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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
stage 1 analyses, matches
inputs
them
from
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.
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
external and
examining each key
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
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 Weight Rating W*score
1Inventory turnover increased from 5.8 to 6.7 this year 0.05 3 0.15
2
Average customer purchasse increased from $97 to
$128 this year 0.07 4 0.28
3Employee Morale is excellent 0.1 3 0.3
4
In-store promotions resulted in 20% increase in sales
this year 0.05 3 0.15
5
Newspaper Advertising expenditure increased 10%
this year 0.02 3 0.06
6
Revenues from repair/service segment of store up
16% this year 0.15 3 0.45
7
In store Technical Support Personnel have MIS college
degrees 0.05 4 0.2
8
Store 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
10
Revenues from Software segment of
storedown 12% this year 0.1 2 0.2
11
Location 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
16
Supplier on time delivery increased to 2.4 days
in last two quarters 0.03 1 0.03
17
Oftentimes 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
3
Vehicle 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
6
Small Business growth in area up 10% this
year 0.05 2 0.1
7
Desires 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
S
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%
W
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
Stage 2
SWOT (Cont)
O
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
T
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%
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 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
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 0.28
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
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

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Choosing the best strategy qspm matrix.pptx

  • 2. 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
  • 4. 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.
  • 5. 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 stage 1 analyses, matches inputs them from with results from stage 2 analyses, and then decides objectively among alternative strategies
  • 6. 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.
  • 7. 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 external and examining each key internal factor separately(0,1,2,3,4) Steps to form a QSPM (Cont.)
  • 8. 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.)
  • 9.
  • 10. 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
  • 11. 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 2 Average customer purchasse increased from $97 to $128 this year 0.07 4 0.28 3Employee Morale is excellent 0.1 3 0.3 4 In-store promotions resulted in 20% increase in sales this year 0.05 3 0.15 5 Newspaper Advertising expenditure increased 10% this year 0.02 3 0.06 6 Revenues from repair/service segment of store up 16% this year 0.15 3 0.45 7 In store Technical Support Personnel have MIS college degrees 0.05 4 0.2 8 Store 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
  • 12. Weakness Weight Rating W*score 10 Revenues from Software segment of storedown 12% this year 0.1 2 0.2 11 Location 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 16 Supplier on time delivery increased to 2.4 days in last two quarters 0.03 1 0.03 17 Oftentimes 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
  • 13. 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 3 Vehicle 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 6 Small Business growth in area up 10% this year 0.05 2 0.1 7 Desires 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
  • 14. 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
  • 15. SWOT S 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% W 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 Stage 2
  • 16. SWOT (Cont) O 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 T 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% Stage 2
  • 17. Strategy based on SWOT A) Purchase land to build new larger store B) Fully renovate the existing store
  • 18. QSPM Strategic Alternatives 1 2 BUY NEW LAND and BUILD LARGER STORE FULLY RENOVATE 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 Final Stage
  • 19. 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 0.28 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 Final Stage
  • 20. 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”
  • 21. 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
  • 22. ALL GOOD THINGS COME TO AN END