UNIT-5

Strategy Evaluation

Strategic evaluation constitutes the final stage of strategic management and is considered one of the most
vital steps in the process.

Strategy evaluation is the process by which the management assesses how well a chosen strategy has been
implemented and how successful or otherwise the strategy is. To simply put, strategy evaluation entails
reviewing and appraising the strategy implementation process and measuring organizational performance.

In the instance, the implementation of the strategy is not taking place as planned, say due to the
limitations in the strategy that are blocking the achievement of organizational goals, necessary corrective
actions should be identified and applied.

At the end of the evaluation, you’ll have gathered insight to either reformulate the strategy or to plan and
develop new ones.

Evaluating the strategy helps improve it, distinguish between what works and what doesn’t, and contribute
to the ongoing development and adaptation of the strategy to the changing conditions and complexities in
the industry.

Strategy evaluation operates at two levels; strategic and operational. At the strategic level, the focus is
given to the consistency of the strategy with the environment, and at the operational level, how well the
organization is pursuing the strategy is assessed.

Through the process of strategy evaluation, strategists can make sure that the,

 Premises made during strategy formulation are correct

 Strategy is guiding the organization towards accomplishing its objectives
 Managers are doing what they are supposed to be doing to effectively implement the strategy
 The organization is performing well, schedules are being followed, and resources are being properly
utilized
 Whether there’s a need to reformulate or change the strategy

Strategy Evaluation Process

The strategy evaluation is carried out in order to determine that the strategy is helping the organization
achieve its objectives. It compares the actual performance of the organization with desired results and
provides the necessary insight into the corrective action that needs to be taken to improve the
performance of the organization. Following are the steps in the process of evaluating strategy.

Establish standards

This step starts with determining what standards to set, how to set them, and the terms used to express
the standards. To do this,

 Identify the key areas of performance which are usually based on the key managerial tasks
pertaining to strategic requirements. Standards should be set within these identified key
performance areas.
 The special requirements needed to perform each of these key tasks can be used to determine the
type of standard to be set.
 Performance indicators that can satisfy these special requirements can then be identified for
evaluation.

Performance indicators have to be set on the basis of quantitative or qualitative criteria in order to make
measuring performance easier.

 Quantitative criteria – on the basis of this criteria, performance can be evaluated in two ways:
Either by comparing how the company has performed against its past achievements or against the
performance of the industry average or that of the competitors.
 Qualitative criteria – in order to assess factors such as core competencies, capabilities, risk-bearing
capacity, work ability, and flexibility, companies need a set of qualitative criteria such as the ones
suggested by Glueck and Jauch,

o Consistency (evaluating strategy against company objectives, environmental assumptions,

and internal conditions)
o Appropriateness (evaluating strategy with regard to resource capabilities, risk preference,
and time horizon)
o Work ability (evaluating the feasibility and simulation of the strategy)

Role of organizational system in Strategy Evaluation

The stage of strategy evaluation requires the contribution of several participants who will be playing
different roles throughout the process.

The board of directors: takes on the formal role of reviewing and screening the executive decisions in light
of their environmental, business, and organizational implications. Although they are not directly involved
in the evaluation and control of the strategy implementation process, they periodically take part in
reviewing the organization’s performance and results.

Chief executives: are responsible for all the administrative tasks of strategy evaluation and control.

The SBU or profit-center heads: monitor strategy implementation at the business unit level and give
feedback to the corporate parent who can intervene as necessary.

Financial controller, company secretaries, and external and internal auditors: responsible for operational
control based on financial analysis, budgeting, and reporting.
Middle-level managers: carry out tasks assigned to them by SBU heads or the strategic planning group,
and provide them with feedback and information. They will also be participating in the corrective actions,
in the case of mid-term revisions in the implementation process.

Importance of Strategic Evaluation

The phase of strategy evaluation helps ensure that the implementation of the particular strategy will help
the organization achieve its objectives. Without this step in the strategy management process, it would
prove difficult to identify whether the strategy implemented is generating the desired effect. In addition,
strategy evaluation also helps,

 Check the validity of the strategic choices the organization makes

 Assess whether the decisions made during the strategy implementation stage meet the intended
strategy requirements
 Provide insight and experience into the strategists that can be used in reformulating or planning
new strategies
 Shed light on issues caused by changes in the internal and external environment and take
precautions and avoid making wrong decisions

Symptoms of malfunctioning of strategy are as follows:

1) Company is not performing as well as against its close rivals, similar companies or industry as a whole.

2) Company is not performing in terms of stated objectives, return on investment (ROI), market share,
profitability trends, EPS, etc.,

3) Corporate culture is not aligned with strategy,

4) Implementation of the strategy is slow.

5) Organisational conflict and interdepartmental bickering are often symptoms of strategy malfunction,

6) Managerial problems continue despite changes in personnel and if they tend to be issue-based rather
than people-based, their strategies may be inconsistent,

7) If success for one organisational department means failure for another department then it is a symptom
of strategy malfunction,

8) If policy problems and issues continue to be brought to the top for resolution, then the strategy may be
malfunctioning,

9) Overtaxing of available resources is a symptom of strategy malfunction,

10) Degree of risk is high as compared to rewards,

11) The strategy is inconsistent with the changing environment,

12) If strategy implementation does not give due cognizance to the time horizon, then it is a symptom of
strategy malfunction.

Strategic Control and Operational Control

Strategic Control

Strategic control focuses on the dual questions of whether: (1) the strategy is being implemented as
planned; and (2) the results produced by the strategy are those intended.” Strategic control is “the critical
evaluation of plans, activities, and results, thereby providing information for the future action”. There are
four types of strategic control: premise control, implementation control, strategic surveillance, and special
alert control

Premise Control: Planning premises/assumptions are established early on in the strategic planning process
and act as a basis for formulating strategies. Premise control has been designed to check systematically
and continuously whether or not the premises set during the planning and implementation processes are
still valid. 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
they did.

Implementation Control: Strategic implantation control provides an additional source of feedforward

information. “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.” The two basic types of implementation control are:

1. Monitoring strategic thrusts (new or key strategic programs). Two approaches are useful in
enacting implementation controls focused on monitoring strategic thrusts: (1) one way is to agree
early in the planning process on which thrusts are critical factors in the success of the strategy or of
that thrust; (2) the second approach is to use stop/go assessments linked to a series of meaningful
thresholds (time, costs, research and development, success, etc.) associated with particular thrusts.
2. Milestone Reviews. Milestones are significant points in the development of a program, such as
points where large commitments of resources must be made. A milestone review usually involves a
full-scale reassessment of the strategy and the advisability of continuing or refocusing the direction
of the company. In order to control the current strategy, must be provided in strategic plans.

Strategic Surveillance: is designed to monitor a broad range of events inside and outside the company that
is likely to threaten the course of the firm’s strategy. The basic idea behind strategic surveillance is that
some form of general monitoring of multiple information sources should be encouraged, with the specific
intent being the opportunity to uncover important yet unanticipated information. Strategic surveillance
appears to be similar in some way to “environmental scanning.” The rationale, however, is different.
Environmental, scanning usually is seen as part of the chronological planning cycle devoted to generating
information for the new plan. By way of contrast, strategic surveillance is designed to safeguard the
established strategy on a continuous basis.

Special Alert Control: Special alert controls are the need to thoroughly, and often rapidly, reconsider the
firm’s basic strategy based on a sudden, unexpected event. (i.e., natural disasters, chemical spills, plane
crashes, product defects, hostile takeovers, etc.). Special alert controls should be conducted throughout
the entire strategic management process.

Operational 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.

Evaluation Techniques for Operational Control:

 Value chain analysis: Firms employ value chain analysis to identify and evaluate the competitive
potential of resources and capabilities. By studying their skills relative to those associated with
primary and support activities, firms are able to understand their cost structure and identify their
activities through which they can create value.
 Quantitative performance measurements: Most firms prepare formal reports of quantitative
performance measurements (such as sales growth, profit growth, economic value-added, rational
analysis, etc.) that managers review at regular intervals. These measurements are generally linked
to the standards set in the first step of the control process. For example, if sales growth is a target,
the firm should have a means of gathering and exporting sales data. If the firm has identified
appropriate measurements, regular review of these reports helps managers stay aware of whether
the firm is doing what it should do. In addition to there, certain qualitative bases based on
intuition, judgment, opinions, or surveys could be used to judge whether the firm’s performance is
on the right track or not.
 Benchmarking: It is a process of learning how other firms do exceptionally high-quality things. Some
approaches to benchmarking are simple and straightforward. For example, Xerox Corporation
routinely buys copiers made by other firms and takes them apart to see how they work. This helps
the firms to stay abreast of their competitors’ improvements and changes.
 Key Factor Rating: It is based on a close examination of key factors affecting performance
(financial, marketing, operations, and human resource capabilities) and assessing overall
organizational capability based on the collected information.

Measure Performance

The standards of performance set will serve as the benchmark against which the actual performance will
be evaluated. Based on these standards, managers should decide how to measure the performance and
how often to do so.

The methods used to measure performance may vary on the standard set; usually, data such as the
number of materials used, units produced, the monetary amount of services utilized, the number of
defects found, processes followed, quality of output, and return on investment, are used.

Once the methods of measuring performance are identified, how often it should be done for control
purposes needs to be then decided. Whether it should be on a daily, weekly, monthly, or annual basis is
decided on factors such as how important the objective is to the organization, how quickly the situation
might change, and how difficult or costly it would be to fix a problem once it has actually occurred.

Analyze Variances

Evaluating the actual performance against the standards of performance will reveal whether;

 The actual performance matches the budgeted performance

 The actual performance differs from the budgeted performance in a positive way
 The actual performance differs from the budgeted performance in a negative way
A predetermined set range of tolerance limits can be used to determine whether the results can be
accepted satisfactorily. If the actual performance deviates from the budgeted performance within the set
tolerance limit, the performance can be considered acceptable and the variance insignificant.

On the other hand, if the performance is below standards, effort must be directed to finding the root
causes of the deviation and coming up with corrective action to fix it.