QSPM

Choosing best strategy

Strategy

• All nine techniques in strategy formulation required analysis as well as intuition in assigning weights

• This gives a shift of word oriented to number oriented planning which is rational to a great extend

• But even in these methods personal bias, emotions, personalities and Halo error play a dominant role

Comprehensive Strategy-Formulation Framework

Introduction

• Quantitative Strategic Planning Matrix (QSPM) is a high-level strategic management approach for evaluating possible strategies

• QSPM provides an analytical method for comparing feasible alternative actions

• The QSPM method falls within so-called stage 3 of the strategy formulation analytical framework.

Why go for QSPM?

• QSPM approach attempts to objectively select the best strategy using input from other management techniques and some easy computations

• The QSPM method uses inputs from stage 1 analyses, matches them with results from stage 2 analyses, and then decides objectively among alternative strategies

Steps to form a QSPM

1. The overall strategic management analysis is used to identify key strategic factors. This can be done using the EFE & IFE matrix.

2. Formulation of the type of the strategy we would like to pursue. This can be done using the  SWOT analysis,SPACE matrix analysis, BCG matrix model, or the IE matrix model.

3. Each key external and internal factor should have some weight in the overall scheme. These weights from the IFE and EFE matrices.

4. Attractiveness Scores (AS) how each factor is important or attractive to each alternative strategy. Attractiveness Scores are determined by examining each key external and internal factor separately(0,1,2,3,4)

Steps to form a QSPM (Cont.)

5. Total Attractiveness Scores are defined as the product of multiplying the weights (step 3) by the Attractiveness Scores (step 4) in each row.

6. Calculate the Sum Total Attractiveness Score by adding all Total Attractiveness Scores in each strategy column of the QSPM.

Steps to form a QSPM (Cont.)

Illustration: QSPM for Retail Computer Store

Step 1• Internal audit

and IFE Matrix• External audit

and EFE MatrixStep 2

• Formulation of alternative strategies using SWOT

Step 3

IFE matrix for Retail Computer Store

Key Internal Factors Strengths Weight Rating W*score

1Inventory turnover increased from 5.8 to 6.7 this year 0.05 3 0.15

2Average customer purchasse increased from $97 to $128 this year 0.07 4 0.28

3Employee Morale is excellent 0.1 3 0.3

4In-store promotions resulted in 20% increase in sales this year 0.05 3 0.15

5Newspaper Advertising expenditure increased 10% this year 0.02 3 0.06

6Revenues from repair/service segment of store up 16% this year 0.15 3 0.45

7In store Technical Support Personnel have MIS college degrees 0.05 4 0.2

8Store debt-total assets ratio declined to 34% this year from 51% 0.03 3 0.09

9Revenues from employee up 19% in last two years 0.02 3 0.06

Stage 1

Weakness Weight Rating W*score

10Revenues from Software segment of storedown 12% this year 0.1 2 0.2

11Location of store negatively impacted by new Highway34 to be completed in 1 year 0.15 2 0.3

12Carpet and Paint in store somwhat in despair 0.02 1 0.02

13Bathroom in store needs Refurbishing 0.02 1 0.02

14Revenues from Business down 8% this year 0.04 1 0.04

15Store has no website 0.05 2 0.1

16Supplier on time delivery increased to 2.4 days in last two quarters 0.03 1 0.03

17Oftentimes customers have to wait 5min to check out 0.05 1 0.05

Total 1 2.5

IFE matrix for Retail Computer Store Stage 1

EFE matrix for Retail Computer Store

  Key External Factors      

  Opportunities Weight Rating Wscore

1Population of city growing 10% annually 0.15 4 0.6

2Rival computer store openeing 1 mile away 0.05 2 0.1

3Vehicle traffic passing store up 12% in last year 0.1 1 0.1

4Vendors average 6 new products per year 0.05 3 0.15

5Senior citizen use of computer 8% this year 0.05 4 0.2

6Small Business growth in area up 10% this year 0.05 2 0.1

7Desires for websites up 18% by realtors yearly 0.1 3 0.3

8Desires for websites up 12% by small firms 0.05 1 0.05

Stage 1

EFE matrix for Retail Computer Store

Threats Weight Rating Wscore

9Best Buy opening a new store Nearby 0.1 4 0.4

10Local universities offer Computer Repair 0.05 3 0.15

11New bypass highway in 1 year will divert traffic 0.05 3 0.15

12New Mall being builtnearby in 1 year 0.1 1 0.1

13Gas prices up by 14% in pat year 0.05 4 0.2

14Vendors raising prices 8% Quarterly 0.05 2 0.1

Total 1  2.7

Stage 1

SWOT

1. Inventory turnover up 5.8 to 6.7

2. Average customer purchase up $97 to $128

3. Employee morale is excellent

4. In store promo-20% increase in sales

5. Newspaper ads expense down by 10%

6. Revenues from repair up by 16%

1. Software revenues in store down by 16%

2. Location of store hurt by new Highway

3. Carpet & paint in store in disrepair

4. Bathroom in store needs refurbishing

5. Total store revenues down by 8%

6. Store has no website

S W

Stage 2

SWOT (Cont)

1. Population of city growing at 10%

2. Vehicle traffic passing store up 12%

3. Senior citizens use of products up by 8%

4. Small business grow in area up 10%

5. Desire for websites up 18% by realtors

6. Desire for websites up 12% by small firms

1. Best buy opening store in 1 year

2. Local university offers computer repair

3. New bypass highway will divert traffic in one year

4. New mall being built near

5. Gas prices up by 14%

6. Vendor raising price by 8%

O T

Stage 2

Strategy based on SWOT

A) Purchase land to build new larger store

B) Fully renovate the existing store

QSPM    Strategic Alternatives    1 2

   

BUY NEW LAND and BUILD

LARGER STORE

FULLY RENOVATE

EXISTING STOREOpportunities Weight AS TAS AS TASPopulation of city growing 10% 0.15 4 0.6 2 0.3Rival computer store opening 1 mile 0.05 2 0.1 4 0.2Vehicle traffic passing store up 12% 0.1 1 0.1 4 0.4Vendors average six new products year 0.05-   -  Senior citizen use of computers up 8% 0.05-   -  Small business growth in area up 10% 0.05-   -  Desire for web sites up 18% by realtors 0.1-   -  Desire for web sites up 12% by small firms 0.05-   -             Threats          Best Buy opening new store in 1yr near 0.1 4 0.4 3 0.3Local university offers computer repair 0.05-   -  New bypass Hwy 34 in 1 yr will divert traffic 0.05 4 0.2 1 0.1New mall being built near 0.1 2 0.2 4 0.4Gas prices up 14% 0.05-   -  Vendors raising prices 8% 0.05-   -    1       

Final Stage

QSPM (Cont)Strengths          Inventory turnover increased from 5.8 to 6.7 0.05-   -  Average customer purchase increased from $97 to $128 0.07 2 0.14 4 0.28Employee morale is excellent 0.1-   -  In-store promotions resulted in 20% increase in sales 0.05-   -  Newspaper advertising expenditures increased 10% 0.02-   -  Revenues from repair/service segment of store up 16% 0.15 4 0.6 3 0.45In-store technical support personnel have MIS college degrees 0.05-   -  Store’s debt-to-total assets ratio declined to 34% 0.03 4 0.12 2 0.06Revenues per employee up 19 percent 0.02-   -             Weaknesses          Revenues from software segment of store down 12% 0.1-   -  Location of store negatively impacted by new Highway 34 0.15 4 0.6 1 0.15Carpet and paint in store somewhat in disrepair 0.02 1 0.02 4 0.08Bathroom in store needs refurbishing 0.02 1 0.02 4 0.08Revenues from businesses down 8% 0.04 3 0.12 4 0.16Store has no web site 0.05-   -  Supplier on-time-delivery increased to 2.4 days 0.03-   -  Often times customers have to wait to check out 0.05 2 0.1 4 0.2Total 1  3.32  3.16

Final Stage

Rules for QSPM

• If a particular factor affects one strategy and not other then it affects the choice so the AS should be recorded for both strategies

• Scores in a row is never duplicated• QSPM is always prepared row-wise• If there is more than one strategy in QSPM

then AS scores can range from 1 to “no. of strategies being evaluated”

Pros and Cons

Pros• Sets of strategies

considered simultaneously or sequentially

• Integration of pertinent external and internal factors in the decision-making process

Cons• Requires intuitive

judgments and assumptions

• Only as good as the prerequisite inputs

• Only strategies in a given set are evaluated relative to each other

ALL GOOD THINGS COME TO AN END