This chapter discusses strategy review, evaluation and control. It outlines the importance of regularly reviewing strategies due to changing internal and external environments. The key aspects of strategy evaluation are examining the underlying bases of the strategy, comparing expected to actual results, and taking corrective actions. Both financial and qualitative measures are used to evaluate organizational performance and strategic decisions. Corrective actions may include changes to structure, leadership, objectives, strategies or resources.
This chapter discusses strategy review, evaluation and control. It outlines the importance of regularly reviewing strategies due to changing internal and external environments. The key aspects of strategy evaluation are examining the underlying bases of the strategy, comparing expected to actual results, and taking corrective actions. Both financial and qualitative measures are used to evaluate organizational performance and strategic decisions. Corrective actions may include changes to structure, leadership, objectives, strategies or resources.
This chapter discusses strategy review, evaluation and control. It outlines the importance of regularly reviewing strategies due to changing internal and external environments. The key aspects of strategy evaluation are examining the underlying bases of the strategy, comparing expected to actual results, and taking corrective actions. Both financial and qualitative measures are used to evaluate organizational performance and strategic decisions. Corrective actions may include changes to structure, leadership, objectives, strategies or resources.
Internal environments are dynamic External environments are dynamic Strategy Evaluation • Strategy evaluation is vital to the organization’s well-being
• Alert management to potential or actual
problems in a timely fashion
• Erroneous strategic decisions can have severe
negative impact on organizations Strategy Evaluation
Strategy evaluation is vital to the
organization’s well-being Alert management to potential or actual problems in a timely fashion
Erroneous strategic decisions can have severe
negative impact on organizations Contd…
3 Basic Activities in strategy evaluation:
1. Examining the underlying bases of a firms’ strategy 2. Comparing expected to actual results 3. Corrective actions to ensure performance conforms to plans Contd…
• In many organizations, evaluation is an
appraisal of performance: Have assets increased? Increase in profitability? Increase in sales? Increase in productivity? Profit margins, ROI and EPS ratios increased? Contd…
• Four Criteria (Richard Rummelt):
Consistency Consonance Feasibility Advantage Contd… Consistency • Strategy should not present inconsistent goals and policies. Consonance • Need for strategies to examine sets of trends
• Adaptive response to external environment
• Trends are results of interactions among other trends Contd…
Feasibility • Neither overtax resources or create unsolvable subproblems
• Organizations must demonstrate the abilities,
competencies, skills and talents to carry out a given strategy Contd…
Advantage -Creation or maintenance of competitive advantage
• Superiority in resources, skills, or position
Contd..
Difficulty in strategy evaluation –
• Increase in environment’s complexity • Difficulty predicting future with accuracy • Increasing number of variables • Rate of obsolescence of plans • Domestic and global events • Decreasing time span for planning certainty Reviewing Bases of Strategy
Review of underlying bases of strategy –
• Develop revised EFE Matrix
• Develop revised IFE Matrix
Contd….
Review effectiveness of strategy –
1. Competitors’ reaction to strategy 2. Competitors’ change in strategy 3. Competitors’ changes in strengths and weaknesses 4. Reasons for competitors’ strategic change Contd…
5. Reasons for competitors’ successful strategies
6. Competitors’ present market positions and profitability 7. Potential for competitor retaliation 8. Potential for cooperation with competitors Contd…
Monitor Threats and Opportunities and Weaknesses
and Strengths- • Are our internal strengths still strengths? • Have we added additional strengths? • Are our weaknesses still weaknesses? • Have we other internal weaknesses? • Are opportunities still opportunities? • Other external opportunities? • Are threats still threats? • Are there other threats? • Are we vulnerable to a hostile takeover? Process of Strategy Evaluation Measuring Organizational Performance
• Comparing expected to actual results
• Investigating deviations from plan • Evaluating individual performance • Progress toward stated objectives
Quantitative criteria for strategy evaluation –
• Financial Ratios: • Compare performance over different periods • Compare performance to competitors • Compare performance to industry averages Contd… Key Financial Ratios – • Return on investment • Return on equity • Profit margin • Market share • Debt to equity • Earnings per share • Sales growth • Asset growth Contd…
Qualitative evaluation of strategy -
Internal consistency of strategy Consistency of strategy with environment Strategy appropriate in view of resources Acceptable degree of risk Appropriate time frame Workability of the strategy Taking Corrective Actions • Corrective Actions Possibly Needed to Correct Unfavorable Variances. 1. Alter the firm’s structure 2. Replace one or more key individuals 3. Divest a division 4. Alter the firm’s vision and/or mission 5. Revise objectives 6. Alter strategies Contd…
7. Devise new policies
8. Install new performance incentives 9. Raise capital with stock or debt 10. Add or terminate salespersons, employees, or managers 11. Allocate resources differently 12. Outsource (or rein in) business functions