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STRATEGIC MANAGEMENT & BUSINESS POLICY
12TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
*
Pearson Education © 2010
11-*
Evaluation and Control ensures that a company is achieving
what it set out to accomplish by comparing performance with
desired results and taking corrective action as needed
*
Pearson Education © 2010
11-*
Determine what to measure
Establish standards of performance
Measure actual performance
Compare actual performance with the standard
Take corrective action
*
Pearson Education © 2010
11-*
*
Pearson Education © 2010
11-*
*
Pearson Education © 2010
11-*
Appropriate Measures
Performance is the end result of activity
Steering controls measure variables that influence future
profitabilityCost per passenger mile (airlines)Inventory turnover
ratio (retail)Customer satisfaction
*
Pearson Education © 2010
11-*
Types of Controls
Output controls- specify what is to be accomplished by focusing
on the end result
Behavior controls specify how something is done through
policies, rules, standard operating procedures and orders from
supervisors
Input controls emphasize resources
*
Pearson Education © 2010
11-*
Activity Based Costing
Activity based costing- allocates indirect and direct costs to
individual product lines based on value-added activities going
into that productAllows accountants to charge costs more
accurately since it allocates overhead more precisely
*
Pearson Education © 2010
11-*
Enterprise Risk Management a corporate-wide, integrated
process for managing uncertainties that could negatively or
positively influence the achievement of objectives
Identify the risks using scenario analysis, brainstorming, or
performing risk assessments
Rank the risks, using some scale of impact and likelihood
Measure the risks using some agreed-upon standard
*
Pearson Education © 2010
11-*
Primary Measures of Corporate Performance
Return on Investment (ROI)Earnings per share (EPS)Return on
equity (ROE)Operating cash flowFree cash flow
*
Pearson Education © 2010
11-*
Popular Measures of Internet Companies
Non-Financial Measures
StickinessEyeballsMindshareMonthly unique viewers
*
Pearson Education © 2010
11-*
*
Pearson Education © 2010
11-*
*
Pearson Education © 2010
11-*
Shareholder Value- the present value of the anticipated future
streams of cash flows from the business plus the value of the
company if liquidated
Economic Value Added (EVA)- measures the difference
between the pre-strategy and post-strategy values for the
business
EVA=After tax income-total annual cost of capital
*
Pearson Education © 2010
11-*
Market Value Added (MVA)- measures the difference between
the market value of a corporation and the capital contributed by
shareholders and lenders
Measures the stock market’s estimate of the net present value of
a firm’s past and expected capital investment projects
*
Pearson Education © 2010
11-*
Balanced score card– combines financial measures that tell
results of actions already taken with operational measures on
customer satisfaction, internal processes and the corporation’s
innovation and improvement
activitiesFinancialCustomerInternal business
perspectiveInnovation and learning
*
Pearson Education © 2010
11-*
Evaluating Top Management and the Board of Directors
Chairman-CEO Feedback InstrumentManagement AuditStrategic
Audit
*
Pearson Education © 2010
11-*Is Figure 11-1 a realistic model of the evaluation and
control process?What are some examples of behavior
controls? Output
controls? Input controls?Is EVA an improvement over
ROI, ROE, or EPS?How much faith can a manager place in
transfer price
as a substitute for market price in measuring a profit
center’s performance?Is the evaluation and control process
appropriate for a
corporation that emphasizes creativity? Are control and
creativity compatible?
*
Pearson Education © 2010
11-*
PowerPoint created by:
Ronald Heimler
Dowling College- MBAGeorgetown University- BS Business
AdministrationAdjunct Professor- LIM College, NYAdjunct
Professor- Long Island University, NYLecturer- California State
Polytechnic University, Pomona, CAPresident- Walter Heimler,
Inc.
*
All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or transmitted, in any
form or by any means, electronic, mechanical, photocopying,
recording, or otherwise, without the prior written permission of
the publisher. Printed in the United States of America.
Copyright © 2010 Pearson Education, Inc.
*

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STRATEGIC MANAGEMENT & BUSINESS POLICY12TH EDITIONTH.docx

  • 1. STRATEGIC MANAGEMENT & BUSINESS POLICY 12TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER * Pearson Education © 2010 11-* Evaluation and Control ensures that a company is achieving what it set out to accomplish by comparing performance with desired results and taking corrective action as needed * Pearson Education © 2010 11-*
  • 2. Determine what to measure Establish standards of performance Measure actual performance Compare actual performance with the standard Take corrective action * Pearson Education © 2010 11-* * Pearson Education © 2010 11-* *
  • 3. Pearson Education © 2010 11-* Appropriate Measures Performance is the end result of activity Steering controls measure variables that influence future profitabilityCost per passenger mile (airlines)Inventory turnover ratio (retail)Customer satisfaction * Pearson Education © 2010 11-* Types of Controls Output controls- specify what is to be accomplished by focusing on the end result Behavior controls specify how something is done through policies, rules, standard operating procedures and orders from supervisors Input controls emphasize resources *
  • 4. Pearson Education © 2010 11-* Activity Based Costing Activity based costing- allocates indirect and direct costs to individual product lines based on value-added activities going into that productAllows accountants to charge costs more accurately since it allocates overhead more precisely * Pearson Education © 2010 11-* Enterprise Risk Management a corporate-wide, integrated process for managing uncertainties that could negatively or positively influence the achievement of objectives Identify the risks using scenario analysis, brainstorming, or performing risk assessments Rank the risks, using some scale of impact and likelihood Measure the risks using some agreed-upon standard *
  • 5. Pearson Education © 2010 11-* Primary Measures of Corporate Performance Return on Investment (ROI)Earnings per share (EPS)Return on equity (ROE)Operating cash flowFree cash flow * Pearson Education © 2010 11-* Popular Measures of Internet Companies Non-Financial Measures StickinessEyeballsMindshareMonthly unique viewers * Pearson Education © 2010 11-*
  • 6. * Pearson Education © 2010 11-* * Pearson Education © 2010 11-* Shareholder Value- the present value of the anticipated future streams of cash flows from the business plus the value of the company if liquidated Economic Value Added (EVA)- measures the difference between the pre-strategy and post-strategy values for the business EVA=After tax income-total annual cost of capital *
  • 7. Pearson Education © 2010 11-* Market Value Added (MVA)- measures the difference between the market value of a corporation and the capital contributed by shareholders and lenders Measures the stock market’s estimate of the net present value of a firm’s past and expected capital investment projects * Pearson Education © 2010 11-* Balanced score card– combines financial measures that tell results of actions already taken with operational measures on customer satisfaction, internal processes and the corporation’s innovation and improvement activitiesFinancialCustomerInternal business perspectiveInnovation and learning *
  • 8. Pearson Education © 2010 11-* Evaluating Top Management and the Board of Directors Chairman-CEO Feedback InstrumentManagement AuditStrategic Audit * Pearson Education © 2010 11-*Is Figure 11-1 a realistic model of the evaluation and control process?What are some examples of behavior controls? Output controls? Input controls?Is EVA an improvement over ROI, ROE, or EPS?How much faith can a manager place in transfer price as a substitute for market price in measuring a profit center’s performance?Is the evaluation and control process appropriate for a corporation that emphasizes creativity? Are control and creativity compatible? *
  • 9. Pearson Education © 2010 11-* PowerPoint created by: Ronald Heimler Dowling College- MBAGeorgetown University- BS Business AdministrationAdjunct Professor- LIM College, NYAdjunct Professor- Long Island University, NYLecturer- California State Polytechnic University, Pomona, CAPresident- Walter Heimler, Inc. * All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. *