Strategic Management

LESSON 8
Strategy Review, Evaluation, & Control
Chapter Outline

The Nature of Strategy Evaluation

A Strategy-Evaluation Framework

The Balanced Scorecard

Chapter Outline
Published Sources of Strategy
Evaluation Information

Characteristics of an Effective
Evaluation System

Contingency Planning
Chapter Outline (cont’d)

Auditing

21st Century Challenges in

Strategic Management
Strategy Evaluation

Organizations are most vulnerable when

they are at the peak of their success --
R.T. Lenz
Strategy Review, Evaluation,
& Control

-- Strategies become obsolete

-- Internal environments are dynamic
-- External environments are dynamic
Strategy Review, Evaluation,
& Control
Strategy Evaluation

◼ Vital to the organization’s well-being

◼ Alert management to potential/actual problems
in a timely fashion
◼ Erroneous strategic decisions can have severe
negative impact on organizations
Strategy Review, Evaluation,
& Control
3 Basic Activities

1. Examine the underlying bases of a firm’s

strategy
2. Compare expected to actual results
3. Identify corrective actions to ensure that
performance conforms to plans
Strategy Review, Evaluation,
& Control
Strategy Evaluation

◼ Complex & sensitive undertaking

◼ Overemphasis can be costly &

counterproductive
Strategy Review, Evaluation,
& Control
Appraisal of Strategic Performance

◼ Have assets increased

◼ Increase in profitability
◼ Increase in sales
◼ Increase in productivity
◼ Profit margins, ROI, & EPS ratios increased
Strategy Review, Evaluation,
& Control
Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage
Strategy Review, Evaluation,
& Control

Consistency

◼ Strategy should not present inconsistent

goals & policies
Strategy Review, Evaluation,
& Control
Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage
Strategy Review, Evaluation,
& Control

Consonance

◼ Need for strategies to examine sets of trends

Strategy Review, Evaluation,
& Control
Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage
Strategy Review, Evaluation,
& Control

Feasibility

◼ Neither overtax resources or create

unsolvable sub-problems
Strategy Review, Evaluation,
& Control
Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage
Strategy Review, Evaluation,
& Control

Advantage

◼ Creation or maintenance of competitive

advantage
Strategy Review, Evaluation,
& Control

Difficulties in Strategy Evaluation

1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy
3. Increasing number of variables
Strategy Review, Evaluation,
& Control

Difficulties in Strategy Evaluation

4. Rate of obsolescence of plans

5. Domestic and global events
6. Decreasing time span for planning certainty
Strategy Review, Evaluation,
& Control

Strategy Evaluation Should --

◼ Initiate managerial questioning

◼ Trigger review of objectives & values
◼ Stimulate creativity in generating
alternatives
Strategy Review, Evaluation,
& Control

Review of Underlying Bases of Strategy --

◼ Develop revised EFE Matrix

◼ Develop revised IFE Matrix

Strategy Review, Evaluation,
& Control

Review Effectiveness of Strategy --

1. Competitors’ reaction to strategy

2. Competitors’ change in strategy
3. Competitors’ changes in strengths &
weaknesses
4. Reasons for competitors’ strategic change
Strategy Review, Evaluation,
& Control

Review Effectiveness of Strategy --

5. Reasons for competitors’ successful

strategies
6. Competitors’ present market positions &
profitability
7. Potential for competitor retaliation
8. Potential for cooperation with competitors
Strategy Review, Evaluation,
& Control
Monitor Strengths & Weaknesses;
Opportunities & Threats

◼ Are strengths still strengths?

◼ Have we added additional strengths?
◼ Are weaknesses still weaknesses?
◼ Have we developed other weaknesses?
Strategy Review, Evaluation,
& Control
Monitor Strengths & Weaknesses;
Opportunities & Threats
◼ Are opportunities still opportunities?
◼ Other opportunities develop?
◼ Are threats still threats
◼ Other threats emerged?
◼ Are we vulnerable to hostile takeover?
 Evaluation Framework
I. Review Underlying Bases

Differences? Yes

NO
III.
Take
II. Measure Firm Performance Corrective
Actions
Differences? Yes

NO

Continue present course

Strategy Review, Evaluation,
& Control

Measuring Organizational Performance

◼ Compare expected to actual results

◼ Investigate deviations from plan
◼ Evaluate individual performance
◼ Progress toward stated objectives
Strategy Review, Evaluation,
& Control

Quantitative Criteria for Strategy Evaluation

◼ Financial Ratios
❑ Compare performance over different periods
❑ Compare performance to competitors
❑ Compare performance to industry averages
Strategy Review, Evaluation,
& Control

Key Financial Ratios

◼ Return on investment (ROI)

◼ Return on equity (ROE)
◼ Profit margin
◼ Market Share
Strategy Review, Evaluation,
& Control

Key Financial Ratios

◼ Debt to equity
◼ Earnings per share (EPS)
◼ Sales growth
◼ Asset growth
Strategy Review, Evaluation,
& Control

Qualitative Evaluation of Strategy

◼ Internal consistency of strategy

◼ Consistency with environment
◼ Appropriateness in view of resources
Strategy Review, Evaluation,
& Control

Qualitative Evaluation of Strategy

◼ Acceptable degree of risk

◼ Appropriate time frame
◼ Workability of the strategy
Taking Corrective Actions
◼ The final strategy-evaluation activity, taking corrective actions,
requires making changes to competitively reposition a firm for the
future.
◼ Taking corrective actions does not necessarily mean that existing
strategies will be abandoned or even that new strategies must be
formulated.
◼ Taking corrective actions does not necessarily mean that existing
strategies will be abandoned or even that new strategies must be
formulated.
◼ Strategy evaluation enhances an organization’s ability to adapt
successfully to changing circumstances.
◼ Taking corrective actions raises employees’ and managers’
anxieties. Research suggests that participation in strategy-
evaluation activities is one of the best ways to overcome individuals’
resistance to change.
Taking Corrective Actions
◼ Corrective actions should place an organization in a better position
to capitalize upon internal strengths; to take advantage of key
external opportunities; to avoid, reduce, or mitigate external threats;
and to improve internal weaknesses.
◼ Corrective actions should have a proper time horizon and an
appropriate amount of risk. They should be internally consistent and
socially responsible.
◼ Perhaps most important, corrective actions strengthen an
organization’s competitive position in its basic industry.
◼ Continuous strategy evaluation keeps strategists close to the pulse
of an organization and provides information needed for an effective
strategic-management system.
Strategy Review, Evaluation,
& Control
Balanced Scorecard

-- Evaluate strategies from 4 perspectives:

1. Financial performance
2. Customer knowledge
3. Internal business processes
4. Learning & growth
 Balanced Scorecard
Area of Objectives Measure or Target Time Expectation Primary Responsibility

Customers
1
2
Managers/Employees
1
2
Operations/Processes
1
2

Community/Social Responsibility
1
2

Business Ethics/Natural Environment

1
2
Financial
1
2
Strategy Review, Evaluation,
& Control

Characteristics of Strategy Evaluation

◼ Economical
◼ Meaningful
◼ Generates useful information
◼ Timely information
◼ Provides accurate picture of events
 Strategy-Evaluation Assessment Matrix

Have major Have major

changes changes Has the firm
occurred in the occurred in the progressed
firm’s internal firm’s external satisfactorily toward
strategic strategic achieving its stated
position? position? objectives? Result
No No No Corrective actions
Yes Yes Yes Corrective actions
Yes Yes No Corrective actions
Yes No Yes Corrective actions
Yes No No Corrective actions
No Yes Yes Corrective actions
No Yes No Corrective actions
No No Yes Continue course
Strategy Review, Evaluation,
& Control

Contingency Planning

Alternative plans that can be put into effect if

certain key events do not occur as expected
Strategy Review, Evaluation,
& Control

Auditing

◼ Financial audits determine correspondence

between assertions based on strategic plan
& established criteria

◼ Environmental audits insure sound and safe

practices
Strategy Review, Evaluation,
& Control
21st Century Challenges in
Strategic Management

◼ Process is more an “art” than “science”

◼ Should strategies be visible or hidden from
stakeholders
◼ Should process be more top-down or bottom
up
For Review (LESSON 8)

Key Terms & Concepts

Advantage Consonance

Auditing Contingency Plans

Balanced Score Card Corporate Agility

Consistency Feasibility
For Review (LESSON 8)

Key Terms & Concepts

Future Shock Revised EFE Matrix

Management by Wandering Revised IFE Matrix

Around

Measuring
Taking Corrective Action
Organizational Performance

Reviewing Underlying
Bases of Strategy