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192 PART 2 • STRATEGY FORMULATION

Firms positioned in Quadrant II need to evaluate their present approach to the market-
place seriously. Although their industry is growing, they are unable to compete effectively,
and they need to determine why the firm’s current approach is ineffective and how the
company can best change to improve its competitiveness. Because Quadrant II firms are in a
rapid-market-growth industry, an intensive strategy (as opposed to integrative or diversifica-
tion) is usually the first option that should be considered. However, if the firm is lacking a
distinctive competence or competitive advantage, then horizontal integration is often a desir-
able alternative. As a last resort, divestiture or liquidation should be considered. Divestiture
can provide funds needed to acquire other businesses or buy back shares of stock.
Quadrant III organizations compete in slow-growth industries and have weak compet-
itive positions. These firms must make some drastic changes quickly to avoid further
decline and possible liquidation. Extensive cost and asset reduction (retrenchment) should
be pursued first. An alternative strategy is to shift resources away from the current business
into different areas (diversify). If all else fails, the final options for Quadrant III businesses
are divestiture or liquidation.
Finally, Quadrant IV businesses have a strong competitive position but are in a slow-
growth industry. These firms have the strength to launch diversified programs into more
promising growth areas: Quadrant IV firms have characteristically high cash-flow levels
and limited internal growth needs and often can pursue related or unrelated diversification
successfully. Quadrant IV firms also may pursue joint ventures.

The Decision Stage

Analysis and intuition provide a basis for making strategy-formulation decisions. The
matching techniques just discussed reveal feasible alternative strategies. Many of these
strategies will likely have been proposed by managers and employees participating in the
strategy analysis and choice activity. Any additional strategies resulting from the matching
analyses could be discussed and added to the list of feasible alternative options. As indi-
cated earlier in this chapter, participants could rate these strategies on a 1 to 4 scale so that
a prioritized list of the best strategies could be achieved.
The Quantitative Strategic Planning Matrix (QSPM)
Other than ranking strategies to achieve the prioritized list, there is only one analytical
technique in the literature designed to determine the relative attractiveness of feasible
alternative actions. This technique is the Quantitative Strategic Planning Matrix (QSPM),
6
which comprises Stage 3 of the strategy-formulation analytical framework. This tech-
nique objectively indicates which alternative strategies are best. The QSPM uses input
from Stage 1 analyses and matching results from Stage 2 analyses to decide objectively
among alternative strategies. That is, the EFE Matrix, IFE Matrix, and Competitive Profile
Matrix that make up Stage 1, coupled with the SWOT Matrix, SPACE Matrix, BCG
Matrix, IE Matrix, and Grand Strategy Matrix that make up Stage 2, provide the needed
information for setting up the QSPM (Stage 3). The QSPM is a tool that allows strategists
to evaluate alternative strategies objectively, based on previously identified external and
internal critical success factors. Like other strategy-formulation analytical tools, the
QSPM requires good intuitive judgment.
The basic format of the QSPM is illustrated in Table 6-6. Note that the left column of
a QSPM consists of key external and internal factors (from Stage 1), and the top row
consists of feasible alternative strategies (from Stage 2). Specifically, the left column of a
QSPM consists of information obtained directly from the EFE Matrix and IFE Matrix. In a
column adjacent to the critical success factors, the respective weights received by each
factor in the EFE Matrix and the IFE Matrix are recorded.
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 match-
ing tools usually generate similar feasible alternatives. However, not every strategy
suggested by the matching techniques has to be evaluated in a QSPM. Strategists should
use good intuitive judgment in selecting strategies to include in a QSPM.