This document discusses strategy evaluation and review. It outlines the importance of evaluating strategy on an ongoing basis to ensure it remains relevant given changes in the internal and external environment. It describes evaluating strategy by reviewing its underlying bases, measuring organizational performance against plans, and taking corrective actions if needed. Key aspects of effective evaluation discussed include using both quantitative financial metrics and qualitative assessments, generating timely and useful information, and engaging in contingency planning to prepare for favorable and unfavorable events.

1. Chapter 9:
Strategy Review, Evaluation and
Control
• The Nature of Strategy Evaluation
• A Strategy-Evaluation Framework
• Published Sources of Strategy-Evaluation Information
• Characteristics of an Effective Evaluation
System
• Contingency Planning
• Auditing
• Using Computers to Evaluate Strategy
• Guidelines for Effective Strategic
Management

2. Systematic Review, Evaluation & Control
–Strategies become obsolete
– Internal environments are dynamic
– External environments are dynamic
Strategy Review, Evaluation &
Control
Organizations are most vulnerable
when they are at the peak of their
success.
-- R.T. Lenz

3. • 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

4. 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
Strategy evaluation –
– Complex and sensitive undertaking.
– Overemphasis can be costly and counterproductive.

5. Consistency
– Strategy should not present inconsistent goals
and policies.
• Conflict and interdepartmental bickering symptomatic of
managerial disorder and strategic inconsistency
Rummelt’s Four Criteria Of Evaluation
Consonance
– Need for strategies to examine sets of
trends
• Adaptive response to external environment
• Trends are results of interactions among
other trends

6. Feasibility
– Neither overtax resources or create
unsolvable subproblems
• 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

7. Difficulty in strategy evaluation –
1. Increase in environment’s complexity
2. Difficulty predicting future with accuracy
3. Increasing number of variables
Strategy Evaluation
4. Rate of obsolescence of plans
5. Domestic and global events
6. Decreasing time span for planning certainty
Strategy evaluation should –
– Initiative managerial questioning
– Trigger review of objectives and values
– Stimulate creativity in generating alternatives
Process of Strategy Evaluation

8. Review of underlying bases of strategy –
– Develop revised EFE Matrix
– Develop revised IFE Matrix
Reviewing Bases of Strategy

9. 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
5. Reasons for competitors’ successful strategies
6. Competitors’ present market positions and
profitability
7. Potential for competitor retaliation
8. Potential for cooperation with competitors

10. Monitor Threats and Opportunities and Weaknesses
and Strengths
• Are our internal strengths still strengths?
• Have we added additional strengths?
• Are our weaknesses still weaknesses?
• Have we other internal weaknesses?
• Are opportunities still opportunities?
• Other external opportunities?
• Are threats still threats?
• Are there other threats?
• Are we vulnerable to a hostile takeover?
Reviewing Bases of Strategy

11. Evaluation Framework
I. Review Underlying Bases
Continue present course
II. Measure Firm Performance
III.
Take
Corrective
Actions
Differences?
Differences?
Yes
NO
Yes
NO

12. • Comparing expected to actual results
• Investigating deviations from plan
• Evaluating individual performance
• Progress toward stated objectives
Measuring Organizational
Performance

13. Quantitative criteria for strategy evaluation –
– Financial Ratios:
• Compare performance over different periods
• Compare performance to competitors
• Compare performance to industry averages
Measuring Organizational
Performance

14. Key Financial Ratios –
– Return on investment
– Return on equity
– Profit margin
– Market share
Measuring Organizational
Performance

15. Key Financial Ratios –
– Debt to equity
– Earnings per share
– Sales growth
– Asset growth
Measuring Organizational
Performance

16. 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
Measuring Organizational
Performance

17. Basic requirements for effective strategy
evaluation –
– Economical
– Meaningful
– Generate useful information
– Timely information
– Provide a true picture of what is happening
Characteristics of Evaluation

18. Premise of sound strategic management –
– Planning to deal with unfavorable and
favorable events before they occur.
Contingency Planning

19. Contingency Planning –
– Alternative plans that can be put into effect if
certain key events do not occur as expected
Contingency Planning

20. • Financial audits to determine
correspondence between assertions
based on strategic plans and established
criteria
• Environmental audits to insure sound
and safe practices
Auditing

21. Key Terms
• Advantage
• Auditing
• Consistency
• Consonance
• Contingency Plans
• Corporate Agility
• Feasibility

22. Key Terms
• Future Shock
• Management by Wandering Around
• Measuring Organizational Performance
• Planning Process Audit (PPA)
• Reviewing the Underlying Bases of an
Organization’s Strategy

23. Key Terms
• Revised EFE Matrix
• Revised IFE Matrix
• Taking Corrective Actions