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-- Strategies become obsolete-- Internal environments are dynamic-- External environments are dynamicStrategy Review, Evaluation &Control-- It is essential therefore that strategistssystematically review, evaluate, and control theexecution of strategy
Vital to the organization’s well-being Alert management to potential/actual problems in atimely fashion Erroneous strategic decisions can have severenegative impact on organizations Complex and sensitive undertaking Overemphasis can be costly & counterproductive Too much time spent measuring performance ratherthan in action and doingStrategy Evaluation, Review,& ControlUnderstanding strategy evaluation
1. Examine the underlying bases of a firm’sstrategy2. Compare expected to actual results3. Identify corrective actions to ensure thatperformance conforms to plansStrategy Evaluation, Review &ControlThree Basic Activities
Strategy Evaluation, Review &Control Have the firm’s assets increased? Has there been an increase in profitability? Has there been an increase in sales? Has there been an increase in productivity? Have profit margins, ROI, and EPS ratiosincreased?Strategy evaluation is often an appraisal ofperformance. Strategists ask questions like:
Strategy Evaluation, Review & Control 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 certaintyDifficulties in Strategy Evaluation
Strategy Evaluation, Review & Control ConsistencyStrategy should not present inconsistent goals and policies. There isinconsistency when: Persistence of issues-based (not personality-based) conflicts Success for one department means failure for another Policy problems are frequently referred to the top for resolution ConsonanceNeed for strategies to examine sets of trends rather than a single trend Need a holistic view (internal and external environments) FeasibilityNeither overtax resources or create unsolvable sub-problems Can it be done with the given or available resources? AdvantageCreation or maintenance of competitive advantage If it doesnt create a competitive advantage then what’s the point?
Strategy Evaluation, Review &Control Initiate managerial questioning Trigger review of objectives and values Stimulate creativity in generatingalternativesStrategy Evaluation Should --
Strategy Evaluation, Review &Control Develop a revised EFE Matrix What changed in the external environment? Develop a revised IFE Matrix What internal changes occurred in theorganization ?Review of underlying bases of strategy --
Strategy Evaluation, Review &Control1. Competitors’ reaction to strategy2. Competitors’ change in strategy3. Competitors’ changes in strengths & weaknesses4. Reasons for competitors’ strategic change5. Reasons for competitors’ successful strategies6. Competitors’ present market positions & profitability7. Potential for competitor retaliation8. Potential for cooperation with competitorsReview effectiveness of strategy --
Strategy Evaluation, Review &Control Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses?Monitor Strengths & Weaknesses;Opportunities & Threats
Strategy Evaluation, Review &Control Are opportunities still opportunities? Have other opportunities developed? Are threats still threats? Have other threats emerged? Are we vulnerable to hostile takeover?Monitor Strengths & Weaknesses;Opportunities & Threats
Evaluation FrameworkReview Underlying BasesRevised IFE and EFEContinue present courseMeasure Firm PerformanceRatios and stated objectivesTakeCorrectiveActionsDifferences?Differences?YesNOYesNO
Strategy Evaluation, Review &Control Compare expected to actual results Investigate deviations from plan Evaluate individual performance Progress toward stated objectivesMeasuring Organizational Performance
Strategy Evaluation, Review &Control Financial Ratios Compare performance over different periods Compare performance to competitors Compare performance to industry averagesQuantitative Criteria for Strategy Evaluation
Strategy Evaluation, Review &Control Return on investment (ROI) Return on equity (ROE) Profit margin Market Share Debt to equity Earnings per share (EPS) Sales growth Asset growthTypical financial ratios used in strategyevaluation
Strategy Evaluation, Review &Control Internal consistency of strategy Consistency with environment Appropriateness in view of resources Acceptable degree of risk Appropriate time frame Workability of the strategyQualitative Evaluation of Strategy
Balanced ScorecardArea of Objectives Measure or Target Time Expectation Primary ResponsibilityCustomers12Managers/Employees12Operations/Processes12Community/Social Responsibility12Business Ethics/Natural Environment12Financial12
Strategy Evaluation, Review &Control Economical Meaningful Generates useful information Timely information Provides accurate picture of eventsCharacteristics of strategy evaluation
Strategy-Evaluation Assessment MatrixContinue courseYesNoNoCorrective actionsNoYesNoCorrective actionsYesYesNoCorrective actionsNoNoYesCorrective actionsYesNoYesCorrective actionsNoYesYesCorrective actionsYesYesYesCorrective actionsNoNoNoResultHas the firmprogressedsatisfactorily towardachieving its statedobjectives?Have majorchangesoccurred in thefirm’s externalstrategicposition?Have majorchangesoccurred in thefirm’s internalstrategicposition?
Strategy Evaluation, Review &ControlContingency Planning: Alternative plans thatcan be put into effect if certain key events donot occur as expectedSome examples of situations requiring contingency planning: If a major competitor withdraws from particular markets asintelligence reports indicate, what actions should the firm take? If our sales objectives are not reached, what actions should firmtake to avoid losses? If demand for new product exceeds plans, what actions should firmtake to meet higher demand? If a new technological development makes new product obsoletesooner than expected, what actions should firm take?
Strategy Evaluation, Review &Control Financial audits determine correspondencebetween assertions based on strategic plan andestablished criteria Required for publicly traded companies Environmental audits insure sound and safepracticesAuditing
Strategy Evaluation, Review & Control Is the process of strategic management more an“art” than “science” or vice versa? (Your text says itis more science than art) Should strategies be visible or hidden fromstakeholders? (Your text says that they shouldhidden only when secrecy gives some competitiveadvantage) Should process be more top-down or bottom up(Current research suggests bottom-up)21stCentury Challenges inStrategic Management