Strategic Management and

Business Policy 15e, Global Edition

Chapter 12

Evaluation and
Control

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

Figure 12-1: Evaluation and Control Process

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

12-2
 Measuring Performance
• Performance
– end result of an activity

• One of the obstacles to effective control is

the difficulty in developing appropriate measures
of important activities and outputs.

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

12-3
 Types of Controls (1 of 2)
• Output controls
– specify what is to be accomplished by focusing on the
end result through the use of objectives

• Behavior controls
– specify how something is done through policies, rules,
standard operating procedures and orders from
supervisors

• Input controls
– emphasize resources, as knowledge, skills, abilities

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

12-4
 Activity-based Costing

• Activity-based costing
– allocates indirect and direct costs to individual
product lines based on value-added activities
going into that product

• Allows accountants to charge costs more

accurately since it allocates overhead more
precisely.

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

12-5
 Balanced Scorecard (1 of 3)

• Balanced scorecard
– combines financial measures that tell results of
actions already taken with operational
measures on customer satisfaction, internal
processes, and corporation’s innovation and
improvement activities—the drivers of future
financial performance

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

12-6
Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..
7
 Balanced Scorecard (2 of 3)

In the balanced scorecard, management develops

goals or objectives in each of four areas:
1. Financial: How do we appear to shareholders?
2. Customer: How do customers view us?
3. Internal business perspective: What must we
excel at?
4. Innovation and learning: Can we continue to
improve and create value?

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

12-8
 Balanced Scorecard (3 of 3)

• Key performance measures

– measures that are essential for achieving a
desired strategic option

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

12-9
 Using Benchmarking To Evaluate
Performance

• Benchmarking
– the continual process of measuring products,
services and practices against the toughest
competitors or those companies recognized as
industry leaders

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

12-10
 Benchmarking
1. Identify area or process to be examined
2. Find behavioral and output measures
3. Select accessible set of competitors of best
practices
4. Calculate differences among company’s
performance measurements and competitors;
determine why differences exist
5. Develop tactical programs for closing
performance gaps
6. Implement the programs and compare the results

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

12-11
Problems in Measuring Performance
• Lack of quantifiable objectives or performance
standards
• Inability to use information systems to provide
timely and valid information

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

12-12
 Short-Term Orientation
Long-term evaluations may not be conducted
because executives:
• Don’t realize their importance.
• Believe that short-term considerations are more
important than long-term considerations.
• Aren’t personally evaluated on a long-term basis.
• Don’t have the time to make a long-term analysis.

Copyright © 2018 Pearson Education, Ltd. All Rights Reserved..

12-13