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 StrategyFormulation 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

Step 1

Internal audit and IFE Matrix External audit and EFE Matrix

Step 2

Formulation of alternative strategies using SWOT

Step 3

QSPM Matrix formulation Recommendations

IFE matrix for Retail Computer Store

Key Internal Factors Strengths 1 Inventory turnover increased from 5.8 to 6.7 this year Average customer purchasse increased from $97 to 2 $128 this year 3 Employee Morale is excellent In-store promotions resulted in 20% increase in sales 4 this year Newspaper Advertising expenditure increased 10% 5 this year Revenues from repair/service segment of store up 6 16% this year In store Technical Support Personnel have MIS college 7 degrees Store debt-total assets ratio declined to 34% this year 8 from 51% 9 Revenues from employee up 19% in last two years Weight 0.05 0.07 0.1 0.05 0.02 0.15 0.05 0.03 0.02 Rating

Stage 1

W*score 3 4 3 3 3 3 4 3 3 0.15 0.28 0.3 0.15 0.06 0.45 0.2 0.09 0.06

IFE matrix for Retail Computer Store

Weakness Revenues from Software segment of 10 storedown 12% this year Location of store negatively impacted by new 11 Highway34 to be completed in 1 year 12 Carpet and Paint in store somwhat in despair 13 Bathroom in store needs Refurbishing 14 Revenues from Business down 8% this year 15 Store has no website Supplier on time delivery increased to 2.4 days 16 in last two quarters Oftentimes customers have to wait 5min to 17 check out Total
Weight Rating

Stage 1
W*score

0.1 0.15 0.02 0.02 0.04 0.05 0.03 0.05 1

2 2 1 1 1 2 1 1

0.2 0.3 0.02 0.02 0.04 0.1 0.03 0.05 2.5

EFE matrix for Retail Computer Store

Key External Factors

Stage 1

Opportunities
1 Population of city growing 10% annually 2 Rival computer store openeing 1 mile away Vehicle traffic passing store up 12% in last 3 year

Weight Rating
0.15 0.05 0.1 4 2 1

Wscore
0.6 0.1 0.1

4 Vendors average 6 new products per year

5 Senior citizen use of computer 8% this year Small Business growth in area up 10% this 6 year Desires for websites up 18% by realtors 7 yearly 8 Desires for websites up 12% by small firms

0.05
0.05 0.05 0.1 0.05

3
4 2 3 1

0.15
0.2 0.1 0.3 0.05

EFE matrix for Retail Computer Store

Threats
9 Best Buy opening a new store Nearby 10 Local universities offer Computer Repair Weight 0.1 0.05 Rating

Stage 1

Wscore 4 3 0.4 0.15

11 New bypass highway in 1 year will divert traffic

12 New Mall being builtnearby in 1 year 13 Gas prices up by 14% in pat year 14 Vendors raising prices 8% Quarterly Total

0.05
0.1 0.05 0.05 1

3
1 4 2

0.15
0.1 0.2 0.1 2.7

SWOT
S W

Stage 2

1. 2.

3.
4.

5.
6.

Inventory turnover up 5.8 to 6.7 Average customer purchase up $97 to $128 Employee morale is excellent In store promo-20% increase in sales Newspaper ads expense down by 10% Revenues from repair up by 16%

1. 2. 3. 4. 5. 6.

Software revenues in store down by 16% Location of store hurt by new Highway Carpet & paint in store in disrepair Bathroom in store needs refurbishing Total store revenues down by 8% Store has no website

SWOT (Cont)
O T

Stage 2

1. 2. 3. 4. 5.

6.

Population of city growing at 10% Vehicle traffic passing store up 12% Senior citizens use of products up by 8% Small business grow in area up 10% Desire for websites up 18% by realtors Desire for websites up 12% by small firms

1. 2. 3.

4. 5. 6.

Best buy opening store in 1 year Local university offers computer repair New bypass highway will divert traffic in one year New mall being built near Gas prices up by 14% Vendor raising price 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

Opportunities Population of city growing 10% Rival computer store opening 1 mile Vehicle traffic passing store up 12% Vendors average six new products year Senior citizen use of computers up 8% Small business growth in area up 10% Desire for web sites up 18% by realtors Desire for web sites up 12% by small firms Threats Best Buy opening new store in 1yr near Local university offers computer repair New bypass Hwy 34 in 1 yr will divert traffic New mall being built near Gas prices up 14% Vendors raising prices 8%

BUY NEW LAND FULLY and BUILD RENOVATE LARGER STORE EXISTING STORE Weight AS TAS AS TAS 0.15 4 0.6 2 0.3 0.05 2 0.1 4 0.2 0.1 1 0.1 4 0.4 0.05 0.05 0.05 0.1 0.05 -

0.1 0.05 0.05 0.1 0.05 0.05 1

4 4 2

0.4 0.2 0.2 -

3 1 4

0.3 0.1 0.4

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

Final Stage

0.28

4 0.6 4 0.12 2 0.06 3 0.45

0.1 0.15 0.02 0.02 0.04 0.05 0.03 0.05 1

4 1 1 3 0.6 0.02 0.02 0.12 2 0.1 3.32 4 0.2 3.16 1 4 4 4 0.15 0.08 0.08 0.16

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 Sets of strategies considered simultaneously or sequentially Integration of pertinent external and internal factors in the decisionmaking 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