Strategic management Evaluation and control Planning Organization BSCM SEMESTER 8

1. Chapter 5 EVALUATION AND
CONTROL
Chapter objectives:
Evaluating the Strategy through various
Methods/Techniques of Evaluation and Analysis

2. TECHNIQUES OF STRATEGIC EVALUATION:
1)Gap Analysis:
2) SWOT Analysis:
3) PEST Analysis:
4) Benchmarking:
5) The Balanced Scorecard:
6) PERT & CPM:
7) Portfolio analysis: Boston Consulting Group’s (BCG) Growth-Share Matrix and the Planning Grid (the GE
model (General Electric )

3. 1)Gap Analysis:
•The gap analysis is one strategic evaluation technique used to
measure the gap between the organization's current position
and its desired position.
•The gap analysis is used to evaluate a variety of aspects of
business, from profit and production to marketing, research and
development and management information systems.
•Typically, a variety of financial data is analyzed and compared
to other businesses within the same industry to evaluate the gap
between the organization and its strongest competitors.

4. 2) SWOT Analysis:
Already Discussed In chapter 2

5. 3) PEST/PESTLE Analysis:
•Another common strategic evaluation technique is the PEST analysis,
which identifies the political, economic, social and technological factors that
may impact the organization's ability to achieve its objectives.
•Political factors might include such aspects as impending legislation
regarding wages and benefits. financial regulations, etc
•Economic factors include all shifts in the economy, while social factors
may include demographics and changing attitudes. Technological
pressures are also inevitable as technology becomes more advanced each
day.
•These are all external factors, which are outside of the organization's
control but which must be considered throughout the decision making
process.

6. 3) PEST/PESTLE Analysis:
Political Factors: The political factors account for all the political activities
that go on within a country and if any external force might tip the scales in a
certain way.
1. Trading policies 4. Government changes 6. Funding
2. Foreign pressures 5. Conflicts in the political area
3. Shareholder and their demands
Economic Factors: The economic factors take into view the economic
condition prevalent in the country and if the global economic scenarios
might make it shift or not.
4.Disposable income 4. Unemployment level
5.Foreign Exchange rates 5. Interest rates
6.Trade tariffs 6. Inflation rate

7. 3) PEST/PESTLE Analysis:
Social Factors: Social factors are your consumers. You need to look at
buying habits, emotional needs, and consumer behaviour int in this section.
Because these are the people who directly influence your sales.
1.Ethnic/religious factors 4. Major world events 6. Demographics
2.Consumer opinions and attitudes 7. Trends
3.Education 5. Brand preferences
Technological Factors: Technology can be directly involved with company
products, like manufacturing technologies.
4.Technological development 5. Research and development
5.Associated Technologies 6. Patents
6.Licensing 7. Information technology
7.Communication

8. 3) PEST/PESTLE Analysis:
Legal Factors: Legal factors have to do with all the legislative and
procedural components in an economy. Also, this takes into account certain
standards that your business might have to meet in order to start
production/promotion.
1.Employment law 4. Consumer protection
2.Industry-spesific regulations 5. Competitive regulations
3.Future legislation 6. Environmental regulations
Environmental Factors: Environmental factors have to do with
geographical locations and other related environmental factors that may
influence upon the nature of the trade you're in. For example, agri-
businesses hugely depend on this form of analysis.
4.Environmental regulations 3. Staff attitudes
5.Environmental issues 4. Management style 5. Consumer values

9. 4) Benchmarking:
•Benchmarking is a strategic evaluation technique that's often
used to evaluate how close the organization has come to its
final objectives, as well as how far it has left to go.
•Organizations may benchmark themselves against other
organizations within the same industry, or they may benchmark
themselves against their own prior situation.
•A variety of performance measures, as well as policies and
procedures, may be evaluated regularly to identify where
adjustments are necessary to maintain the sustainable
competitive advantage.

10. 5) The Balanced Scorecard:
•The Balanced Scorecard is an important Strategy Evaluation
technique. It is a process that allows firms to evaluate strategies
from four key perspectives: financial performance, customer
knowledge, internal business processes and learning and
growth.
•It answers the following questions:
•How well is the firm continually improving & creating values such
as innovation, product quality?
•How well is the firm sustaining & even improving upon its core
competencies & competitive advantage?
•How satisfied are the firm's customers?

11. 6) PERT & CPM:
The Programme Evaluation Review Technique (PERT) & Critical Path
Method (CPM) were developed in order to plan and control activities.
PERT helps the Management to know:
When will the project be completed?
► When will each individual part of the project start and finish?
Of the many parts in a project, which ones should be completed on time to
avoid delaying the project?
Can resources be shifted from non-critical parts to the critical parts without
affecting the overall project's completion time?
CPM was developed for the purpose of scheduling. It is concerned with the
reconciliation, enumerates the relationship between applying more
resources to shorten the duration of a given project and the increased cost
of these resources.

12. 7) Portfolio analysis:
A technique that has been developed to assist in strategy
evaluation and selection process is known as portfolio
analysis. 1) The Boston Consulting Group’s (BCG) Growth-
Share Matrix
2)The Planning Grid ( General Electric (GE) model)
are commonly used approaches in portfolio analysis.

13. 7.1 The Boston Consulting Group’s (BCG) Matrix
To understand the Boston Matrix you need to understand how market share and market
growth interrelate.
MARKET SHARE:Market share is the percentage of the total market that is being
serviced by your company, measured either in revenue terms or unit volume terms.
RELATIVE MARKET SHARE: (RMS) = Business unit sales this year / Leading rival
sales this year
•The higher your market share, the higher proportion of the market you control.
MARKET GROWTH RATE: Market growth is used as a measure of a market's
attractiveness.
•MGR = (Individual sales this year - individual sales last year) / Individual sales last year
•Markets experiencing high growth are ones where the total market share available is
expanding, and there's plenty of opportunity for everyone to make money.

14. THE BCG GROWTH-SHARE MATRIX
MAIN STEPS OF BCG MATRIX
•Identifying and dividing a company into SBU.
•Assessing and comparing the prospects of each SBU according to two criteria:
•1. SBU'S relative market share.
•2. Growth rate OF SBU'S industry.
•Classifying the SBU'S on the basis of BCG matrix.
•Developing strategic objectives for each SBU
Question Marks I
High Market growth
Low market share
Dogs
Low Market Share
Low Market Growth
Stars II
High market share
High Market growth
Cash Cows III
High market share
Low Market growth
Market Share Position
Low High
Market
Growth
Low
High

15. STARS: High growth, High market share
Stars represent business units having large market share in a
fast growing industry. They may generate cash but because of fast growing market,
stars require huge investments to maintain their lead. Net cash flow is usually modest.
SBU's located in this cell are attractive as they are located in a robust industry and these
business units are highly competitive in the industry. If successful, a star will become a
cash cow when the industry matures.
CASH COWS: Low growth, High market share
•Cash Cows- Cash Cows represents business units having a large
•market share in a mature, slow growing industry. Cash cows require little investment
and generate cash that can be utilized for investment in other business units. These
SBU's are the corporation's key source of cash, and are specifically the core business.
They are the base of an organization. These businesses usually follow stability
strategies. When cash cows lose their appeal and move towards deterioration, then a
retrenchment policy may be pursued.

16. DOGS: Low growth, Low market share
•Dogs represent businesses having weak market shares in low- growth markets. They
neither generate cash nor require huge amount of cash. Due to low market share, these
business units face cost disadvantages. Generally retrenchment strategies are adopted
because these firms can gain market share only at the expense of competitor's/rival
firms. These business firms have weak market share
QUESTION MARKS: High growth, Low market share
•Question marks represent business units having low relative market share and located
in a high growth industry. They require huge amount of cash to maintain or gain market
share. They require attention to determine if the venture can be viable. Question marks
are generally new goods and services which have a good commercial prospective.
There is no specific strategy which can be adopted. If the firm thinks it has dominant
market share, then it can adopt expansion strategy, else retrenchment strategy can be
adopted. Most businesses start as question marks as the company tries to enter a high
growth market in which there is already a market-share. If ignored, then question marks
may become dogs, while if huge investment is made, and then they have potential of

17. Strategies Based on BCG matrix:
After a portfolio analysis, a firm should decide whether its portfolio is healthy or not. An
unbalanced portfolio would be one having too many dogs and question marks and too few cash
cows and stars. The company should decide whether to build, hold, harvest or divest its SBUs.
•Build: Appropriate for question marks whose market shares must grow if they are
to become stars and for stars if they are to become cash cows.
•Hold: It is appropriate for cash cows if they are to continue yielding large cash
flows.
•Harvest: It is a strategy to increase short-term cash flow regardless of long term
effect. It involves milking the business dry and entails eliminating unnecessary
R&D expenditures, not replacing worn out equipment, reducing advertising
expenditure, reducing the sales force etc. the strategy is appropriate for weak
cash cows, dogs and question marks.
•Divest: Refers to liquidating or selling weak businesses and is appropriate for dogs
and question marks.

18. WHY BCG MATRIX?
To assess:
1.Profiles of products/businesses
2.The development cycles of products
3.Resource allocation and divestment decisions
4.The cash demands of products

19. 7.2The Planning Grid ( General Electric (GE) model)
The planning grid was developed by General Electric (GE). It plots each business
unit on a nine cell grid. The horizontal axis is a qualitative analysis of the business
unit’s strengths, while the vertical axis is a qualitative analysis of the industry
attractiveness. Market attractiveness is rated as high, medium or low and business
strength is rated as being strong, medium or weak.
The nine cells of the GE matrix fall into three zones.
The three zones in the upper left corner (1, 2, & 4)
indicate strong SBUs in which the firm should invest
heavily and pursue growth strategies. The diagonal
cells (3, 5, &7) indicate SBUs that are medium in
attractiveness. The firm should pursue growth or
harvesting strategies in these SBUs. Cells 6, 8, & 9
indicate SBUs that are low in attractiveness in which
the company should divest or pursue defensive
strategies (turnaround, divestiture, and liquidation).