for selecting a profitable business strategy.
The steps for creating a QSPM matrix model in order to analyze Amazon’s Indian market entry strategy are as follows;
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 and 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: Amazon’s Strategic Management Issues
The strategic management issues facing Amazon, or any other business organization, should be determined by analyzing its internal and external environments. This should be done 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 Planning Management 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 Management 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 for the Analysis
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.
In this QSPM analysis example, Amazon’s management presents three alternative market expansion strategies to its board of directors.
The first one is to expand its share by venturing into the Indian digital technologies market by developing 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.
Quantitative Strategic Planning Matrix Factor Analysis and Attractiveness Scores
The factors selected for Amazon’s Quantitative Strategic Planning Matrix analysis example and the attractiveness scores of each of the factors are presented as below.
Sample QSPM Matrix Analysis of Amazon’s Internal Factors
- Strong management team
- Up to date software technology
- High recognition for brand name
- High quality customer service
- External debts
- Operating losses
Sample QSPM Analysis of Amazon’s External Factors
- Increasing customer purchasing power
- Increasing pressure to ban internet tax
- Increasing internet usage
- Low interest rates
- Broadband access
- Increasing online purchases
- Adoption of a single currency
- Aggressive competition
- Ease of entering into the market
- Identify theft
- High inflation rate
- High unemployment rates
- Failure to completely ban internet tax
Amazon’s QSPM Matrix Attractiveness Scores Template
The attractiveness scores of QSPM matrix factors are derived from the IFE Matrix and the EFE Matrix analyses. The attractiveness scores of each of the selected factors that influence the viability of the business strategy options contained in this QSPM Matrix analysis example are shown in the QSPM template 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.The weights assigned to each of the factors in the EFE and IFE matrix remain unchanged during QSPM matrix analysis.
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.
How to Calculate the Total Attractiveness Scores of QSPM Matrix 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 analysis. The highest total attractiveness score in the 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 the analysis.