Evaluation & control
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This document discusses strategy evaluation and review. It outlines the importance of evaluating strategy on an ongoing basis to ensure it remains relevant given changes in the internal and external environment. It describes evaluating strategy by reviewing its underlying bases, measuring organizational performance against plans, and taking corrective actions if needed. Key aspects of effective evaluation discussed include using both quantitative financial metrics and qualitative assessments, generating timely and useful information, and engaging in contingency planning to prepare for favorable and unfavorable events.
Evaluation & control
- 1. Chapter 9: Strategy Review, Evaluation and Control • The Nature of Strategy Evaluation • A Strategy-Evaluation Framework • Published Sources of Strategy-Evaluation Information • Characteristics of an Effective Evaluation System • Contingency Planning • Auditing • Using Computers to Evaluate Strategy • Guidelines for Effective Strategic Management
- 2. Systematic Review, Evaluation & Control –Strategies become obsolete – Internal environments are dynamic – External environments are dynamic Strategy Review, Evaluation & Control Organizations are most vulnerable when they are at the peak of their success. -- R.T. Lenz
- 3. • Strategy evaluation is vital to the organization’s well- being. • Alert management to potential or actual problems in a timely fashion. • Erroneous strategic decisions can have severe negative impact on organizations Strategy Evaluation 3 Basic Activities – 1. Examining the underlying bases of a firms’ strategy 2. Comparing expected to actual results 3. Corrective actions to ensure performance conforms to plans
- 4. In many organizations, evaluation is an appraisal of performance – • Have assets increased? • Increase in profitability? • Increase in sales? • Increase in productivity? • Profit margins, ROI and EPS ratios increased? Strategy Evaluation Strategy evaluation – – Complex and sensitive undertaking. – Overemphasis can be costly and counterproductive.
- 5. Consistency – Strategy should not present inconsistent goals and policies. • Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency Rummelt’s Four Criteria Of Evaluation Consonance – Need for strategies to examine sets of trends • Adaptive response to external environment • Trends are results of interactions among other trends
- 6. Feasibility – Neither overtax resources or create unsolvable subproblems • Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy Rummelt’s Criteria Advantage –Creation or maintenance of competitive advantage • Superiority in resources, skills, or position
- 7. Difficulty in strategy evaluation – 1. Increase in environment’s complexity 2. Difficulty predicting future with accuracy 3. Increasing number of variables Strategy Evaluation 4. Rate of obsolescence of plans 5. Domestic and global events 6. Decreasing time span for planning certainty Strategy evaluation should – – Initiative managerial questioning – Trigger review of objectives and values – Stimulate creativity in generating alternatives Process of Strategy Evaluation
- 8. Review of underlying bases of strategy – – Develop revised EFE Matrix – Develop revised IFE Matrix Reviewing Bases of Strategy
- 9. Review effectiveness of strategy – 1. Competitors’ reaction to strategy 2. Competitors’ change in strategy 3. Competitors’ changes in strengths and weaknesses 4. Reasons for competitors’ strategic change Reviewing Bases of Strategy 5. Reasons for competitors’ successful strategies 6. Competitors’ present market positions and profitability 7. Potential for competitor retaliation 8. Potential for cooperation with competitors
- 10. Monitor Threats and Opportunities and Weaknesses and Strengths • Are our internal strengths still strengths? • Have we added additional strengths? • Are our weaknesses still weaknesses? • Have we other internal weaknesses? • Are opportunities still opportunities? • Other external opportunities? • Are threats still threats? • Are there other threats? • Are we vulnerable to a hostile takeover? Reviewing Bases of Strategy
- 11. Evaluation Framework I. Review Underlying Bases Continue present course II. Measure Firm Performance III. Take Corrective Actions Differences? Differences? Yes NO Yes NO
- 12. • Comparing expected to actual results • Investigating deviations from plan • Evaluating individual performance • Progress toward stated objectives Measuring Organizational Performance
- 13. Quantitative criteria for strategy evaluation – – Financial Ratios: • Compare performance over different periods • Compare performance to competitors • Compare performance to industry averages Measuring Organizational Performance
- 14. Key Financial Ratios – – Return on investment – Return on equity – Profit margin – Market share Measuring Organizational Performance
- 15. Key Financial Ratios – – Debt to equity – Earnings per share – Sales growth – Asset growth Measuring Organizational Performance
- 16. Qualitative evaluation of strategy - – Internal consistency of strategy – Consistency of strategy with environment – Strategy appropriate in view of resources – Acceptable degree of risk – Appropriate time frame – Workability of the strategy Measuring Organizational Performance
- 17. Basic requirements for effective strategy evaluation – – Economical – Meaningful – Generate useful information – Timely information – Provide a true picture of what is happening Characteristics of Evaluation
- 18. Premise of sound strategic management – – Planning to deal with unfavorable and favorable events before they occur. Contingency Planning
- 19. Contingency Planning – – Alternative plans that can be put into effect if certain key events do not occur as expected Contingency Planning
- 20. • Financial audits to determine correspondence between assertions based on strategic plans and established criteria • Environmental audits to insure sound and safe practices Auditing
- 21. Key Terms • Advantage • Auditing • Consistency • Consonance • Contingency Plans • Corporate Agility • Feasibility
- 22. Key Terms • Future Shock • Management by Wandering Around • Measuring Organizational Performance • Planning Process Audit (PPA) • Reviewing the Underlying Bases of an Organization’s Strategy
- 23. Key Terms • Revised EFE Matrix • Revised IFE Matrix • Taking Corrective Actions