Chapter 7

Strategic evaluation and controlling

Evaluation criteria
 Introduction
• Is the process of determining the effectiveness of a given
strategy in achieving the organizational objectives and
taking corrective actions whenever required.

Activities:
 Reviewing internal and external factors that are the bases
for current strategies

 Measuring performance (comparing expected results with

actual results

 Taking corrective actions; to ensure that performance

conforms to plans.
 Importance of "strategic Evaluation
• To evaluate the effectiveness of strategy in achieving
organizational objectives

• Helps to !eep a chec! on the validity of a strategic choice.

• An ongoing process of evaluation would in fact provide

feedbac! on the continuedrelevance of the strategic choice
made during the formulation phase.

• Provides a considerable amount of information and

experience to strategists that can be useful in new strategic
planning.
 Requirements for effective evaluation
• The effective control must be:
• Control should involve only the minimum amount of
information as too much information tends to clutter up the
control system and creates confusion.
• Control should monitor only managerial activities and results
even if the evaluation is difficult to perform.
• Controls should be timely so that corrective action can be
taken quickly.
• Long-term and short-term controls should be used so that a
balanced approachto evaluation can be adopted.
• Controls should aim at pinpointing exceptions as nitpic!ing
does not result ineffective evaluation.
• The 80/20 principle where 20 per cent of the activities result
in 80 per cent of achievement needs to be emphasized
 Strategic evaluation
• Once an organization has identified the various
strategic options available, it is then necessary
to evaluate them in order to identify the ’best’
strategy that will gain the best source of
competitive advantage.

• In reality many companies do not adopt formal

processes and instead rely on ’gut feel’.

• However, there are a number of approaches

that can be adopted to assess strategies.
 Criteria
• Johnson and Scholes (1999) suggest a list of criteria by which
companies can evaluate alternative strategies:
• Suitability - does it
1. Exploit strengths and weaknesses?
2. Rectify weaknesses?
3. Deflect threats?
4. Seize opportunities?

• Feasibility - can it be implemented?

1. Sufficient finances?
2. Deliver the goods?
3. Deal with competitors’ responses?
4. Access to technology etc.?
5. Time?

• Acceptability:
1. To stakeholders?
2. Legislation and environmental impact?
Rumelt’s Criteria for Evaluating Strategies
Why Strategy Evaluation is More Difficult Today
1. A dramatic increase in the environment’s complexity

2. The increasing difficulty of predicting the future with

accuracy

3. The increasing number of variables

4. The rapid rate of obsolescence of even the best plans

5. The increase in the number of both domestic and world

events affecting organizations

6. The decreasing time span for which planning can be

done with any degree of certainty
 1. Reviewing bases of strategy
• How have competitors reacted to our strategies?
• How have competitors’ strategies changed?

• Have major competitors’ strengths and weaknesses changed?

• Why are competitors making certain strategic changes?

• Why are some competitors’ strategies more successful than

others?

• How satisfied are our competitors with their present market

positions and profitability?

• How far can our major competitors be pushed before

retaliating?
• How could we more effectively cooperate with our
competitors?
 Key Questions to Address in Evaluating Strategies
1. Are our internal strengths still strengths?
2. Have we added other internal strengths? If so,
what are they?
3. Are our internal weaknesses still weaknesses?
4. Do we now have other internal weaknesses? If so,
what are they?
5. Are our external opportunities still opportunities?
6. Are there now other external opportunities? If so,
what are they?
7. Are our external threats still threats?
8. Are there now other external threats? If so, what
are they?
9. Are we vulnerable to a hostile takeover?
 2. Measuring Organizational Performance
Strategists use common quantitative criteria to
make three critical comparisons:

 Comparing the firm’s performance over different

time periods

 Comparing the firm’s performance to

competitors’

 Comparing the firm’s performance to industry

averages
3. Corrective Actions…to correct
unfavorable variances
 The Balanced Scorecard
• Aims to balance long-term with short-term concerns, to
balance financial with nonfinancial concerns, and to
balance internal with external concerns.

• How well is the firm continually improving and creating

value along measures such as innovation, technological
leadership, product quality, operational process
efficiencies, and so on?

• How well is the firm sustaining and even improving upon

its core competencies and competitive advantages?

• How satisfied are the firm’s customers?

 Characteristics of an Effective
Evaluation System
• Strategy evaluation activities must be economical
too much information can be just as bad as too little information
too many controls can do more harm than good

• Activities should be meaningful

should specifically relate to a firm’s objectives

• Activities should provide timely information

• Activities should be designed to provide a true picture of what is

happening

• Activities should not dominate decisions

should foster mutual understanding, trust, and common sense
 Contingency Planning… what actions
should our firm take?
• If a major competitor withdraws

• If our sales objectives are not reached,

• If demand for our new product exceeds plans,

• If certain disasters occur,

• If a new technological advancement makes our new

product obsolete sooner than expected
 TECHNIQUES OF STRATEGIC EVALUATION

A. GAP Analysis

B. SWOT Analysis

C. PESTEL Analysis

D. Benchmarking