A strategy evaluation model for management
Simon Hastings Department of Business Systems, Monash University, Victoria,
Proposes a new model called
the strategy evaluation
model. The need for this
model is based on the on-
going criticism aimed at
capital budgeting models
which employ purely quantita-
tive methods such as dis-
counted cash flow techniques
and financial ratio analysis.
It has been suggested that
these models ignore key
issues in the strategy-making
process. These key issues are
difficult to evaluate as they
are typically qualitative and
intangible aspects of strategy.
The strategy evaluation model
provides a method for ranking
strategy on quantitative,
qualitative and intangible
criteria based on their priori-
tized relationship with the
mission of the firm. Aims to
provide an evaluation model
which can harness the exper-
tise of a firm’s strategic
thinkers and combine it with
quantitative information.
Management Decision
34/1 [1996] 25–34
© MCB University Press
[ISSN 0025-1747]
Australia
Introduction
Strategic management should involve the
creation, timely evaluation and implementa-
tion of strategy that will further achievement
of the firm’s mission. Too often strategy is
made which is suboptimal, ineffectual and
actually harmful to the achievement of the
mission of the firm. The purpose of this article
is to propose a model which allows strategy to
be evaluated on quantitative, qualitative and
intangible criteria. The model is called the
strategy evaluation model. This model is a
hybrid of various techniques: tabular program-
ming[1], the analytical hierarchy process[2],
and conventional quantitative performance
measures.
Once a strategy has been created the suc-
cess or demise of it is dependent on the qual-
ity of the strategy[1,3]. How then can strate-
gic thinkers ensure the quality of the strat-
egy? It would seem worthwhile to have some
way of evaluating it before it is implemented,
as “erroneous strategic decisions can inflict
severe penalties and can be exceedingly diffi-
cult, if not impossible, to reverse”[4]. It is
essential that strategy be evaluated as early
in the strategy process as possible. Then
strategy can be rejected if it is seen to be
inherently bad or less beneficial than an
alternative strategy[5].
Evaluating the effect of strategy on a firm is
a task that has concerned many practitioners
and academics[3,6]. The strategy evaluation
model is proposed as a method for the timely
evaluation of strategy.
Many firms evaluate strategy through
purely quantitative methods, such as finan-
cial ratio analysis, time series analysis and
operations research models. These methods
have been criticized widely on the basis that
they evaluate in terms of financial return
(comparative or actual) and not in terms of
achievement of the mission of the firm[5,7,8].
In other words, they measure quantity of
earnings but not the quality of earnings.
They typically reward short-term value cre-
ation and give little thought to the long-term
effect on the firm.
Another set of purely quantitative mea-
sures are those that fall under the banner of
time series analysis. The most well known of
these methods are discounted cash flow tech-
niques. The main criticism of such
techniques is an inability to embody qualita-
tive aspects of strategy evaluation.
Many academics and practitioners have
criticized the use of discounted cash flow
techniques for planning and analysing a
firm’s capital investments. These criticisms
fall into the following areas identified by Hart
and Banbury[9]: an inability to capture the
role of organizational structure and behav-
iour in corporate decision making; a failure
to incorporate management behaviour
towards risk; difficulties in application due
especially to unrealistic assumptions about
data availability; and inability to incorporate
strategic considerations in decisions made by
the firm.
Some academics and practitioners have
come up with time series models based on
discounted cash flow techniques. A very pop-
ular example is Rappaport’s shareholder
value analysis model[10]. However, a recent
study by Hastings and Flitman[11] concludes
that Rappaport’s model performs poorly as a
model for strategy evaluation.
The rest of the article deals with the strat-
egy evaluation model. This involves a discus-
sion of the requirements of a model to evalu-
ate strategy, the model itself and an illustra-
tion of a strategy decision using the model.
Requirements of a strategy
evaluation model
Quantitative models for strategy evaluation
have been discussed above. Apart from the
criticisms already aimed at these types of
models, there are also surveys which show
that there is a high level of dissatisfaction
with these models among decision makers.
This lack of satisfaction relates to two key
issues: first, that there is a lack of a formal
linkage between capital project evaluation
and organizational strategy[12]. Second, that
strategy evaluation does not employ the
expertise of management which knows the
firm and the industry[3,13]. Many authors
believe a model for strategy evaluation is
required that: evaluates the project on quanti-
tative and qualitative criteria; evaluates the
ultimate investment decision in terms of the
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Simon Hastings
A strategy evaluation model
for management
Management Decision
34/1 [1996] 25–34
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firm’s mission; and matches available
resources with capital projects.
A model for strategy evaluation
A model for strategy evaluation must meet
the requirements specified in the previous
section. This section of the article will show
how these requirements are met by the strat-
egy evaluation model proposed here. This
section will be followed by an illustration of
the evaluation of strategy using the strategy
evaluation model.
Evaluates the project on qualitative and
quantitative criteria
Qualitative criteria relating to the mission of
the firm is handled using Liberatore et al.’s[1]
generic framework for capital budgeting using
the mission, objective and strategies planning
approach. This approach is a hybrid of two
methods. The first method is a planning
approach referred to by Liberatore et al.[1] as
mission, objectives and strategies. This
method considers capital projects as the
instrument by which to achieve business strat-
egy[1]. The second method is the analytical
hierarchy process as developed by Saaty[2],
which provides a structured method for resolv-
ing complex management modelling problems.
The first step in using the mission, objective
and strategies planning approach requires that
a mission statement be formulated. The mis-
sion of a firm could be something like the maxi-
mization of shareholder value through the
provision of quality goods and services to
customers. Objectives are then set based on
internal and external environments and then
strategies are developed to achieve those objec-
tives. Finally, capital projects are undertaken
to achieve the strategies, objectives and mis-
sion of the firm, which are set by management.
The analytic hierarchy process has been
developed to resolve complex management
modelling problems:
…the analytical hierarchy process is a
method of breaking down a complex,
unstructured situation into its component
parts; arranging these parts, or variables,
into a hierarchic order, assigning numerical
values to subjective judgements on the rela-
tive importance of each variable; and syn-
thesising the judgements to determine
which variables have the highest priority
and should be acted on to influence the
outcome of the situation[2].
The main strength of the analytical hierarchy
process is that it has the capacity to measure
the consistency of the decision maker while
making pairwise comparisons of the relative
importance of decision factors[14]. The actual
process required is shown in the illustration
below.
All quantitative criteria relating to the
evaluation of the strategy will be handled
through tabular programming as discussed
below in the section called matching avail-
able resources with projects.
Evaluates the ultimate investment
decision in terms of the firm’s mission
The adoption of Liberatore et al.’s[1] generic
analytical hierarchy process framework for
capital budgeting using a mission, objectives
and strategies approach ensures that the
investment decision is made in the context of
the firm’s mission.
Matches available resources with capital
projects
Once the qualitative criteria have been
assessed, it is a case of allocating resources in
such a way as to yield the highest feasible
contribution to the mission of the firm. Tabu-
lar programming is employed to perform this
step. Tabular programming involves essen-
tially the construction of a table showing
possible resource allocations and values
associated with those allocations. The advan-
tages of the tabular programming technique
are that all possible combinations of quantita-
tive criteria and qualitative/intangible rank-
ings can be evaluated, resource constraints
can be specified (non-linearities and mutual
exclusivities) and dummy resources can be
specified.
The strategy evaluation model – a
definition
The strategy evaluation model combines the
benefits of numerical analysis within the
descriptive scope of qualitative measures.
The model is able to categorize projects
within strategy subgroups so as to force the
decision maker to ensure that the project is
furthering a firm’s strategy, objectives and
mission. The model is designed to formalize
the procedure of ranking projects within
resource constraints and evaluating these
projects in terms of the degree by which they
further the firm’s mission.
An illustration of the strategy
evaluation model
The aim of this section is to illustrate how the
strategy evaluation model can be employed to
formalize the process of strategy evaluation.
The steps used to apply this model are as
follows:
1 Identify the mission, objectives, strategy
and evaluation criteria used by the firm.
2 Use the analytical hierarchy process to
prioritize the evaluation criteria of the
firm in terms of the mission of the firm.
Simon Hastings
A strategy evaluation model
for management
Management Decision
34/1 [1996] 25–34
3 Identify a capital project for evaluation.
4 Construct an activities table which con-
sists of all possible combinations of control
variables, resource requirements, con-
straints and rankings for the relevant
evaluation criteria.
5 Run the tabular program and view feasible
solutions, ranked in terms of total normal-
ized contribution to the achievement of the
mission of the firm.
The information pertaining to the firm used
in the illustration is based on the Australian
arm of a major oil producer. This will be
referred to as the firm for the remainder of
the illustration.
The mission of the firm is to: “engage safely,
efficiently, profitably and responsibly in the
oil, gas, chemicals and coal businesses. [The
firm] … seeks a high standard of performance
and aims to maintain a long-term position in
these business sectors”[15]. The objectives of
the firm fall into the following areas:
• consolidate and improve market position
(position);
• maximize the long-term value of share-
holder investment (return);
• maintain customer support by developing
quality products and services
(quality);
• give proper regard to safety and environ-
mental standards and to societal aspira-
tions (safety), (envol.); and
• further the technology position of the
company (tech.).
The strategy to further these objectives falls
into the following areas:
• develop further liquefied natural gas (LNG)
exports;
• develop and explore the North-West Shelf
area (NW shelf);
Figure 1
Analytical hierarchy process framework for the firm
Mission/goal
Long-term high return safely and efficiently
Objectives
Position Return Quality
Strategies
LNG NW shelf Coal
Criteria
NPV PB
• improve safety, efficiency and productivity
in existing and new coal mines (coal);
• improve flexibility, job satisfaction and
productivity in the area of crude oil distill-
ing (crude);
• maintain market leadership (market); and
• maintain and improve overall efficiency of
operations (efficiency)[14].
Evaluation criteria for these strategies could
be:
• net present value of the capital project
(NPV);
• payback time for the capital project (PB);
• customer satisfaction (satis.);
• flexibility in operations (flex.); and
• the ability to handle maximum volumes
of business/processing (throughput)[1].
To prioritize the evaluation criteria in terms
of the mission of the firm the analytical hier-
archy process is employed. The first step in
using the analytical hierarchy process is to
construct a hierarchy which is layered in such
a way as to allow the elements of each level to
be compared among themselves in relation to
the elements of the next higher level[2]. The
form of the hierarchy adopted in this article is
the same as that used by Libertore et al.[1]. A
hierarchy which uses the levels mission,
objectives, strategies and evaluation criteria
is constructed (Figure 1). This hierarchy will
now be examined using the following steps.
Step 1
Pairwise, compare objectives as to their rela-
tive importance in furthering the mission of
the firm (Table I). The intensity of relative
importance is ranked from 1 through to 9.
Items of equal importance would receive a
score of 1 while items which are considered to
be much more important would be given a
higher score (up to a maximum of 9)[2]. For
Safety Environment Technology
Crude Market Efficiency
Satisfaction Flexibility Throughput
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Simon Hastings
A strategy evaluation model
for management
Management Decision
34/1 [1996] 25–34
example, in Table I it is considered that the
return objective is five times more important
than the position objective in furthering the
mission of the firm. Note that this means that
the position objective is 1/2 (0.2) times as
important as the return objective as it is the
inverse of the latter relationship.
Step 2
A normalized matrix (Table II) is then
derived by dividing each item in Table I by
the total of each corresponding column in
Table I. For example, the figure in Table II
positioned in the top left-hand corner (0.065)
is derived by dividing the figure in the top
left-hand corner of Table I by the total for that
column in Table I: 1.000/15.500 = 0.065. By
summing each row in Table II, preferences
for each objective can be calculated. This
preference can be thought of as the relative
importance (relative to the other objectives)
of a particular objective in furthering the
mission of the firm.
Step 3
The set of strategies must then be pairwise
compared to each objective in turn using the
method employed above. Table III shows the
results of this process in terms of the prefer-
ences (the figures on which this table is based is
not included in the illustration). For example,
the coal strategy is very important (23.5) per
cent) in contributing to the return objective,
but not very important (2.30 per cent) in con-
tributing to the quality objective.
Step 4
Table IV shows the vector of priorities of the
criteria based on the preferences of the objec-
tives as shown in Table II. For example,
market leadership at 27.9 per cent has the
highest priority in terms of its relative impor-
tance of furthering the mission of the firm.

Table I
Simple matrix pairwise comparing objectives based on the degree by which they further the firm’s
mission
Position Return Quality Safety Environment Technology
Position 1.000 0.200 0.250 2.000 0.333 0.500
Return 5.000 1.000 0.333 3.000 0.333 2.000
Quality 4.000 3.000 1.000 3.000 4.000 6.000
Safety 0.500 0.333 0.333 1.000 1.000 2.000
Environment 3.000 3.000 0.250 1.000 1.000 2.000
Technology 2.000 0.500 0.167 0.500 0.500 1.000
Totals 15.500 8.033 2.333 10.500 7.167 13.500
Source: [6]

Table II
Normalized matrix showing preferences for objectives
Position Return Quality Safety Environment Technology Sum Preferences (%)
Position 0.065 0.025 0.107 0.190 0.047 0.037 0.471 7.84
Return 0.323 0.124 0.143 0.286 0.047 0.148 1.070 17.84
Quality 0.258 0.373 0.429 0.286 0.558 0.444 2.348 39.14
Safety 0.032 0.041 0.143 0.095 0.140 0.148 0.600 9.99
Environment 0.194 0.373 0.107 0.095 0.140 0.148 1.057 17.62
Technology 0.129 0.062 0.071 0.048 0.070 0.074 0.454 7.57
Total 100.00

Table III
Normalized results of pairwise comparison of strategies to each objective (percentages)
LNG NW shelf Coal Crude Market Efficiency Check
Position 21.90 26.75 9.32 5.63 25.10 11.30 100.00
Return 8.10 28.90 23.50 18.00 20.30 1.20 100.00
Quality 12.00 9.60 2.30 4.60 36.40 35.10 100.00
Safety 2.50 1.56 1.30 5.60 4.01 85.03 100.00
Environment 51.90 3.30 3.10 6.70 25.90 9.10 100.00
Technology 4.00 18.50 4.40 9.01 40.99 23.10 100.00
Total 100.00

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A strategy evaluation model
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Management Decision
34/1 [1996] 25–34
This figure is calculated by taking each figure
in the Market column of Table III and multi-
plying it by the objective preferences as calcu-
lated in Table II and then summing all values
in the Market row in Table IV.
Step 5
The set of evaluation criteria must then be
pairwise compared to each strategy in turn
using the method employed above. Table V
shows the results of this process in terms of
the preferences. For example, the NPV crite-
ria is very important (38.70 per cent) in evalu-
ating the NW shelf strategy.
Step 6
Table VI shows the vector of priorities of the
criteria based on the preferences of the strate-
gies as shown in Table IV. For example,
throughput at 26.84 per cent has the highest
priority in terms of its relative importance of
furthering the mission of the firm (see Chap-
ter 5 of Saaty[2] for a detailed description and
illustration of the methods used here).
Management can use the vector of evalua-
tion criteria priorities to evaluate capital
projects that further those strategies which
contribute most to the objectives and subse-
quently the mission of the firm. The vector of
evaluation criteria priorities are employed in
the assessment of capital projects. The article
now outlines a typical capital project for the
firm and then shows how it would be evalu-
ated using the evaluation criteria.
Outline of a typical capital project
A typical project for any oil company would
be the erection of new service stations. Imag-
ine that the firm in the illustration wishes to
increase the number of service stations in a
particular region to take advantage of the
changing demographics in that region. The
region is split into three catchment areas (for
convenience we will call these suburbs). In
this illustration only one service station can
be built in any particular suburb. A choice of
service station types that can be erected are
shown in Table VII. Service station types 1, 2
and 3 always have four or six petrol pumps
(leaded, unleaded and premium unleaded)
and will always have a diesel pump. A liquid
petroleum gas (LPG) pump is optional.

Table IV
Overall priorities of strategies (percentages)
Position Return Quality Safety Environment Technology Vector of
7.84% 17.84% 39.14% 9.99% 17.62% 7.57% strategy priorities
LNG 1.72 1.44 4.70 0.25 9.14 0.30 17.56
NW shelf 2.10 5.16 3.76 0.16 0.58 1.40 13.15
Coal 0.73 4.19 0.90 0.13 0.55 0.33 6.83
Crude 0.44 3.21 1.80 0.56 1.18 0.68 7.87
Market 1.97 3.62 14.25 0.40 4.56 3.10 27.90
Efficiency 0.89 0.21 13.74 8.50 1.60 1.75 26.69

Table V
Normalized results of pairwise comparison of criteria to each strategy (percentage)
LNG NW shelf Coal Crude Market Efficiency
NPV 29.40 38.70 36.40 22.10 8.00 12.00
PB 23.60 17.80 6.80 24.10 1.20 5.10
Satisfaction 28.00 5.60 19.70 13.00 38.00 4.40
Flexiibility 5.00 18.00 4.60 33.60 24.00 37.50
Throughput 14.00 19.90 32.50 7.20 28.80 41.00
Check 100.00 100.00 100.00 100.00 100.00 100.00

Table VI
Overall priorities of criteria (percentages)
Vector of
LNG NW shelf Coal Crude Market Efficiency criteria
17.56% 13.15% 6.83% 7.87% 27.90% 26.69 priorities
NPV 5.16 5.09 2.49 1.74 2.23 3.20 19.91
PB 4.14 2.34 0.46 1.90 0.33 1.36 10.54
Satisfaction 4.92 0.74 1.35 1.02 10.60 1.17 19.80
Flexiibility 0.88 2.37 0.31 2.65 6.70 10.01 22.91
Throughput 2.46 2.62 2.22 0.57 8.04 10.94 26.84

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A strategy evaluation model
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Management Decision
34/1 [1996] 25–34
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Table VII
Service station types
Type Description
1 Small shop
2 Large shop and car wash
3 Large shop, car wash and workshop
4 Truck filling station
Constraints
Most capital projects have a number of con-
straints. This section gives constraints for the
illustration and shows how they are handled
by the strategy evaluation model.
Marketing heuristics
Marketing reviewed past performance of ser-
vice stations and has proposed that manage-
ment should use the following heuristics when
considering alternatives:
• Service station types 1, 2 and 3 always have
just one diesel pump.
• The maximum number of liquid petroleum
gas pumps at any service station is one.
• Service station type 4 always has four diesel
pumps and no other pumps of any type.
• When six petrol pumps are required then
liquid petroleum gas is always included.
• Owing to the limitations of physical space at
location 2 in suburb A this site can only
have a service station of type 1.
• Low sales of liquid petroleum gas in exist-
ing service stations in suburb C show that
there is little evidence to support the inclu-
sion of a pump of this type in suburb C.
Financial constraint
A financial constraint is that cash outlay,
regardless of how many service stations are
built, cannot exceed $3.5million in the first
year.
Management time constraint
The upper limit on management time for the
project is seven person years.
Non-linearity
A non-linearity exists in that suburb A loca-
tion 3 and suburb C location 2 are located
within five kilometres of each other on a main
arterial with ribbon development. From past
experience the total number of customers at
either of the petrol stations is highly likely to
be reduced as they share a similar catchment
area. The relationship can be expressed as
follows:
Profit (A3 + C2) = 0.66(profit A3 + profit C2).
Mutual exclusivity
A mutual exclusivity exists in that only one
service station of any size can be built at
suburb B location 1 and suburb C location 2;
therefore: only one of B1 + C2.
Handling the constraints
There are various methods by which to
handle constraints:
• Some constraints can be handled by
excluding the affected combination/s from
the activities table (see Table VIII). For
example, notice that in suburb C there are
no options that allow a liquid petroleum
gas pump to be erected (as per the market-
ing heuristics).
• Other constraints can be handled by reject-
ing projects that violate a constraint. For
example, any project which requires more
than seven man years’ management time
to complete will be rejected (as per the
management constraint).
• Non-linearities are handled by checking if
the resulting project contains the non-
linearity. If it does then the relevant calcu-
lation is applied to the project.
Mutual exclusivities can be catered for using
dummy variables. Notice the dummy vari-
able in Table VIII: a 1 is placed in all options
that contain suburb B location 1 and suburb
C location 2.
Construction of the activities table
The following section shows how the tabular
programming aspect of the strategy evaluation
model is employed. To use tabular program-
ming, the first step is to construct an activities
table (see Table VIII). For the strategy evalua-
tion model to be effective the activities table
must consist of all possible combinations of
control variables, resource requirements, con-
straints and rankings for the relevant evalua-
tion criteria.
Conventional tabular programming involves
the calculation of a single evaluation criterion
for every possible combination of feasible
(unconstrained) sets of solutions [1]. The strat-
egy evaluation model requires the evaluation of
all criteria that have been identified by the
analytical hierarchy process as contributing to
the mission (where relevant). In this illustra-
tion, multiple evaluation criteria, namely NPV,
PB, satis., flex., throughput, must be used in the
overall ranking of each feasible solution.
The ranking of viable options is stated below
in descending order of total contribution to the
mission of the firm (see Table IX). This contri-
bution is stated in the column called “Total”.
This column represents the relative normalized
contribution of one combination to other com-
binations based on the ranking of each criteria
weighted by the value in the vector of evalua-
tion criteria, as stated in Table VI.
The top-ranked feasible solution for the illus-
tration is option 8 from suburb A (suburb A
consists of options 0 to 22), option 9 from suburb
B and option 6 from suburb C. The top ranking
was based on the fact that it has the highest
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34/1 [1996] 25–34

Management Decision
A strategy evaluation model

Table VIII
Activities table
Mutual Year 1 Management
Suburb Location Station Normal LPG Diesel Non-linearity exclusivity cash $m time $m NPV PB Satisfaction Flexibility Throughput

A 1 1 4 0 1 0 0 0.77 1 3.36 3 4 5 2
A 1 1 4 1 1 0 0 0.78 1.2 3.48 3.6 5 5 3
A 1 1 6 1 1 0 0 0.80 1.5 3.50 4.5 7 5 5
A 1 2 4 0 1 0 0 1.57 2 3.58 4 5 5 3
A 1 2 4 1 1 0 0 1.58 2.4 3.70 4.8 6 5 4
A 1 2 6 1 1 0 0 1.60 3 3.74 6 8 5 6
A 1 3 4 0 1 0 0 2.07 3 3.72 5.4 6 5 4
A 1 3 4 1 1 0 0 2.08 3.6 4.08 6.48 7 5 5
A 1 3 6 1 1 0 0 2.10 4.5 4.20 9.3 9 6 9.5
A 1 4 0 0 4 0 0 0.58 1 4.50 1.5 7 5 7
A 2 1 4 0 1 0 0 0.77 1 3.36 3 4 5 2
A 2 1 4 1 1 0 0 0.78 1.2 3.48 3.6 5 5 3
A 2 1 6 1 1 0 0 0.80 1.5 3.60 4.5 7 5 5
A 3 1 4 0 1 1 0 0.77 1 3.36 3 4 5 2
A 3 1 4 1 1 1 0 0.78 1.2 3.48 3.6 5 5 3
A 3 1 6 1 1 1 0 0.80 1.5 3.60 4.5 7 5 5
A 3 2 4 0 1 1 0 1.57 2 3.48 4 5 5 3
A 3 2 4 1 1 1 0 1.58 2.4 3.48 4.8 6 5 4
A 3 2 6 1 1 1 0 2.60 3 3.60 6 8 5 6
A 3 3 4 0 1 1 0 2.07 3 3.72 5.4 6 5 4
A 3 3 4 1 1 1 0 2.08 3.6 4.08 6.48 7 5 5
A 3 3 6 1 1 1 0 2.10 4.5 4.20 8.1 9 5 7
A 3 4 0 0 4 0 0 0.58 0.8 3.00 2.8 7 5 5.5
(Continued)

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Management Decision
A strategy evaluation model

Table VIII
Mutual Year 1 Management
Suburb Location Station Normal LPG Diesel Non-linearity exclusivity cash $m time $m NPV PB Satisfaction Flexibility Throughput

B 1 1 4 0 1 0 1 0.77 1 2.80 3 4 5 2
B 1 1 4 1 1 0 1 0.78 1.2 3.90 3.6 5 5 3
B 1 1 6 1 1 0 1 0.80 1.5 4.00 4.5 7 5 5
B 1 2 4 0 1 0 1 1.57 2 2.90 4 5 5 3
B 1 2 4 1 1 0 1 1.58 2.4 2.90 4.8 6 5 4
B 1 2 6 1 1 0 1 1.60 3 3.00 6 8 5 6
B 1 3 4 0 1 0 1 2.07 3 3.10 5.4 6 5 4
B 1 3 4 1 1 0 1 2.08 3.6 3.40 6.48 7 5 5
B 1 3 6 1 1 0 1 2.10 4.5 3.50 8.1 9 5 7
B 1 4 0 0 4 0 1 0.58 0.8 3.50 2.8 7 5.5 5.5
C 1 1 4 0 1 0 0 0.77 1 3.64 3 4 5 2
C 1 1 6 0 1 0 0 0.79 1.3 3.80 3.9 6 5 3
C 1 2 4 0 1 0 0 1.57 2 3.77 4 5 5 3
C 1 2 6 0 1 0 0 1.59 2.6 3.80 5.2 7 5 4
C 1 3 4 0 1 0 0 2.07 3 4.03 5.4 6 5 4
C 1 3 6 0 1 0 0 2.09 3.9 4.50 7.02 8 5 5
C 1 4 0 0 4 0 0 0.58 0.8 3.25 2.8 7 5.5 5.5
C 2 1 4 0 1 0 1 0.77 1 3.64 3 4 5 2
C 2 1 6 0 1 1 1 0.79 1.3 3.80 3.9 6 5 3
C 2 2 4 0 1 1 1 1.57 2 3.77 4 5 5 3
C 2 2 6 0 1 1 1 1.59 2.6 3.89 5.2 7 5 4
C 2 3 4 0 1 1 1 2.07 3 4.03 5.4 6 5 4
C 2 3 6 0 1 1 1 2.09 3.9 4.07 7.02 8 5 5
C 2 4 0 0 4 1 1 0.58 0.8 3.80 2.8 7 5 5.5
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A strategy evaluation model

Table IX
Top 18 feasible solutions from possible 3,220 combinations
Suburb Dummy Year 1 Management Actual Adjust AHP
A B C 1 2 cash ($) time NPV ($) PB satisfaction Flexibility Throughput NPV PB Satisfaction flexibility Throughput Total
8 9 6 0 1 3.26 6.1 10.95 4.97 7.67 6.83 6.83 16.77 4.11 17.51 22.91 25.01 86.32

8 2 6 0 1 3.48 6.8 11.45 5.53 7.67 5.50 6.67 17.54 3.38 17.51 22.24 24.40 85.06

9 8 6 0 1 3.26 6.3 11.25 4.13 7.67 5.17 6.50 17.23 5.19 17.51 20.89 23.79 84.61

9 9 6 0 1 1.74 2.6 11.25 2.37 7.00 5.33 6.00 17.23 7.48 15.99 21.56 21.96 84.22

9 9 5 0 1 3.25 5.7 12.50 3.77 7.33 5.17 5.83 19.14 5.65 16.75 20.89 21.35 83.79

9 2 6 0 1 1.96 3.3 11.75 2.93 7.00 5.17 5.83 18.00 6.74 15.99 20.89 21.35 82.97

9 5 6 0 1 2.76 4.8 10.75 3.43 7.33 5.17 6.17 16.46 6.09 16.75 20.89 22.57 82.77

9 2 5 0 1 3.47 6.4 13.00 4.34 7.33 5.00 5.67 19.91 4.92 16.75 20.21 20.74 82.54

21 9 6 1 1 3.26 6.1 10.95 4.57 7.67 5.33 6.00 16.77 4.63 17.51 21.56 21.96 82.44

8 9 1 0 1 3.47 6.6 11.50 5.33 7.33 5.50 6.00 17.61 3.63 16.75 22.24 21.96 82.20

9 9 3 0 1 2.75 4.4 11.80 3.17 7.00 5.17 5.50 18.07 6.44 15.99 20.89 20.13 81.52

8 1 6 0 1 3.46 6.5 11.35 5.23 7.00 5.50 6.00 17.38 3.76 15.99 22.24 21.96 81.34

9 7 6 0 1 3.24 5.4 11.15 3.59 7.00 5.17 5.83 17.08 5.89 15.99 20.89 21.35 81.19

21 2 6 1 1 3.48 6.8 11.45 5.13 7.67 5.17 5.83 17.54 3.89 17.51 20.89 21.35 81.18

9 9 4 0 1 3.23 4.8 12.03 3.23 6.67 5.17 5.50 18.42 6.35 15.23 20.89 20.13 81.03

5 9 6 0 1 2.76 4.6 10.49 3.87 7.33 5.33 5.67 16.07 5.53 16.75 21.56 20.74 80.66

9 8 1 0 1 3.47 6.8 11.80 4.50 7.33 5.00 5.67 18.07 4.71 16.75 20.21 20.74 80.49

9 2 3 0 1 2.97 5.1 12.30 3.73 7.00 5.00 5.33 18.84 5.71 15.99 20.21 19.52 80.27

[ 33 ]
Simon Hastings
A strategy evaluation model
for management
Management Decision
34/1 [1996] 25–34
[ 34 ]
feasible (unconstrained) total of all combina-
tions in terms of the mission of the firm.
Summary
This article has proposed a model for strategy
evaluation. The advantages of the model are:
• quantitative, qualitative and intangible
aspects of strategy can be evaluated in
terms of the firm’s mission;
• it formalizes the process of strategy evalua-
tion;
• it matches available resources with projects;
• resource and logistic constraints can be
included in the evaluation process,
• a ranked list of feasible solutions is
produced; and
• management expertise can be exercised in
the strategy evaluation process.
The model developed has been derived from the
generic analytical hierarchy process frame-
work[2] using the mission objectives and plan-
ning framework as proposed by Liberatore et
al.[1] and the operations research technique
known as tabular programming[1]. The pro-
posed model is known as the strategy evalua-
tion model. This model attempts to form a link-
age between the capital budgeting process and
strategic management, so that strategy can be
evaluated in terms of the mission of the firm.
References
1 Liberatore, M.J., Monahan, T.F. and Stout, D.E.,
“A framework for integrating capital budget-
ing analysis with strategy”, The Engineering
Economist, Vol. 38 No. 1, 1992, pp. 31-43.
2 Saaty, T.L., Decision Making for Leaders, Life-
time Learning Publications, Mexico City, 1982,
Ch. 2-8.
3 Mintzberg, H., The Rise and Fall of Strategic
Planning, Free Press, New York, NY, 1993.
4 David, F.R., Concepts of Strategic Management,
Maxwell Macmillan Canada, New York, NY,
1993, pp. 10-18, 57-75.
5 Flitman, A.M. and Ma, W., “Modelling for
shareholder value analysis”, Business Systems
Research 1993, Department of Business Sys-
tems, Monash University, 1994.
6 Flitman, A.M., “A process for strategic control
reporting”, Business Systems Research 1993,
Department of Business Systems, Monash
University, 1994.
Application questions
1 Can you identify the mission, objectives
and strategies for a specific firm? What are
the evaluation criteria used in that firm?
Do the evaluation criteria identified in the
second question evaluate strategy in
terms of the mission of the firm?
7 Myers, S.C., “Finance theory and financial
strategy”, Interfaces, Vol. 14, No. 1, 1984,
pp. 126-37.
8 Shapiro, A.C., “Creating value for sharehold-
ers”, Proceedings: Value Based Management
Conference, Victoria, Australia, 1992.
9 Hart, S. and Banbury, C., “How strategy-
making processes can make a difference”,
Strategic Management Journal, Vol. 15,
pp. 251-69.
10 Rappaport, A., Creating Shareholder Value: The
New Standard for Business Performance, Free
Press, New York, NY, 1986.
11 Hastings, S.J. and Flitman, A.M., “An evalua-
tion of Rappaport’s shareholder value analysis
model”, Business Systems Research 1994,
Department of Business Systems, Monash
University, 1995.
12 Sullivan, A.C. and Smith, K.V., Capital Budget-
ing Practices for Factory Automation Projects,
working paper No. 90-11-1, Centre for the Man-
agement of Manufacturing Enterprises, The
Krannet School of Management, Purdue Uni-
versity, November 1990.
13 Pinches, G.E., “Myopia, capital budgeting and
decision making”, Financial Management,
Autumn 1982, pp. 6-17.
14 Tavana, M. and Banerjee, S., “Evaluating
strategic alternatives: an analytical model”,
Computers and Operations Research, Vol. 22,
No. 7, 1995, pp. 731-43.
15 Australian Arm of a Major Oil Producer, 1994
Annual Report.
Further reading
Ansoff, I., Strategic Management, Macmillan,
London, 1979.
Fruhan, W.E. Jr, Financial Strategy: Studies in the
Creation, Transfer, and Destruction of Share-
holder Value, Richard D. Irwin, Homewood, IL
60430, 1979.
Mills, R. and Robertson, J., “Measuring and man-
aging strategic value”, Management Account-
ing, November 1991, pp. 50-3.
Mintzberg, H. and Waters, J., “Of strategies, delib-
erate and emergent”, Strategic Management
Journal, Vol. 6, 1985, pp. 257-72.
Nonaka, I., “Toward middle-up-down management:
accelerating information creation”, Sloan
Management Review, Vol. 29, 1988, pp. 9-18.
Tregoe, B.B. and Zimmerman, J.W., Top Manage-
ment Strategy – What It Is and How to Make It
Work, Simon and Schuster, New York, NY,
1980, pp. 17-41.
2 How would you test the strategy
evaluation model in practice?
3 Could the strategy evaluation model
be applied to other decision-making
areas?