Chapter 8 strategic evaluation and control

Chapter-8
Strategic Evaluation and control
“ It is the process by which managers monitor the
ongoing activities of an organization and its members
to evaluate whether activities are being performed
efficiently and effectively and to take corrective action
to improve performance if they are not” -Sam Walton
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Strategy Evaluation and control
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Concept of strategic control
• Strategic control is a term used to describe the process
used by organizations to control the formation and
execution of strategic plans
• All strategies are subject to future modification
because internal and external factors are constantly
changing. In the strategy evaluation and control
process managers determine whether the chosen
strategy is achieving the organization's objectives.
• The fundamental strategy evaluation and control
activities are: reviewing internal and external factors
that are the bases for current strategies, measuring
performance, and taking corrective actions.
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Strategic control contd..
• it is a specialised form of management control, and differs from other forms of
management control in respects of its need to handle uncertainty and ambiguity at
various points in the control process
• Strategic control is also focused on the achievement of future goals, rather than
the evaluation of past performance
• The purpose of control at the strategic level is not to answer the question:' 'Have
we made the right strategic choices at some time in the past?" but rather "How
well are we doing now and how well will we be doing in the immediate future for
which reliable information is available?"
• The point is not to bring to light past errors but to identify needed corrections to
steer the corporation in the desired direction. And this determination must be
made with respect to currently desirable long-range goals and not against the
goals or plans that were established at some time in the past.
• Strategic controls take into account the changing assumptions that determine a
strategy, continually evaluate the strategy as it is being implemented, and take the
necessary steps to adjust the strategy to the new requirements. In this manner,
strategic controls are early warning systems and differ from post-action controls
which evaluate only after the implementation has been completed.
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Strategic control process
1. Determine what to control. What are the objectives the
organization hopes to accomplish?
2. Set control standards. What are the targets and tolerances?
3. Measure performance. What are the actual standards?
4. Compare the performance the performance to the standards.
How well does the actual match the plan?
5. Determine the reasons for the deviations. Are the deviations due
to internal shortcomings or due to external changes beyond the
control of the organization?
6. Take corrective action. Are corrections needed in internal activities
to correct organizational shortcomings, or are changes needed in
objectives due to external events?
7. Feedback from evaluating the effectiveness of the strategy may
influence many of other phases on the strategic management
process.
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Types of strategic control
• Premise Control
• Strategic Surveilliance
• Implementation control
• Special alert
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1. Premise(prediction/Assumption)
control
• Premise control is designed to check methodically and constantly whether the
premises on which a strategy is grounded on are still valid.
• If you discover that an important premise is no longer valid, the strategy may have
to be changed.
• The sooner you recognize and reject an invalid premise, the better. This is because
the strategy can be adjusted to reflect the reality.
• This enables the strategists to take corrective action at the right time rather than
continuing with a strategy which is based on erroneous assumptions. The
responsibility for premise control can be assigned
• It involves the checking of environmental conditions. Premises are primarily
concerned with two types of factors:
 Environmental factors (for example, inflation, technology, interest rates,
regulation, and demographic/social changes).
 Industry factors (for example, competitors, suppliers, substitutes, and barriers to
entry).
• All premises may not require the same amount of control. Therefore, managers
must select those premises and variables that (a)are likely to change and (b) would
a major impact on the company and its strategy if the did.
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2.Strategic surveillance
• As a business owner, you need to protect your business from external threats that may hinder the
success of your strategy. Strategic surveillance controls allow you to monitor multiple sources for
these threats.
• Strategic surveillance is concerned with observing a wide range of events within and outside your
organization that are likely to affect the track of your organization’s strategy.
• It’s based on the idea that you can uncover/identify important unanticipated information by
monitoring multiple information sources.
• Such sources include trade magazines, journals such as The Wall Street Journal, trade conferences,
conversations and observations.
• Compared to premise control and implementation control, strategic surveillance is designed to be a
relatively unfocused, open, and broad search activity.
• Thus the basic idea behind strategic surveillance is that some multiple information sources should
be encouragedfor searching the opportunity and to uncover important yet unanticipated
information.
• Strategic surveillance appears to be similar in some way to “environmental scanning.” however it is
different :strategic surveillance is designed to safeguard the established strategy on a continuous
basis. However environmental scanning is part of the chronological planning cycle devoted to
generating information for the new plan.
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3. Implementation control
• Implementation control is designed to assess whether the overall strategy should
be changed in light of unfolding events and results associated with incremental
steps and actions that implement the overall strategy
• Implementation control is aimed at assessing whether the plans, progammes and
policies are actually guiding the organization towards its predetermined objectives
or not. If the resources that are committed to a project at any point of time would
not benefit an organization as envisaged, corrective steps should be undertaken
immediately.
• There are two types of implementation controls: strategic thrusts or projects, and
milestone reviews. Strategic thrusts provide you with information that helps you
determine whether the overall strategy is shaping up as planned. With milestone
reviews, you monitor the progress of the strategy at various intervals or
milestones.
• Implementation control may be put into practice through the identification and
monitoring of strategic thrusts such as an assessment of the marketing success of a
new product after pre-testing, or checking the feasibility of a diversification
programme after making initial attempts at seeking technological collaboration.
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4. Special alert
• A special alert control is the rigorous and rapid reassessment of an
organization’s strategy because of the occurrence of an immediate,
unforeseen event,such as natural disasters, product recalls or market
spikes
• Thus, Special alert control is based on trigger mechanism for rapid
response and immediate reassessment of strategy in the light of sudden
and unexpected events called crises. Crises are critical situations that
occur unexpectedly and threaten the course of a strategy. Organisations
that hope for the best and prepare for the worst are in a vantage position
to handle any crisis.
• An example of such event is the acquisition of your competitor by an
outsider. Such an event will trigger an immediate and intense
reassessment of the firm's strategy.
• Organization Form crisis teams to handle your company's initial response
to the unforeseen events. they also prepare how they will handle these
special alerts with procedures to be followed, priorities to keep and tools
to be used.
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Operational control vs Strategic
control
• Operational control systems are designed to ensure that day-to-day actions are
consistent with established plans and objectives. It focuses on events in a recent
period.
• Operational control systems are derived from the requirements of the
management control system.
• Corrective action is taken where performance does not meet standards. This
action may involve training, motivation, leadership, discipline, or termination.
• Strategic control: monitors the implementation of the organisation’s strategic
plans
Operational control: monitors the use of existing resources and progress towards
existing plans. Will not alter strategic direction
• Strategic Management is very ambiguous, most complex, organization-wide, most
critical to survival and has long-term implications. Operational Management on
the contrary, is less ambiguous, les complex, specific to functions, less critical to
survival and has short-term implications.
• For example, operational control should be used when looking at sales numbers,
whereas strategic control should be used when looking at the sales process.
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Key differences(1)
• Strategic control requires data from more sources. The typical
operational control problem uses data from very few sources.
• Strategic control requires more data from external sources. as opposed
to internal operating factors of operational control
• Strategic control are oriented to the future.whereas operational control
are oriented to immediate decisions that have immediate impacts.
• Strategic control is more concerned with measuring the accuracy of the
decision premise. Operating decisions tend to be concerned with the
quantitative value of certain outcomes.
• Strategic control standards are based on external factors. Measurement
standards for operating problems are internal and can be established fairly
by past performance on similar products or by similar operations currently
being performed.
• Strategic control relies on variable reporting interval. The typical
operating measurement is concerned with operations over some period of
time: pieces per week, profit per quarter, and the like.
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Key differences(2)
• Strategic control models are less precise. This is in contrast to operational control
models, which are generally very precise in the narrow domain they apply.
• Strategic control models are less formal.
• The principal variables in a strategic control model are structural.
• The key need in analysis for strategic control is model flexibility. This is in contrast
to operating control, for which efficient quantitative computation is usually most
desirable
• The key activity in management control analysis is alternative generation. This is
different from the operational control problem, in which in many cases all control
alternatives have been specified in advance. The key analysis step in operations is
to discover exactly what happened.
• The key skill required for management control analysis is creativity. In operational
control, by contrast, the formal review of outcomes to discover causes means that
they skill required is the ability to do technical, even statistical, analysis of the data
received.
• The relationship between action and outcome is weaker in strategic control.
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Key differences(3)
• The key action variables in strategic control are organizational. In the operational
control problem, technical factors such as labor levels, production levels, choice of
materials, and the like are the predominant control levels.
• Alternative actions in strategic control are less easy to choose in advance. In
strategic control problem, it is possible to choose all possible action responses to
received data in advance. In an operational control problem, the few responses
possible can usually all be worked out before any operating data received.
• The time for strategic control is longer.
• Strategic control has little repetition.
• Strategic control requires a greater variety of data types. Operating control
problems typically have a smaller variety of data.
• The total volume of data required for strategic control is smaller. On the other
hand, perhaps thousands of pieces of data of each type are required for some of
operating problems (e.g., the payroll processing of even a small organization).
• Strategic control data are less accurate. Operating data generally need to be as
accurate as possible.
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Total Quality control
(Dr. Kaoru Ishikawa,Japan)
• Application of quality management principles to all areas of business from design
to delivery instead of confining them only to production activities.
• To meet this goal, everyone in the company must participate in and promote
quality control, including top executives, all divisions, within the company and all
employees.(quality circle is a essence)
To engage in quality control means to:
1. Make total quality control the foundation of your business process.
2. Focus full scale efforts on the control of cost, price and profit.
3. Control quantity - amount of production and stock
• Total Quality Control is a continual process.Quality standards must be continually
reviewed, revised and improved.
• What this approach suggests is that the manufacturer must always be keenly
attentive to consumer requirements, and the opinions of consumers must be
anticipated as the manufacturer establishes his own standards. Unless this is done,
QC cannot achieve its goals, nor can it assure quality to consumers.
• Removal of the root cause not the symptoms this concept has come of with seven
simplified tools of Quality control instead of P-D-C-A of TQM concept
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Ishikawa’s Philosophy
• managers should not only implement the quality into their company, but to keep the mentality of
continuous improvement. Besides just continuous improvement of quality,Ishikawa also promoted
something slightly different from the other gurus.
• He valued the idea of a company - wide quality control that was based on a continuous customer
service mentality. “ He argues that quality control extends beyond the product and encompasses
after – sales service, quality of management, quality of individuals and the company itself”
• Ishikawa has a value led philosophy with an emphasis on people and focuses on company-
wide quality control and quality circles.
• He is best known for his Fishbone Diagram(Cause and Effect diagram) theory; his quality tool
diagram which identifies the possible causes and effects of a problem. It was developed to
graphically represent the relationship between a problem and its potential causes. Fishbone
diagrams can help a group examine thoroughly all possible causes of a quality problem and discern
the relationships among them.
• Ishikawa constructed the idea that customers are the only reason why business exists
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The Total Quality Control Process(P-D-C-A)
before ishikawa’s contribution in TQM concept
• 1. Plan
Determine goals and targets
Determine Standardized work procedures
• 2. Do
Education and Training - work standards and technical standards
must be taught. Workers must be mentored and encouraged to do
their best.
• 3. Check
Inspection It is the supervisor`s duty to check and confirm the
standards have been put into practice exactly. When problems
occur, check every possible angle, focus on each process.
• 4. Action
Take appropriate action.
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Quality control process (Ishikawas
contribution)
• Determine goals and targets
• Determine methods of reaching goals
• Engage in education and training
• Implement work
• check the efforts of implementation,
• Take appropriate action to accomplish goals and
targets.
Often times this six step process was used by
quality circles.
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Kaoru Ishikawa’s Basic Seven QC Tools
1. Cause-and-effect diagram (also called Ishikawa or fishbone chart):
Identifies many possible causes for an effect or problem and sorts ideas
into useful categories.
2. Check sheet: A structured, prepared form for collecting and analyzing
data; a generic tool that can be adapted for a wide variety of purposes.
3. Control charts: Graphs used to study how a process changes over time.
4. Histogram: The most commonly used graph for showing frequency
distributions, or how often each different value in a set of data occurs.
5. Pareto chart: Shows on a bar graph which factors are more significant.
6. Scatter diagram: Graphs pairs of numerical data, one variable on each
axis, to look for a relationship.
7. Stratification: A technique that separates data gathered from a variety of
sources so that patterns can be seen (some lists replace “stratification”
with “flowchart” or “run chart”)
According to ishikawa 95% of the quality problems can be solved with these
tools
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TQC vs. TQM - what`s the difference?
TQC
• Emphasis is placed on the process and continuous process improvement.
• Total participation is required. Employees are encouraged to generate ideas and
implement them.
• It is flexible - processes and methods can be easily changed.
• The target is not absolute - good for a changing market.
• Downside: Sometimes the end result is very different from the original target -
employees tend to lose sight of the goal because they are too focused on the
process.
TQM
• Emphasis is placed on the target and achieving the target as soon as possible.
• The system is simple and straight-forward.
• Information delivery is accurate.
• The process is considered after the goal has been established.
• Downside:Employees stop actively thinking of and implementing process
improvement - they don`t want to risk making a mistake or creating delays.
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Issues of performance management
• Performance depends not only on organization decision and action
but it depends on context and situation
• Plurality in interest of the stakeholders invites conflicting
performance expectations like investors interest and managers
interest
• Performance management discourages teamwork because
individual is rewarded ignoring group
• Evaluators are inconsistent and use different criterion and standards
• Only valuable for very good or very poor performer
• Encourages manager to achieve short term goals
• Managers has complete power over the employees while personal
Personal evaluation
• performance refers quality, and quality is subjective
• Performance measurement produces emotional anguis.
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Problems of measuring strategic
performance
• Measuring scale: there are various scale of performance measurement
selection of particular scale affects
• Performance filtering: Only valuable for very good or very poor performer
• Plural interest: Plurality in interest of the stakeholders invites conflicting
performance expectations like investors interest and managers interest
• Optimism bias: The tendency of individuals to underestimate the
likelihood they will experience adverse events(It won’t happen to me!”
assumption.)
• Psychological contract: Refers to the relationship between an employer
and its employees, and specifically concerns mutual expectations of inputs
and outcomes.
• Rater’s perceptual selectivity: The choice of the stimuli would depend on
what they feel is relevant for them and or appropriate for them
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Guidelines for proper control
• Link to objectives and strategies
• Do not exercise control
• Focus on meaningful aactivities and results
• Avoid rewards for inefficiency
• Encourage employees participation
• Develop verification procedure
• Attempt to pinpoint exception
• Accelerate,Deaccelerate and make adequate
• Control should involve only the minimum amount of information necessary (80-20
rule: Monitor those 20% of the factors that determine 80% of the results. It is because too many
information create confusion.)
 Monitor only meaningful activities and results
 Control should be timely (Correct before it is too late)
 Balance Long and short-term orientation
 Pinpointing exceptions (Take action only if goes beyond tolerance limits)
 Use reward to meeting/exceeding standards (avoid punishment)
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Strategic audit
• A strategy audit is a review of a company's business plan and strategies to
identify weaknesses and shortcomings and enable a successful
development of the company.
• A strategic audit helps small-business owners assess whether internal
processes move the needle toward their strategic goals. Based on audit
results, management adjusts operations to maximize progress toward the
goals.
• The strategy audit clarifies three crucial areas:
• 1. It secures that the present business plan is complete and includes all
relevant information for the development of the company.
• 2. It reveals if the management team shares a commitment and believes
in the Company vision, and has the same priorities for the strategies and
activities as stated in the business plan.
• 3. It secures the business logic of the business plan, e.g. if the vision is
financially sound, if prioritised actions will develop the company toward
the vision, if enough activities are planned to reach the goals in time.
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Strategic Audit Steps
1. Review mission, vision, values and strategic objectives
2. Conduct detailed internal as well as external environment analysis
3. Review corporate governance system (a system by which company is
regulated & controlled: BOD structure & qualifications, organization structure,
authority & responsibility relationships, legal compliances, budget, strategic &
operational control systems including internal & external audit, information
availability to managers for informed decisions & actions etc.)
4. Evaluate existing strategies at different levels and modify them as
required
5. Justify your recommendation in terms of its ability to resolve both
long- and short-term problems and capitalize opportunities
6. Suggest appropriate programs, policies, procedures
7. Suggest appropriate evaluation and control mechanisms
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Strategic audit activities
• Measures the performance of strategies
• Provides outside views to top management
• Strengthen link between the organizational
actors
• Mirror the decision and actions of strategic
leaders and adopters
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Scope of strategic Audit
• It specifies means to achieve end(end-means)
• It contents role to be performed by
each(content-roles)
• It contains the strategies for each stakeholder
interest(stakeholders-strategies)
• It aims to comply the governance
issue(Governance- Compliance)
• Its outcome is aimed at
sustainability(Outcome-sustainability)
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Chapter 8 strategic evaluation and control

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