Step 5 - Establish Strategies

Step 5 in strategic planning is to establish strategies. Strategies are not something to nail together in slap-dash fashion by sitting around a conference table. Many companies unfortunately still formulate strategies this way, relying heavily on emotion, politics, opinion, subjectivity, and intuition, rather than conducting some research, collecting some facts and information, and performing some analyses. The penalty for pursuing the wrong strategies can severely cripple an organization, so research and analysis is needed to formulate strategies effectively. Use information gathered in the external and internal assessment.

Strategies are derived from an organization's underlying mission, external opportunities/threats, internal strengths/weaknesses, and objectives. An organization needs to use its strengths to capitalize on opportunities and improve upon weaknesses and avoid threats. Three analytical tools, the TOWS Matrix, the IE Matrix, and the OSPM should be constructed in formulating strategies. The first two matrices, TOWS and IE, are used to generate strategies. These two matrices utilize the earlier external and internal factors deemed most important. The QSPM is used to determine the relative attractiveness of strategies generated.

Guidelines For Constructing A TOWS Matrix

The Threats-Opportunities-Weaknesses-Strength (TOWS) Matrix is the most widely used strategic planning matrix among companies and organizations. To develop a

TOWS Matrix, simply list the firm's strengths, weaknesses, opportunities, and threats in boxes along the top and side of the matrix as indicated on the sample TOWS Matrix provided on the next page. These are the same factors you earlier determined (ranked) to be most important in your external and internal audits. Then in the four strategy quadrants labeled SO, WO, ST, and WT, list specific strategies that would benefit the firm in light of those underlying factors.

Some example strategies are shown on the next page. For example under SO which stands for Strength-Opportunity, you may feel that your firm should expand globally, or double the number of salespersons, or double advertising, or develop new products, or diversify. Using the weakness and threat factors, you may feel that your firm should liquidate, or divest, or retrench, or restructure, or downsize. The strategies for your firm will vary from these depending on your key external and internal factors. So in essence, the TOWS Matrix enables you to generate strategies based on important underlying factors. Be as specific as you can when listing your strategies.
 

A SAMPLE TOWS MATRIX
 
 
 

STRENGTHS WEAKNESSES
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.

 
 
 
 
 
OPPORTUNITIES SO STRATEGIES WO STRATEGIES
1. 1. EXPAND GLOBALLY 1. JOINT VENTURE
2. 2. DOUBLE SALESPERSONS 2. ACQUIRE COMPETITOR
3. 3. DOUBLE ADVERTISING 3. EXPAND NATIONALLY
4. 4. DEVELOP NEW PRODUCTS 4. BACKWARD INTRAGATION
5. 5. DIVERSIFY 5. FORWARD INTEGRATION

 
 
 
 
 
 
THREATS ST STRATEGIES WT STRATEGIES
1. 1. DIVERSIFY 1. LIQUIDATION
2. 2. ACQUIRE COMPETITOR 2. DIVESTITURE
3. 3. EXPAND LOCALLY 3. RETRENCHMENT
4. 4. INCREASE PROMOTION 4. RESTRUCTURE
5. 5. RE-ENGINEER 5. DOWNSIZE

 
 
 

Guidelines For Constructing An IE Matrix

Lets focus now on the second analytical tool used for formulating strategies, the Internal-External (IE) Matrix. To develop an IE Matrix, simply rate your company as being Excellent, Average, or Weak internally and externally as shown on the top and side axes on the IE Matrix. A sample IE Matrix is provided below. Base your ratings on your earlier internal and external assessments. The intersection of your ratings reveals the type of strategies best for your firm - Grow and Build, Hold and Maintain, or Harvest and Divest. For example, if you rated your company as weak both internally and externally, your company should pursue the Harvest and Divest strategies, which as you see include

No Expansion, Divestiture, Retrenchment, Diversification, Improve Weaknesses, or Joint

Venture. If you rated your company as excellent both internally and externally, your company should pursue the Grow and Build strategies. If you rated your company as average both internally and externally, your company should pursue Hold and Maintain strategies. In formulating strategies, an organization should develop both a TOWS Matrix and an IE Matrix.

SAMPLE IE MATRIX
 
 
   
Your Internal Assessment
    Excellent Average Weak
Your External Assessment
Excellent Grow/Build Grow/Build Hold/Maintain
Average Grow/Build Hold/Maintain Harvest/Divest
Weak Hold/Maintain Harvest/Divest Harvest/Divest

 
 

Recommended Strategies:
 
 
Grow & Build - Expand aggressively; Seek control over distributors or suppliers (vertical integration); Capitalize on strengths; Acquire competitors
Hold & Maintain - Expand, but not aggressively; Penetrate market further; Develop new products or modify existing products
Harvest & Divest - Do not expand; Divest; Retrench; Diversify; Improve weaknesses; Form joint ventures

 
 
 

Guidelines for Constructing A QSPM

The third and final matrix to develop in strategic planning is the Quantitative Strategic Planning Matrix (QSPM). A sample QSPM is provided on the next page. The

QSPM is designed to prioritize or determine the attractiveness of the strategies generated in the TOWS and IE matrices. An organization cannot implement all the strategies generated in the TOWS and IE, so the QSPM is needed and used to narrow the number of strategies down by determining the relative attractiveness of each one.

To develop a QSPM, simply list strategies across the top row that you feel are best for the firm to consider, based on your previous TOWS and IE Matrices. List as many strategies as you like. In the sample QSPM on the next page, note that eight strategies are evaluated. (Prepare a second QSPM if you have too many strategies for the top row).

Once listing the strategies in the top row of your QSPM, list your external opportunities/threats and internal strength/weaknesses down the left column. These are the same factors you earlier determined to be most important. Finally, in the QSPM cells rate each strategy according to how well it capitalizes on the particular opportunity or strength, or improves upon the particular weakness, or avoids the particular threat.

Develop the QSPM row by row asking yourself this question: "How attractive is this strategy to my organization in light of the particular factor in the left column?" Use a

1 to 4 scale as indicated where 4 = Very Attractive, 3 = Attractive, 2 = Somewhat Attractive, and 1 = Not Attractive. Assign a value to every cell. Finally, sum the columns. These sums reveal relative attractiveness of all strategies considered the higher the sum the more attractive the strategy. Use this information to establish a final set of strategies or recommendations for your organization to pursue.
 
 
 

SAMPLE QSPM
 
 
 
STRATEGIES
 
1
2
3
4
5
6
7
8
External Opportunities                
1.
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2.
-
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3.
-
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4.
-
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External Threats                
1.
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2.
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3.
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4.
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Internal Strengths                
1.
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2.
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3.
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4.
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Internal Weaknesses                
1.
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2.
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3.
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4.
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TOTAL
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(4 = Very Attractive, 3 = Attractive, 2 = Somewhat Attractive, 1 = Not Attractive)

Use the worksheets provided on the next few pages to prepare a TOWS Matrix, and IE Matrix, and a QSPM for your organization. Transfer the external opportunities/threats and internal strengths/weaknesses that you earlier ranked as most important into your TOWS Matrix and QSPM. Abbreviate those external and internal factors (since space limited) in the TOWS Matrix and QSPM worksheets. List ten strategies in the TOWS Matrix that you feel would benefit the firm most. Match internal with external factors in devising these strategies.
 
 
 
 

 
 
 
 

TOWS MATRIX 

WORK SHEET

STRENGTHS WEAKNESSES
1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
6. 6.
7. 7.
8. 8.
OPPORTUNITIES SO STRATEGIES WO STRATEGIES
1. 1. 1.
2. 2. 2.
3. 3. 3.
4. 4. 4.
THREATS ST STRATEGIES WT STRATEGIES
1. 1. 1.
2
3. 2. 2.
4.
5. 3. 3.
6.
7. 4. 4.
8.
9. 5. 5.

 
 
 
 

IE MATRIX WORKSHEET
 
 
   
Your Internal Assessment
    Excellent Average Weak
Your External Assessment
Excellent Grow/Build Grow/Build Hold/Maintain
Average Grow/Build Hold/Maintain Harvest/Divest
Weak Hold/Maintain Harvest/Divest Harvest/Divest

 
 

Recommended Strategies:
 
 
Grow & Build - Expand aggressively; Seek control over distributors or suppliers (vertical integration); Capitalize on strengths; Acquire competitors
Hold & Maintain - Expand, but not aggressively; Penetrate market further; Develop new products or modify existing products
Harvest & Divest - Do not expand; Divest; Retrench; Diversify; Improve weaknesses; Form joint ventures

 
 

PLACE AN X MARK AT THE INERSECTION OF YOUR INTERNAL AND EXTERNAL EVALUATION OF YOUR COMPANY. WHICH TYPE OF STRATEGIES DOES THAT INDICATE TO BE BEST FOR YOUR COMPANY, G&B OR H&M OR H&D? ________ IN THE SPACE PROVIDED BELOW, LIST EIGHT STRATEGIES THAT YOU FEEL WOULD BENEFIT YOUR ORGANIZATION IN LIGHT OF THIS G&B, H&M, OR H&D DETERMINATION.

STRATEGY 1 ____________________________________________________________________________________

STRATEGY 2 ____________________________________________________________________________________

STRATEGY 3 ____________________________________________________________________________________

STRATEGY 4 ____________________________________________________________________________________

STRATEGY 5 ____________________________________________________________________________________

STRATEGY 6 ____________________________________________________________________________________

STRATEGY 7 ____________________________________________________________________________________

STRATEGY 8 ____________________________________________________________________________________
 
 

QSPM WORKSHEETS (page 1)

From your TOWS strategies and your IE strategies, select eight strategies now that you feel are attractive enough to carry forward to the QSPM. The eight need to be derived from both the TOWS and IE analyses. List the eight strategies below that you feel are best from your TOWS and IE analyses. Elaborate on each strategy as needed:
 

STRATEGY 1 __________________________________________________________________________________
__________________________________________________________________________________

STRATEGY 2 __________________________________________________________________________________
__________________________________________________________________________________

STRATEGY 3 __________________________________________________________________________________
__________________________________________________________________________________

STRATEGY 4 __________________________________________________________________________________
__________________________________________________________________________________

STRATEGY 5 __________________________________________________________________________________
__________________________________________________________________________________

STRATEGY 6 __________________________________________________________________________________
__________________________________________________________________________________

STRATEGY 7 __________________________________________________________________________________
__________________________________________________________________________________

STRATEGY 8 __________________________________________________________________________________
__________________________________________________________________________________
 

  QSPM WORKSHEETS (page 2)

Evaluate the eight strategies listed on prior page by preparing a QSPM worksheet given below and continued on the next two pages. Let strategy numbers 1 to 8 on prior page correspond to strategies 1 to 8 in the top row of your QSPM below. In the left column of your QSPM below and continued, list in abbreviated form the external opportunities/threats and internal strengths/weaknesses you earlier determined to be most important in rank and included in your TOWS Matrix. In the evaluation cells inside the

QSPM, place a 1, 2, 3, or 4 to indicate how attractive that strategy is given the particular factor, where 4 Very Attractive, 3 = Attractive, 2 = Somewhat Attractive, and 1 = Not Attractive. Finally, sum the columns. These sums reveal relative attractiveness of all strategies considered - the higher the sum the more attractive the strategy.
 
 
 
STRATEGIES
 
1
2
3
4
5
6
7
8
External Opportunities                
1. ________________
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2. ________________
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9. ________________
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10. _______________
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SUBTOTALS
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(continued)
 
 
 

QSPM WORKSHEETS (page 3)
 
 
 
STRATEGIES
 
1
2
3
4
5
6
7
8
External Threats                
1. ________________
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2. ________________
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3. ________________
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5. ________________
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9. ________________
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10. _______________
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SUBTOTALS
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(continued)
 
 

QSPM WORKSHEETS (page 4)
 
 
 
STRATEGIES
 
1
2
3
4
5
6
7
8
Internal Strenghts                
1. ________________
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2. ________________
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3. ________________
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4. ________________
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5. ________________
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10. _______________
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SUBTOTALS
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(continued)
 
 

QSPM WORKSHEETS (page 5)
 
 
 
STRATEGIES
 
1
2
3
4
5
6
7
8
Internal Weaknesses                
1. ________________
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2. ________________
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3. ________________
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10. _______________
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SUBTOTALS
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GRAND TOTALS
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(add the four subtotals)
 
 

QSPM WORKSHEETS (page 6)

In the space provided below, list from most attractive to least attractive the eight strategies that your QSPM suggests are best for your organization. This is the most important page in the Strategic Planning Workbook because you are listing the strategies you feel your organization should pursue in the next few years.
 

Most Attractive Strategy
 

Strategy 1

Strategy 2

Strategy 3

Strategy 4

Strategy 5

Strategy 6

Strategy 7

Strategy 8
 
 

Least Attractive Strategy
 
 
 
 
 
 
 

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