QSPM: The Quantitative Strategic Planning Matrix (QSPM) is a viable tool for making strategy-formulation decisions. This powerful basis will assist managers of a firm to take alternative feasible strategies for their particular business. For developing a QSPM, there are six major steps as follows: Step 1 Make a list of the firm’s key external opportunities/threats and internal strengths/weaknesses. As we have done in SWOT analysis before. Step 2 Assign weights to each key external and internal factor. This part is already done in SWOT analysis. Step 3
Examine matrices, and identify alternative strategies than the company should consider implementing. In this part, three alternative strategies grasp from previous analysis based on SWOT matching. These alternative strategies are: -Product Centric diversification – include new unrelated products or services. In this case products like Coke Diet, Juices, Vitamin water, etc. could be considered as centric diversification part. -Joint venture – a kind of strategy that occurs when two or more company form a temporary partnership for the purpose of capitalizing on some opportunity.
Joint venture with Cadbury has been suggested in this part. -Conglomerate Diversification – include new unrelated products. Entering into snack business is an example of this strategy for coke. Step 4 Determine the attractiveness scores (AS) defined as numerical values which indicate the relative attractiveness of each factor in a strategy. Step 5 Compute the total attractiveness scores (TAS) multiplying the weights from step 2 by the attractiveness scores from step 4. Step 6 Compute the sum total attractiveness score.
Classical management theory advantages and disadvantages
The total attractiveness score identifies which strategy is most attractive in set of strategies and is the best way for decision-making. Strategic Alternatives 1 Product Centric Diversification 2 Joint Venture with Cadbury 3 Entering into snack business Alternative Strategy 1 Alternative Strategy 2 Alternative Strategy 3 Key FactorsweightASTSASTSASTAS Opportunities 1New industries such as snacks and confectionary business0. 10011. 044. 044. 0 2Growing in bottling business 0. 05020. 1020. 1010. 050 3Bottled tea is one of the fastest growing drinks in the industry0. 8040. 3220. 1610. 080 4Sports events such as Olympic and FIFA World Cup with more than 3 billion audience0. 06030. 1830. 1840. 24 5Coffee business market in Japan0. 07530. 22520. 15010. 075 6Juice/Sports drinks market in Latin America0. 05040. 2020. 1020. 10 7High growth in e-business market 0. 045—— Threats 8 trend towards more healthy eating & drinking0. 10044. 044. 011. 0 9Increase in raw material costs0. 06510. 06520. 1320. 13 10Strong Competitors in industry0. 07530. 22540. 310. 075 11Government policies – for disclosure of health warning0. 08030. 2420. 1610. 8 12Ban in public schools due to obesity issues0. 06520. 1310. 06510. 065 13Federal regulations prohibit Coke from bidding for Cadbury’s Products0. 06540. 2610. 06540. 26 14Low value of Dollar in global environment0. 015—— 15Not to advertise to target audience under the age of 12 0. 040—— 16The limitation of water (main component) in different parts of the world0. 04510. 04520. 0930. 135 Grand Total1. 000 Strength 1The World’s largest beverage Company0. 10044. 044. 033. 0 2The most favorite drink in South Africa0. 05030. 1520. 1010. 05 3Success of Coke Zero in Australia & Thailand0. 8040. 3220. 1610. 08 4New product combination, innovative packaging and good collaborating with customer in 2006 FIFA World Cup in Germany0. 060—— 5Digital marketing platform in Latin America with more than 5 million visitors0. 075—— 6Top seller of nonalcoholic beverage in Russia0. 04530. 13520. 0920. 09 7Growth in unit case volume in huge China market0. 065—— 8Strong leadership team0. 10—— 9Well-known brand name0. 06530. 19530. 19520. 13 10Product Diversification0. 07540. 320. 1520. 15 Weakness 11 Vitamin water ranked second behind Pepsi0. 10020. 220. 230. 12Cokes operating revenue dropped from 4. 8 to 4. 6 from the Africa division. 0. 065—— 135% unit case volume decrease in 2006 east and south Asia and pacific rim division0. 065—— 14Availability and affordability of coke products caused problem in India and Philippine0. 080—— 15Coke didn’t meet expectation in 2006 in Japan. 0. 065—— 16Recent loss of joint venture with Nestle0. 06520. 1310. 06520. 13 17Shipment volume weakness in north America & Europe caused less earnings from operations0. 01520. 0340. 0640. 06 18Decreasing in Inventory Turnover0. 04510. 04540. 1840. 8 19No Budget for R&D0. 08010. 08040. 3210. 08 Grand Total1. 00011. 57515. 0210. 54 RESULT: Each of the strategies has been chosen precisely based on the analysis in SWOT matching matrix. The reasons for choosing these three strategies are as follows: First strategy is Product diversification represents different beverages produced by Coke. These products have had successful markets in various geographic areas. For instance, Coke Zero was successful in Australia and Thailand or success of new product combination in FIFA World Cup, are the strengths emerged from product diversification strategy.
This strategy would be a powerful one to continue due to the previous pleasant experience for the firm in this area. Also, value chain is playing a vital role in choosing the product diversification strategy because the same supply chain can be used for new related products or at least some parts like channels can be used for this purpose. While there is a structure for developing a new product by using the existed supply chain or even channels, this strategy is the appropriate one. This is sometimes mentioned as covering the overlaps in value chain to develop a new product.
The second strategy is Joint venture by which two companies join to exploit each other’s strengths and opportunities. This strategy has become popular because of the competitive condition in markets. Firms can share their resources or part of their resources to make a competitive advantage and grow in the business. In this case Cadbury and Coca-Cola could be the proper merger. While they experienced joint-venture as Coca-Cola Schweppes in 1987, this will be an advantage for firm due to the previous experience. PepsiCo earns 60% of its revenue from snack business, so it can be an opportunity for Coke to enter and make profit.
The third strategy is entering into snack business; however, entering into this business would be a challenge because they must compete with PepsiCo which has competitive advantage in this industry. Also, producing a new unrelated product can be costly at first because it is required at least a new production plant. In regard to the financial position which is not favorable for this year this strategy is a risky one. Here we are going to compare the Grand total value of each strategy in order to find which one over weigh others.
The second strategy (joint venture with Cadbury) over weigh those two other strategies due to the sum total attractiveness of the table. Choosing this strategy will make a strong competitive advantage for company. The current Coke’s strategy is product diversification and market penetration which were successful globally. Joint-venture is a growth strategy, and will add to Coke’s competencies. With this Joint-venture Coke is able to enter into the “functional confectionary segment”, gum and candy sales that have health and aesthetic benefits are growing 6 percent annually, twice the growth rate of standard gum and candy.
This intensely competitive industry is dominated by Cadbury Schweppes Adams. This will benefit the concept of healthy eating and drinking. On the whole, there is no guarantee for the choices in this part because the analysis is intuitive and refers back to the analyst’s perspective; however, the result of this choice would be near to the ideal decision because all the information from the case have been considered accurately to reach the best decision-making.