CHAPTER SEVEN

STRATEGY EVALUATION AND CONTROL

7.1 Strategy Evaluation
In general, evaluation refers to measuring & controlling the organization’s progress with respect to its
strategy & when discrepancies exist, taking corrective action.
Corrective action may require adjusting performance objectives because of:
– Changes in circumstances
– Shifting contingency plan
– Fine-tuning strategies
However, the system must encourage efficient operations that are consistent with the plan while
allowing the flexibility to adapt the changing conditions.
The major issues which make evaluation difficult
 Each business strategy is unique-neither strategy is "wrong" nor "right" in any absolute sense
 Strategy is centrally concerned with the selection of goals and objectives rather than trying to
achieve goals and evaluate them.
 Formal systems of strategic review, while appealing in principal, can create explosive conflict
situations.
Principles of Strategy Evaluation
 Consistency: The strategy must not present mutually inconsistent goals and policies.
 Consonance: The strategy must represent an adaptive response to the external environment and
to the critical changes occurring within it.
 Advantage: The strategy. must provide for the creation and/or maintenance of a competitive
advantage in the selected area of activity.
 Feasibility: The strategy must neither overtax available resources nor create unsolvable sub
problems.
 A strategy that fails to meet one or more of these criteria fails to perform at least one
of the key functions that are necessary for the survival of the business.
 Experience within a particular industry or other setting will permit the analyst to
sharpen these criteria and add others that are appropriate to the situation at hand.
There are two types of evaluation systems: process evaluation & outcome evaluation.
1. Process evaluation
Emphasizes on uncovering the deficiencies in an ongoing program
• Monitoring the progress of an organization against the strategic plan while it is under
implementation

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 • Helps to know whether the organization is moving toward the strategic goals
Four phases of process evaluation (Cox III et al, 1994):
• Problem identification
• Solution development
• Implementation of the solution
• Feedback evaluation
2. Outcome evaluation
Could be undertaken at the end of the entire strategic management process with the aim of determining
what has been accomplished. The outcome from such an evaluation:
 How much of the stated goal was accomplished?
 What other effects, that were not otherwise anticipated, resulted from this program?
 What databases are available on which to start the strategic management process again?
The outcome evaluation closes the loop of the strategic management process & returns managers to the
first phase of formulating a vision & mission for a new process.
7.2 Strategy Control
The purpose of control could be to determine whether:
 Selected strategies implemented successfully
 The resources are used widely
 Set objectives are achieved, etc.
There are several methods of control: strategic, financial, management, operational, performance, etc.
Steps in controlling & evaluation process:
 Setting standards for performance
 Measure actual performance
 Compare actual performance with the standard
 Analyze the reasons for significant deviations, if any
 Take corrective action when performance does not fall within acceptable range
Thus, corrective actions refer to revising standards, objectives, structure, & activities, etc.
Control systems
Components of management control systems include budgets, statistical reports, policies/procedures,
& performance appraisal.
Thus, the progress toward desired ends must be periodically monitored & evaluated in order to take
corrective action timely.
In general, control is necessary for goal achievement.

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Types of control system
1. Strategic control: Entails corporate-level managers to evaluate the performance of division
managers & their units using long-term & strategically relevant criteria. The effective use of strategic
control:
• Requires deep understanding of business unit’s operations & markets
• Demands rich exchanges of information b/n corporate & divisional managers – openness must
be encouraged
• Demands high levels of cognitive diversity by corporate managers – behavioral in nature
• Requires detecting of any problem or potential problem areas & making necessary adjustments
However, as diversification increases, strategic control can be strained – this results in reducing the
firm’s level of diversification
2. Financial control: Entails objective criteria (e.g. return on investment) that corporate-level
managers use to evaluate both individual business units & the managers responsible for their
performance.
 Requires each division's performance to be largely independent – the units are oriented
towards financial outcomes.
 Therefore, the effectiveness of financial control is based on SBUs independence.
 Financial data are the most commonly used warning signals: profit, sales, ROI, ROE, cost
figures, etc.
 Substantial discrepancies in any of the figures indicate something unanticipated is
happening.
 There are also non-financial controls that are used as early warning signals to potential
problems
• Productivity measures
• Quality measures
• Personnel related measures
• Feedback from customers
Types of strategy & organizational control:
• Large diversified firms using a cost leadership strategy emphasize financial
controls
• Companies using differentiation strategy emphasize strategic controls
Concepts and Roles of Strategic Evaluation and Control
 Strategic evaluation and control is related to ensuring whether it is achieving its objectives

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  Glueck and Jauch have defined strategic evaluation as follows: “Evaluation of strategy is that
phase of the strategic management process in which the top managers determine whether their
strategic choice as implemented is meeting the objectives of the enterprise.
 There are two aspects in this phase of strategic management: evaluation and control

 Evaluation emphasizes measurement of results

 Control emphasizes on taking necessary actions
 Both are intertwined.
Role of Strategic Evaluation and Control
 When strategic evaluation and control is undertaken properly, it contributes in three specific
areas:
 The linkage of Strategic Planning, Control To Performance And Reward
Participants in Strategic Evaluation and Control
 All those persons who participate in strategy formulation and implementation should also
participate in strategic evaluation except those who act in advisory capacity
 Board of directors,
 chief executive,
 other managers,
 corporate planning staff, consultants as advisors
Barriers in Strategic Evaluation and Control
In strategic evaluation and control there are barriers and problems around two factors:
 Motivational
 Operational.
1. Motivational Problems
Often two problems are involved in motivation to evaluate the strategy:
 Psychological problem and
 Lack of direct relationship between performance and rewards.
A) Psychological Barriers
 Top management hardly appreciates any mistake it may commit at the level of strategy
formulation.
 Even if something goes wrong at the level of strategy formulation, it may put the blame on
the operating management on strategy implementation.
 Managers are seldom motivated to evaluate their strategies because of the psychological
barriers of accepting their mistakes

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  This happens more in the case of retrenchment strategy, particularly divestment strategy
where a particular business has failed because of strategic mistake and in order to save the
organization from further damage, the business has to be sold.

B) Lack of Direct Relationship between Performance and Rewards

 This results from ’ the lack of direct relationship between performance achievement and
incentives.
 Thus, what is required for motivating the top and lower level managers to evaluate their
performance and strategy is the right type of motivational climate in the organization.
2. Operational Problems
 Even if managers agree to evaluate the strategy, the problem of strategic evaluation is not
over because strategic evaluation is a nebulous process; many factors are not as clear as the
managers would like these to be.
 These factors are in the areas of determination of
 Evaluative Criteria,
 Performance Measurement,
 Measurement Of Organizational Progress,
 Feedback for Future Actions,
 Linking Performance and Rewards.

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