Choosing best strategy

QSPM
 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 an
alysis, BCG matrix model, or
the IE matrix model.
Steps to form a QSPM (Cont.)

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.
 Illustration: QSPM for Retail
Computer Store
• Internal audit and IFE
Matrix
Step 1 • External audit and EFE
Matrix

• Formulation of alternative
Step 2 strategies using SWOT

• QSPM Matrix formulation

Step 3 • Recommendations
 IFE matrix for Retail
Computer Store Stage 1

Key Internal Factors

Strengths Weight Rating W*score

1Inventory turnover increased from 5.8 to 6.7 this year 0.05 3 0.15
Average customer purchasse increased from $97 to
2 $128 this year 0.07 4 0.28
3Employee Morale is excellent 0.1 3 0.3
In-store promotions resulted in 20% increase in sales
4 this year 0.05 3 0.15
Newspaper Advertising expenditure increased 10%
5 this year 0.02 3 0.06
Revenues from repair/service segment of store up
6 16% this year 0.15 3 0.45
In store Technical Support Personnel have MIS college
7 degrees 0.05 4 0.2
Store debt-total assets ratio declined to 34% this year
8 from 51% 0.03 3 0.09

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

 IFE matrix for Retail
Computer Store Stage 1

Weakness Weight Rating W*score

Revenues from Software segment of

10 storedown 12% this year 0.1 2 0.2
Location of store negatively impacted by new
11 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
Supplier on time delivery increased to 2.4 days
16 in last two quarters 0.03 1 0.03
Oftentimes customers have to wait 5min to
17 check out 0.05 1 0.05
Total 1 2.5
 EFE matrix for Retail
Computer Store Stage 1

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
Vehicle traffic passing store up 12% in last
3 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
Small Business growth in area up 10% this
6 year 0.05 2 0.1
Desires for websites up 18% by realtors
7 yearly 0.1 3 0.3
8Desires for websites up 12% by small firms 0.05 1 0.05
 EFE matrix for Retail
Computer Store Stage 1

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
 SWOT Stage 2

S W

1. Inventory turnover up 1. Software revenues in

5.8 to 6.7 store down by 16%
2. Average customer 2. Location of store hurt
purchase up $97 to by new Highway
$128 3. Carpet & paint in store
3. Employee morale is in disrepair
excellent 4. Bathroom in store
4. In store promo-20% needs refurbishing
increase in sales 5. Total store revenues
5. Newspaper ads down by 8%
expense down by 10% 6. Store has no website
6. Revenues from repair
up by 16%
 SWOT (Cont) Stage 2

O T

1. Population of city 1. Best buy opening

growing at 10% store in 1 year
2. Vehicle traffic passing 2. Local university offers
store up 12% computer repair
3. Senior citizens use of 3. New bypass highway
products up by 8% will divert traffic in one
4. Small business grow in year
area up 10% 4. New mall being built
5. Desire for websites up near
18% by realtors 5. Gas prices up by 14%
6. Desire for websites up 6. Vendor raising price
12% by small firms by 8%
 Strategy based on SWOT
A) Purchase land to build new larger store
B) Fully renovate the existing store
 QSPM Final Stage

Strategic Alternatives
1 2

BUY NEW LAND FULLY

and BUILD RENOVATE
LARGER STORE EXISTING STORE
Opportunities Weight AS TAS AS TAS
Population of city growing 10% 0.15 4 0.6 2 0.3
Rival computer store opening 1 mile 0.05 2 0.1 4 0.2
Vehicle traffic passing store up 12% 0.1 1 0.1 4 0.4
Vendors 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 0.3
Local university offers computer repair 0.05 - -
New bypass Hwy 34 in 1 yr will divert traffic 0.05 4 0.2 1 0.1
New mall being built near 0.1 2 0.2 4 0.4
Gas prices up 14% 0.05 - -
Vendors raising prices 8% 0.05 - -
1
 QSPM (Cont) Final Stage

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 0.28
Employee 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 0.45
In-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 0.06
Revenues 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 0.15
Carpet and paint in store somewhat in disrepair 0.02 1 0.02 4 0.08
Bathroom in store needs refurbishing 0.02 1 0.02 4 0.08
Revenues from businesses down 8% 0.04 3 0.12 4 0.16
Store 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 0.2
Total 1 3.32 3.16
 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 Cons
• Sets of strategies • Requires intuitive
considered judgments and
simultaneously or assumptions
sequentially • Only as good as the
• Integration of pertinent prerequisite inputs
external and internal • Only strategies in a given
factors in the decision- set are evaluated relative
making process to each other
ALL GOOD THINGS COME TO
AN END