12 strategey evaluation & control


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12 strategey evaluation & control

  1. 1. Makerere University Business School Strategic Management Course STRATEGY EVALUATION & CONTROL
  2. 2.  Strategic evaluation is the strategic management process phase in which managers provide assurance that the chosen strategy is implemented and is meeting business objectives.  By this time, plans are already specified, activities assigned, resources provided, policies in place and leadership system and style formed.  There is a need for:  An evaluation and control system,  A reward system and  An effective information system Introduction
  3. 3. Introduction – Cont.  The evaluation system  Helps to recycle feedback into new strategic planning  Double-checks strategic choice for appropriateness & consistency with the environment  Need for evaluation of consistency in application to lower organisation levels
  4. 4. Questions answered by C & E  Are decisions consistent with policy?  Are there sufficient resources?  Is the environment still as anticipated?  To what extent are targets being met?  Are the plans still relevant or should they be changed?
  5. 5. C & E Process  The organisation structure and style provide the main mechanism.  There are 4 inter-related activities in the evaluation process: 1. Establishing targets, standards & implementation plans. 2. Measuring actual performance 3. Analysing deviations 4. Determining necessary modifications
  6. 6.  Evaluation should take place at different organisation levels – review levels  The corporate level executive  Evaluates overall corporate strategy  Monitors SBU evaluation  The budget is a useful control tool  It inter-connects financial elements of the plan  The budget, however, lacks non- financial and other assumptions for strategic control. The role of a strategist
  7. 7.  A controller may be appointed near the top position in a staff position  In charge of strategy information system but without line responsibility  Line managers must, therefore, maintain authority over control  Other evaluation and control set-ups:  Internal audit committees  Executive committees at board level  External auditors  These evaluate and control top management. The strategist – Cont.
  8. 8.  Top managers must be motivated to evaluate  Unwillingness to evaluate is a common cause of strategy failure  Failure experience may increase motivation to evaluate  Performance reward for achievement of objectives also increases motivation to evaluate. Motivation to evaluate
  9. 9.  Top management rewards in many firms, are done irrespective of strategy evaluation  Executives make proposals to the board for themselves  These include salary changes and promotions  Strategic demands should guide the reward system.  Performance measures should be established in time before the actual implementation  Rewards should then be based on these standards after the actual performance. The Reward System
  10. 10.  Performance rewarded should be in the manager’s discretion  Significant environmental effects on performance should not have a big impact on the manager’s penalty  Career development should also be considered  There is need for rotations  Enough time should be allowed to individuals  Rewards and penalties should consider performance of predecessors Reward system - Cont.
  11. 11.  It is often difficult to tie cause-effect relationships of strategic unit performance  In case of failure, there is room for  Everyone to defend oneself  Presenting results as successful – e.g. short-term results, promise for long-term success.  Top management tends to  Claim responsibility for good performance  Blame subordinates when there is strategic failure Dysfunctional evaluation behaviour
  12. 12.  There are 3 major areas where managers make decisions:  Criteria for evaluation  Feedback system and control areas  Outcomes of strategic evaluation Control & Evaluation Areas
  13. 13.  Evaluation can be based on objective or subjective factors  Criteria depend on the evaluation purpose and situation  Quantitative factors (supported by some qualitative factors) are more relevant for the past and present  Qualitative factors are more relevant for testing whether the strategy will be applicable or not. Criteria for evaluation
  14. 14.  Performance is compared with  Historical results and  Competitors  Standard numbers / ratios  Such factors include  Profitability results e.g. net profit  Investment performance indicators e.g. dividend rates, earnings per share, return on capital,  Market performance e.g. market share, sales growth Quantitative criteria
  15. 15.  There are challenges in  Selection of which factors to use  Set tolerance limits  The guide should come from key success factors for strategy success Quantitative criteria – Cont.
  16. 16.  Subjective assessment should supplement quantitative performance measures  More appropriate to the entire organisation strategy evaluation especially before a major change of direction  There are 3 broad qualitative criteria categories  Consistency, appropriateness and workability Qualitative Criteria
  17. 17. Consistency with:  Objectives  Environmental assumptions  Internal conditions Appropriateness with respect to:  Resource capabilities  Risk preference  Time horizon Consistency & Appropriateness
  18. 18.  Addresses  Feasibility  Stimulation – managers’ commitment, consensus among executives, personal aspirations among executives. Workability
  19. 19.  Timing of measurement  What feedback to provide Measuring Feedback
  20. 20.  Use of timely information to  Determine causes of deviations  Take corrective action  Reward performance Evaluation & Corrective action
  21. 21. Reading Assignment  In Bakunda & Ngoma, read about 1. Why managers spend more time on strategic panning and less on control. 2. Types of control  Strategic plan control,  Annual plan control and  Profitability and efficiency controls