Strategy Review, Evaluation

and Control
 Implementing Strategies

Organizations are most vulnerable when

they are at the peak of their success.

-- R.T. Lenz
Strategy Review, Evaluation &
Control

Need for Systematic Review, Evaluation &

Control –

– Strategies become obsolete

– 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

3 Basic Activities –

1. Examining the underlying bases of a firms’

strategy
2. Comparing expected to actual results
3. Corrective actions to ensure performance
conforms to plans
 Strategy Evaluation

Strategy evaluation –

– Complex and sensitive undertaking

– Overemphasis can be costly and

counterproductive
 Strategy Evaluation

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?
 Strategy Evaluation

Four Criteria (Richard Rummelt):

• Consistency
• Consonance
• Feasibility
• Advantage
 Rummelt’s Criteria

Consistency

– Strategy should not present inconsistent

goals and policies.

• Conflict and interdepartmental bickering

symptomatic of managerial disorder and strategic
inconsistency
 Rummelt’s Criteria

Consonance

– Need for strategies to examine sets of

trends

• Adaptive response to external environment

• Trends are results of interactions among other
trends
 Rummelt’s Criteria

Feasibility

– Neither overtax resources nor create

unsolvable sub problems

• Organizations must demonstrate the abilities,

competencies, skills and talents to carry out a
given strategy
 Rummelt’s Criteria

Advantage

– Creation or maintenance of competitive

advantage

• Superiority in resources, skills, or position

 Strategy Evaluation

Difficulty in strategy evaluation –

1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy
3. Increasing number of variables
 Strategy Evaluation

Difficulty in strategy evaluation –

4. Rate of obsolescence of plans

5. Domestic and global events
6. Decreasing time span for planning
certainty
 Process of Strategy Evaluation

Strategy evaluation should –

– Initiate managerial questioning

– Trigger review of objectives and
values
– Stimulate creativity in generating
alternatives
 Evaluation Framework
I. Review Underlying Bases

Differences? Yes

NO III.
Take
II. Measure Firm Performance Corrective
Actions
Differences? Yes

NO

Continue present course

 Reviewing Bases of Strategy

Review of underlying bases of strategy –

– Develop revised EFE Matrix

– Develop revised IFE Matrix

 Reviewing Bases of Strategy

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
 Reviewing Bases of Strategy

Review effectiveness of strategy –

5. Reasons for competitors’ successful

strategies
6. Competitors’ present market positions and
profitability
7. Potential for competitor retaliation
8. Potential for cooperation with competitors
 Reviewing Bases of Strategy

Monitor Threats and Opportunities and

Weaknesses and Strengths

• Are our internal strengths still strengths?

• Have we added additional strengths?
• Are our weaknesses still weaknesses?
• Do we have other internal weaknesses?
 Reviewing Bases of Strategy

Monitor Threats and Opportunities and

Weaknesses and Strengths

• Are opportunities still opportunities?

• Are there other external opportunities?
• Are threats still threats?
• Are there other threats?
• Are we vulnerable to a hostile takeover?
 Measuring Organizational
Performance

• Comparing expected to actual results

• Investigating deviations from plan
• Evaluating individual performance
• Progress toward stated objectives
 Measuring Organizational
Performance

Quantitative criteria for strategy evaluation –

– Financial Ratios:
• Compare performance over different periods
• Compare performance to competitors
• Compare performance to industry averages
 Measuring Organizational
Performance

Key Financial Ratios –

– Return on investment
– Return on equity
– Profit margin
– Market share
 Measuring Organizational
Performance

Key Financial Ratios –

– Debt to equity
– Earnings per share
– Sales growth
– Asset growth
 Measuring Organizational
Performance

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
 Characteristics of an Effective
Evaluation System
1. Strategy-evaluation activities must be economical; too
much information can be just as bad as too little
information.
2. Strategy-evaluation activities should also be meaningful;
they should specifically relate to a firm’s objectives.
3. Strategy-evaluation activities should provide timely
information; on occasion and in some areas, managers
may need information daily.
4. Strategy evaluation should be designed to provide a true
picture of what is happening.
 
 Strategy-Evaluation Assessment Matrix
Have major Have major
changes changes
occurred in occurred in Has the firm
the firm’s the firm’s progressed
internal external satisfactorily toward
strategic strategic achieving its stated
position? position? objectives? Result
No No No Corrective actions
Yes Yes Yes Corrective actions
Yes Yes No Corrective actions
Yes No Yes Corrective actions
Yes No No Corrective actions
No Yes Yes Corrective actions
No Yes No Corrective actions
No No Yes Continue course
 Published Sources of Strategy-
evaluation Information
 
• A number of publications are helpful in evaluating a firm’s
strategies. For example, Fortune annually identifies and
evaluates the Fortune 1,000 (the largest manufacturers) and
the Fortune 50 (the largest retailers, transportation
companies, utilities, banks, insurance companies, and
diversified financial corporations) in the United States.

• Another excellent evaluation of corporations in America,

“The Annual Report on American Industry,” is published
annually in the January issue of Forbes. Business Week,
Industry Week, and Dun’s Business Month also periodically
publish detailed evaluations of American businesses and
industries
 Published Sources of Strategy-
evaluation Information
 The following are the website addresses of publications
that frequently report on the strategies of American firms. 

• • Business 2.0 {http://www.business2.com/}

• • Business Week {http://www.businessweek.com/}
• • Fast Company {http://www.fastcompany.com/homepage/}
• • Fortune {http://www.fortune.com/fortune/}
• • Forbes {http://www.forbes.com/}
• • Industry Week {http://www.industryweek.com/}
• • Red Herring {http://www.herring.com/}
 Contingency Planning

Premise of sound strategic management –

– Planning to deal with unfavorable and

favorable events before they occur.
 Contingency Planning

Contingency Planning –

– Alternative plans that can be put into effect if

certain key events do not occur as expected
Effective Contingency Planning - Steps
 
1. Identify both beneficial and unfavorable events that
could possibly derail the strategy or strategies.
2. Specify trigger points. Estimate when contingent
events are likely to occur.
3. Assess the impact of each contingent event.
Estimate the potential benefit or harm of each
contingent event.
4. Develop contingency plans. Be sure that the
contingency plans are compatible with current
strategy and financially feasible.
Effective Contingency Planning - Steps

5. Assess the counter impact of each

contingency plan. That is, estimate how much
each contingency plan will capitalize on or
cancel out its associated contingent event.
6. Determine early warning signals for key
contingent events. Monitor the early warning
signals.
7. Develop advanced action plans to take
advantage of the available lead time.
 Auditing

• Financial audits to determine

correspondence between assertions
based on strategic plans and established
criteria

• Environmental audits to insure sound

and safe practices
 Strategic Control Process
1. Determine what to control. What are the objectives the
organization hopes to accomplish?
2. Set control standards. What are the targets and
tolerances?
3. Measure performance. What are the actual standards?
4. Compare the performance to the standards. How well
does the actual match the plan?
5. Determine the reasons for the deviations. Are the
deviations due to internal shortcomings or due to external
changes beyond the control of the organization?
6. Take corrective action. Are corrections needed in internal
activities to correct organizational shortcomings, or are
changes needed in objectives due to external events?
 Example of corrective actions

• Altering an organizational structure

• Replacing one or more key individuals
• Selling a division of the company
• Revising a business mission or objective
• Reviewing company’s policy
• Issuing stock or revised capital
• Allocating resources differently
Strategic Control Process