Step 5  Establish Strategies
Step 5 in strategic planning is to establish strategies. Strategies are not something to nail together in slapdash 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 ThreatsOpportunitiesWeaknessesStrength (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 StrengthOpportunity, 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. REENGINEER  5. DOWNSIZE 
Guidelines For Constructing An IE Matrix
Lets focus now on the second analytical tool used for formulating strategies, the InternalExternal (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


Excellent  Average  Weak  

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











External Opportunities  
1. 








2. 








3. 








4. 








External Threats  
1. 








2. 








3. 








4. 








Internal Strengths  
1. 








2. 








3. 








4. 








Internal Weaknesses  
1. 








2. 








3. 








4. 








TOTAL 








(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


Excellent  Average  Weak  

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.











External Opportunities  
1. ________________ 








2. ________________ 








3. ________________ 








4. ________________ 








5. ________________ 








6. ________________ 








7. ________________ 








8. ________________ 








9. ________________ 








10. _______________ 








SUBTOTALS 








(continued)
QSPM WORKSHEETS (page 3)











External Threats  
1. ________________ 








2. ________________ 








3. ________________ 








4. ________________ 








5. ________________ 








6. ________________ 








7. ________________ 








8. ________________ 








9. ________________ 








10. _______________ 








SUBTOTALS 








(continued)
QSPM WORKSHEETS (page 4)











Internal Strenghts  
1. ________________ 








2. ________________ 








3. ________________ 








4. ________________ 








5. ________________ 








6. ________________ 








7. ________________ 








8. ________________ 








9. ________________ 








10. _______________ 








SUBTOTALS 








(continued)
QSPM WORKSHEETS (page 5)











Internal Weaknesses  
1. ________________ 








2. ________________ 








3. ________________ 








4. ________________ 








5. ________________ 








6. ________________ 








7. ________________ 








8. ________________ 








9. ________________ 








10. _______________ 








SUBTOTALS 








GRAND TOTALS 








(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