Strategy Review, Evaluation, and Control


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Strategy Review, Evaluation, and Control

  1. 1. Chapter 9 Strategy Review, Evaluation, & Control <ul><li>Strategic Management: Concepts & Cases </li></ul><ul><li>10 th Edition </li></ul><ul><li>Fred David PowerPoint Slides by </li></ul><ul><li>Anthony F. Chelte </li></ul><ul><li>Western New England College </li></ul>
  2. 2. Chapter Outline The Nature of Strategy Evaluation A Strategy-Evaluation Framework The Balanced Scorecard
  3. 3. Chapter Outline Published Sources of Strategy Evaluation Information Characteristics of an Effective Evaluation System Contingency Planning
  4. 4. Chapter Outline ( cont’d ) Auditing 21 st Century Challenges in Strategic Management
  5. 5. <ul><li>Organizations are most vulnerable when they are at the peak of their success -- </li></ul><ul><li>R.T. Lenz </li></ul>Strategy Review
  6. 6. <ul><li>-- Strategies become obsolete </li></ul><ul><li>-- Internal environments are dynamic </li></ul><ul><li>-- External environments are dynamic </li></ul>Strategy Review, Evaluation & Control
  7. 7. <ul><li>Vital to the organization’s well-being </li></ul><ul><li>Alert management to potential/actual problems in a timely fashion </li></ul><ul><li>Erroneous strategic decisions can have severe negative impact on organizations </li></ul>Strategy Evaluation, Review, & Control Strategy Evaluation
  8. 8. <ul><li>Examine the underlying bases of a firm’s strategy </li></ul><ul><li>Compare expected to actual results </li></ul><ul><li>Identify corrective actions to ensure that performance conforms to plans </li></ul>Strategy Evaluation, Review & Control 3 Basic Activities
  9. 9. <ul><li>Complex & sensitive undertaking </li></ul><ul><li>Overemphasis can be costly & counterproductive </li></ul>Strategy Evaluation, Review & Control Strategy Evaluation
  10. 10. Strategy Evaluation, Review & Control <ul><li>Have assets increased </li></ul><ul><li>Increase in profitability </li></ul><ul><li>Increase in sales </li></ul><ul><li>Increase in productivity </li></ul><ul><li>Profit margins, ROI, & EPS ratios increased </li></ul>Appraisal of Strategic Performance
  11. 11. Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rummelt’s 4 Criteria
  12. 12. Strategy Evaluation, Review & Control <ul><li>Strategy should not present inconsistent goals & policies </li></ul>Consistency
  13. 13. Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rummelt’s 4 Criteria
  14. 14. Strategy Evaluation, Review & Control <ul><li>Need for strategies to examine sets of trends </li></ul>Consonance
  15. 15. Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rummelt’s 4 Criteria
  16. 16. Strategy Evaluation, Review & Control <ul><li>Neither overtax resources or create unsolvable sub-problems </li></ul>Feasibility
  17. 17. Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rummelt’s 4 Criteria
  18. 18. Strategy Evaluation, Review & Control <ul><li>Creation or maintenance of competitive advantage </li></ul>Advantage
  19. 19. Strategy Evaluation, Review & Control <ul><li>Increase in environment’s complexity </li></ul><ul><li>Difficulty predicting future with accuracy </li></ul><ul><li>Increasing number of variables </li></ul>Difficulties in Strategy Evaluation
  20. 20. Strategy Evaluation, Review & Control <ul><li>Rate of obsolescence of plans </li></ul><ul><li>Domestic and global events </li></ul><ul><li>Decreasing time span for planning certainty </li></ul>Difficulties in Strategy Evaluation
  21. 21. Strategy Evaluation, Review & Control <ul><li>Initiate managerial questioning </li></ul><ul><li>Trigger review of objectives & values </li></ul><ul><li>Stimulate creativity in generating alternatives </li></ul>Strategy Evaluation Should --
  22. 22. Strategy Evaluation, Review & Control <ul><li>Develop revised EFE Matrix </li></ul><ul><li>Develop revised IFE Matrix </li></ul>Review of underlying bases of strategy --
  23. 23. Strategy Evaluation, Review & Control <ul><li>Competitors’ reaction to strategy </li></ul><ul><li>Competitors’ change in strategy </li></ul><ul><li>Competitors’ changes in strengths & weaknesses </li></ul><ul><li>Reasons for competitors’ strategic change </li></ul>Review effectiveness of strategy --
  24. 24. Strategy Evaluation, Review & Control <ul><li>Reasons for competitors’ successful strategies </li></ul><ul><li>Competitors’ present market positions & profitability </li></ul><ul><li>Potential for competitor retaliation </li></ul><ul><li>Potential for cooperation with competitors </li></ul>Review effectiveness of strategy --
  25. 25. Strategy Evaluation, Review & Control <ul><li>Are strengths still strengths? </li></ul><ul><li>Have we added additional strengths? </li></ul><ul><li>Are weaknesses still weaknesses? </li></ul><ul><li>Have we developed other weaknesses? </li></ul>Monitor Strengths & Weaknesses; Opportunities & Threats
  26. 26. Strategy Evaluation, Review & Control <ul><li>Are opportunities still opportunities? </li></ul><ul><li>Other opportunities develop? </li></ul><ul><li>Are threats still threats </li></ul><ul><li>Other threats emerged? </li></ul><ul><li>Are we vulnerable to hostile takeover? </li></ul>Monitor Strengths & Weaknesses; Opportunities & Threats
  27. 27. Evaluation Framework Continue present course Differences? Differences? Yes NO Yes NO I. Review Underlying Bases II. Measure Firm Performance III. Take Corrective Actions
  28. 28. Strategy Evaluation, Review & Control <ul><li>Compare expected to actual results </li></ul><ul><li>Investigate deviations from plan </li></ul><ul><li>Evaluate individual performance </li></ul><ul><li>Progress toward stated objectives </li></ul>Measuring Organizational Performance
  29. 29. Strategy Evaluation, Review & Control <ul><li>Financial Ratios </li></ul><ul><ul><li>Compare performance over different periods </li></ul></ul><ul><ul><li>Compare performance to competitors </li></ul></ul><ul><ul><li>Compare performance to industry averages </li></ul></ul>Quantitative Criteria for Strategy Evaluation
  30. 30. Strategy Evaluation, Review & Control <ul><li>Return on investment (ROI) </li></ul><ul><li>Return on equity (ROE) </li></ul><ul><li>Profit margin </li></ul><ul><li>Market Share </li></ul>Key Financial Ratios
  31. 31. Strategy Evaluation, Review & Control <ul><li>Debt to equity </li></ul><ul><li>Earnings per share (EPS) </li></ul><ul><li>Sales growth </li></ul><ul><li>Asset growth </li></ul>Key Financial Ratios
  32. 32. Strategy Evaluation, Review & Control <ul><li>Internal consistency of strategy </li></ul><ul><li>Consistency with environment </li></ul><ul><li>Appropriateness in view of resources </li></ul>Qualitative Evaluation of Strategy
  33. 33. Strategy Evaluation, Review & Control <ul><li>Acceptable degree of risk </li></ul><ul><li>Appropriate time frame </li></ul><ul><li>Workability of the strategy </li></ul>Qualitative Evaluation of Strategy
  34. 34. <ul><li>-- Evaluate strategies from 4 perspectives: </li></ul><ul><li>1. Financial performance </li></ul><ul><li>2. Customer knowledge </li></ul><ul><li>3. Internal business processes </li></ul><ul><li>4. Learning & growth </li></ul>Strategy Evaluation, Review & Control Balanced Scorecard
  35. 35. Balanced Scorecard       2       1       Financial       2       1       Business Ethics/Natural Environment       2       1       Community/Social Responsibility       2       1       Operations/Processes       2       1       Managers/Employees       2       1       Customers Primary Responsibility Time Expectation Measure or Target Area of Objectives
  36. 36. Strategy Evaluation, Review & Control <ul><li>Economical </li></ul><ul><li>Meaningful </li></ul><ul><li>Generates useful information </li></ul><ul><li>Timely information </li></ul><ul><li>Provides accurate picture of events </li></ul>Characteristics of strategy evaluation
  37. 37. Strategy-Evaluation Assessment Matrix Continue course Yes No No Corrective actions No Yes No Corrective actions Yes Yes No Corrective actions No No Yes Corrective actions Yes No Yes Corrective actions No Yes Yes Corrective actions Yes Yes Yes Corrective actions No No No Result Has the firm progressed satisfactorily toward achieving its stated objectives? Have major changes occurred in the firm’s external strategic position? Have major changes occurred in the firm’s internal strategic position?
  38. 38. Strategy Evaluation, Review & Control <ul><li>Alternative plans that can be put into effect if certain key events do not occur as expected </li></ul>Contingency Planning
  39. 39. Strategy Evaluation, Review & Control <ul><li>Financial audits determine correspondence between assertions based on strategic plan & established criteria </li></ul><ul><li>Environmental audits insure sound and safe practices </li></ul>Auditing
  40. 40. Strategy Evaluation, Review & Control <ul><li>Process is more an “art” than “science” </li></ul><ul><li>Should strategies be visible or hidden from stakeholders </li></ul><ul><li>Should process be more top-down or bottom up </li></ul>21 st Century Challenges in Strategic Management
  41. 41. <ul><li>Key Terms & Concepts </li></ul>For Review (Chapter 9) Advantage Contingency Plans Auditing Corporate Agility Feasibility Consonance Balanced Score Card Consistency
  42. 42. <ul><li>Key Terms & Concepts </li></ul>For Review (Chapter 9) Management by Wandering Around Revised EFE Matrix Measuring Organizational Performance Revised IFE Matrix Taking Corrective Action Reviewing Underlying Bases of Strategy Future Shock