The chapter comprises of Overview of Strategic Evaluation; Strategic Control; Techniques of Strategic Evaluation and Control. Evaluation of Strategic Alternatives - Product Portfolio Models, BCG Matrix, GE Matrix, Gap Analysis; Strategic Control System.
Strategic evaluation and control is the final phase in the process of strategic management. Its basic purpose is to ensure that the strategy is achieving the goals and objectives set for the strategy. It compares performance with the desired results and provides the feedback necessary for management to take corrective action.
According to Fred R. David, strategy evaluation includes three basic activities
(1) examining the underlying bases of a firm’s strategy,
(2) comparing expected results with actual results, and
(3) taking corrective action to ensure that performance conforms to plans. Sometime, the best formulated strategies become obsolete (outdated) as a firm’s external and internal environments change.
Strategic control is a type of “steering control”. We have to track the strategy as it is being implemented, detect any problems or changes in the predictions made, and make necessary adjustments. This is especially important because the implementation process itself takes a long time before we can achieve the results.
Strategic control is like an alarm long before the calamity can happen.
Operational control is the process of ensuring that specific tasks are carried out effectively and efficiently. The operational control aims at evaluating the performance of the organization. Most of the control system in organization are operational in nature. Some examples of operational control are : Budgetary control, Quality control, Inventory control, Production Control, Cost control etc.
Portfolio Model is a technique used to analyse organisations in relation to their environments
Portfolio (set, collection, assortment, range, group)
A business Portfolio may be any collection of brands/products, markets, branches /divisions, income generating assets, etc.
PA is usually applied to firms with multiple SBUs (more than one product/services, customer categories, markets , divisions)
Helps managers in taking decisions regarding which SBUs to allocate more or less resources to at a given strategic point in time
After portfolio analysis firm makes an informed strategic choice e.g.
To have a balanced portfolio (minimize risk and maximize return) of all portfolios
To actively deploy a retrenchment strategy
1. Corporate Strategic Management
Unit-V: Strategic Evaluation and Control
Overview of Strategic Evaluation; Strategic Control;
Techniques of Strategic Evaluation and Control. Evaluation of
Strategic Alternatives - Product Portfolio Models, BCG
Strategic Alternatives - Product Portfolio Models, BCG
Matrix, GE Matrix, Gap Analysis; Strategic Control System.
Prepared by:
Mr. Dayananda H. Huded M.Com JRF, NET, KSET
Teaching Assistant,
Rani Channamma University, P. G. Centre, Jamkhandi
2. Overview of Strategic Evaluation
• Strategic evaluation and control is the final phase in the process of strategic
management. Its basic purpose is to ensure that the strategy is achieving
the goals and objectives set for the strategy. It compares performance with
the desired results and provides the feedback necessary for management to
take corrective action.
• According to Fred R. David, strategy evaluation includes three basic
activities
– (1) examining the underlying bases of a firm’s strategy,
– (2) comparing expected results with actual results, and
– (3) taking corrective action to ensure that performance conforms to
plans. Sometime, the best formulated strategies become obsolete
(outdated) as a firm’s external and internal environments change.
• Strategic evaluation generally operates at two levels – strategic and
operational level. At the strategic level, managers try to examine the
consistency of strategy with environment. At the operational level, the
focus is on finding how a given strategy is effectively pursued by the
organisation.
3. Nature of Strategic Evaluation and Control
• Strategic evaluation and control is defined as the process of determining
the effectiveness of a given strategy in achieving the organisational
objectives and taking corrective actions wherever required.
• According to Pearce and Robinson, strategic control is concerned with
tracking a strategy as it is being implemented, detecting problems or changes in
its underlying premises, and making necessary adjustments.
• Strategic control in an organisation is similar to what the “steering
control” is in a ship. Steering keeps a ship, for instance, stable on its
control” is in a ship. Steering keeps a ship, for instance, stable on its
course.
• Similarly, strategic control systems sense to what extent the strategies
are successful in attaining goals and objectives, and this information is
fed to the decision-makers for taking corrective action in time.
• Strategic managers can steer the organisation by instituting minor
modifications or resort to more drastic changes such as altering the
strategic direction altogether. Strategic control systems thus offer a
framework for tracking, evaluating or reorienting the functioning of the
firm’s strategy.
4. Characteristics of Effective Evaluation and Control System
• 1. Simple: Strategy evaluation must be simple, not too comprehensive and
not too restrictive. Complex systems often confuse people and
accomplish little. The test of an effective evaluation system is its
simplicity not its complexity.
• 2. Economical: Strategy evaluation activities must be economical. Too
many controls can do more harm than good.
• 3. Meaningful: Strategy evaluation activities should be meaningful. They
should specifically relate to a firm’s objectives. They should provide
should specifically relate to a firm’s objectives. They should provide
managers with useful information about tasks over which they have
control and influence.
• 4. Timely: Strategy evaluation activities should provide timely
information. For example, when a firm has diversified into a new
business by acquiring another firm, evaluative information may be
needed at frequent intervals. Time dimension of control must
coincide with the time span of the event being measured.
5. • 5. Truthful: Strategy evaluation should be designed to provide a true
picture of what is happening. Information should facilitate action and
should be directed to those individuals who need to take action based on
it.
• 6. Selective: The control systems should focus on selective criteria like
key important factors which are critical to performance. Insignificant
deviations need not be focused.
• 7. Flexible: They must be flexible to take care of changing
circumstances.
• 8. Suitable: Control systems should be suitable to the needs of the
organisation. They must conform to the nature and needs of the job and
area to be controlled.
• 9. Acceptable: Controls will not work unless they are acceptable to
those who apply them.
• 10. Foster Understanding and Trust: Control systems should not
dominate decisions. Rather they should foster mutual understanding,
trust and common sense. No department should fail to cooperate with
another in evaluating and control of strategies.
6. Strategic Control and Operational Control
• Strategic control is a type of “steering control”. We have to track the strategy
as it is being implemented, detect any problems or changes in the
predictions made, and make necessary adjustments. This is especially
important because the implementation process itself takes a long time
before we can achieve the results.
• Strategic control is like an alarm long before the calamity can happen.
• Operational control is the process of ensuring that specific tasks are
carried out effectively and efficiently. The operational control aims at
carried out effectively and efficiently. The operational control aims at
evaluating the performance of the organization. Most of the control
system in organization are operational in nature. Some examples of
operational control are : Budgetary control, Quality control, Inventory
control, Production Control, Cost control etc.
7. Differences between Strategic Control and Operational Control
Attribute Strategic control Operational Control
Aim Proactive continuous questioning of
the basic direction of strategy. Its aim
is find out whether or not strategy is
being implemented properly.
Allocation and use of orgnisational
Resources
Basic
Question
“Are we moving in the right direction?” “How are we performing?”
Main
concern
The main concern of strategic control
is pushing the company in the correct
future direction.
The operational control is concerned
with the actions as it is based on plans,
standards and procedures.
future direction. standards and procedures.
Focus External environment Internal orgnisation
Time
period
The strategic control considers long-
term impact of strategy on the
organization.
The operational control is only for short
period say maximum for 1 year.
Exercise
of control
Exclusively by top management, may
be through lower-level Support
Mainly by executives of middlelevel
management on the direction of top
management
Technique
s used
Environmental scanning,
information gathering,
questioning and review
Budgets, schedules and MBO
8. Importance of Strategic Evaluation and Control
• 1. Facilitates coordination: Strategic evaluation and control facilitates
coordination among the various departments of the organization.
Whenever, there are any deviations the activities of the concerned
departments are coordinated so as to take collective and corrective
measures. The collectives efforts on the part of concerned departments
enable to correct the deviations and to accomplish the objective.
• 2. Facilitates optimum use of resources: Evaluation and control
• 2. Facilitates optimum use of resources: Evaluation and control
enables optimum use of resources – physical, financial and human
resources. The resources are properly allocated and utilized which in
turn generates higher productivity and efficiency.
• 3. Guide to operations: Evaluation and control guides the actions of
the individuals and departments in the organization. Activities are
undertaken in the right direction and as such the organization would not
be able to accomplish its objectives.
9. • 4. Check on validity of strategic choice: Evaluation and control helps
the management to keep a check on the validity of the strategic choice.
The process of evaluation and control would provides feedback on the
relevance of the strategic choice made during the formulation stage.
This is due to the efficacy of the strategic evaluation to determine the
effectiveness of the strategy.
• 5. Facilitates performance appraisal: Evaluation and control facilitates
employees‟ appraisal. The actual performance is measured in the light
of the strategic planning. The managers measure the performance and
of the strategic planning. The managers measure the performance and
provide necessary feedback to the employees. This facilitates them to
improve their performance.
• 6. Motivates employees: Employees are aware that their performance is
reviewed periodically. Therefore, they put in their best possible efforts to
improve their performance. The employees are motivated as those
employees who show better performance are normally rewarded.
10. • 7. Fixes responsibility: Evaluation and control fixes responsibility on
the managers. It is the duty of the managers to correct the deviations,
when the actual performance is not taking place as per the targets.
Managers cannot ignore their responsibility for evaluation and control.
• 8. Creates inputs for future strategic planning: Strategic evaluation
and control provides a good amount of information and experience to
managers, which can be utilized in future strategic planning. Therefore,
future strategic planning can be better than before.
13. • 1. Determine what to measure: Top managers as well as operational
managers need to specify what implementation processes and results
will be monitored and evaluated. The processes and results must be
capable of being measured in a reasonably objective and consistent
manner. The focus should be on the most significant elements in a
process – the ones that account for the highest proportion of expense or
the greatest number of problems.
• 2. Setting of Standards: The strategists need to establish performance
targets, standards and tolerance limits for the objectives, strategy, and
implementation plans. The standards can be established in terms of
implementation plans. The standards can be established in terms of
quantity, quality , cost and time. Standard need to be definite and they
must be acceptable to employees. One cannot just fix high targets and
low targets or standards to be avoided.
• 3. Measuring actual performance: The next step is to measure the
actual performance. For this purpose, the manager may ask for
performance reports from the employees. The actual performance can be
measured both in quantitative terms as well as qualitative terms. The
actual performance also need to be measured in terms of time and the
cost factor.
14. • 4. Comparing actual performance with Standards: The actual
performance need to be compared with the standards. There must be
objective comparison of the actual performance against the
predetermined targets or standards. Such comparison is required to find
out deviations, if any.
• 5. Finding out Deviations: After comparison, the managers may notice
the deviations. For instance if the actual sales are only 9000 units as
compare to standards targets of 10,000 units of sales, then deviations
are to the extent of 1000 units of sales. If actual performance results
are within the desired tolerance range, the measurement process stops
here.
here.
• 6. Analyzing deviations: The deviations may be reported to the higher
authorities. The higher authorities analyze the cause of deviations. For
this purpose, the higher authorities may hold necessary discussion with
the functional staff. The causes of deviations should be identified.
• 7. Taking corrective Actions: If actual results fall outside the desired
tolerance range, corrective action must be taken to correct the deviation.
Some times there may be need for re-setting goals or objectives or re-
framing plans, policies and standards. The corrective steps must be taken
at the right time so as to accomplish the objectives.
15. Techniques of Strategic Control
• A. Evaluation techniques for Strategic Control
Strategic control takes into account the changing assumptions that
determine the strategy by continuously evaluating the strategy during
the process of implementation and it also takes the required corrective
action as and when needed. Thus strategic control is like an alarm long
before the calamity can happen.
• 1. Management Information systems: Appropriate information systems act
as an effective control system. Management will come to know the latest
as an effective control system. Management will come to know the latest
performance in key areas and take appropriate corrective measures.
16. • 2. Benchmarking: It is a comparative method where a firm finds the best practices
in an area and then attempts to bring its own performance in that area in
in an area and then attempts to bring its own performance in that area in
line with the best practice. Best practices are the benchmarks that should be
adopted by a firm as the standards to exercise operational control. Through
this method, performance can be evaluated continually till it reaches the
best practice level. In order to excel, a firm shall have to exceed the
benchmarks. In this manner, benchmarking offers firms a tangible method
to evaluate performance.
• 3. Strategic Surveillance: Strategic surveillance is done to oversee the
organization as a whole. It sees whether any event either within or outside
the company threatens the strategies course of action in any way.
17. • 4. Implementation control: Only strategy implementation gives result
to plans, projects and programmes being set up. The strategist has to lay
down the resources to be allocated all every stage. Implementation
control deals with the evaluation whether the plans, projects and
programmes one leading the organization towards its predetermined
goal. This is done through identification and close monitoring of each
plan.
• 5. Special alert control: In case of emergencies the company needs to
take quick and correct decision in order to save the strategy in operation.
Special alert control can be exercised through the formulation of
contingency strategies by giving the job immediately to the crisis
contingency strategies by giving the job immediately to the crisis
management teams who is capable and experienced in handling such
emergencies e.g. unfortunate floods , share prices crash or real estate
prices crash etc.
• 6. Responsibility centres: Central centres can be established to monitor
specific functions, projects or divisions. Responsibility centres are used
to isolate a unit so that it can be evaluated separately from the rest of
the corporation. Each responsibility centre therefore has its own budget
and is evaluated on its use of budgeted resources.
18. • A responsibility centre is headed by the manager responsible for the
centres performance. They are of various types
– Cost centres, Revenue centres, Expense centres, Profit centres and
Investment centres.
B. Evaluation techniques for Operational Control
• Operational control is the process of ensuring that specific tasks are
carried out effectively and efficiently. The operational control aims at
evaluating the performance of the organization. Most of the control
system in organization are operational in nature.
system in organization are operational in nature.
• 1. Network techniques: Network techniques such as Programme Evaluation
and Review Technique (PERT), Critical Path Method (CPM), and their
variants, are used extensively for the operational controls of scheduling
and resource allocation in projects. When network techniques are
modified for use as a cost accounting system, they become highly
effective operational controls for project costs and performance.
19. • 2. Internal Analysis: The internal analysis deals with the strengths and
weakness of the firm. It involves following techniques.
– Value chain analysis, Quantitative analysis, ratio analysis, market
ranking, advertising, market surveys, experimentation and
observation.
3. Balanced scoreboard: In this techniques, the four key performance
measures are identified – customer perspective, internal business
perspective, innovation and learning perspective and the financial
perspective. This techniques adopts a balanced approach to evaluate
performance of the organization as a whole as a wide range of
performance of the organization as a whole as a wide range of
parameters are considered.
4. Management by Objectives (MBO): It involves subordinate
managers in planning and controlling activities. In this case the
superior and subordinate managers jointly decide common goals, and
jointly frame plans. The subordinate then implements the plan, and
finally the performance of the plan is jointly reviewed by the
superior and subordinate managers.
20. • 5. Memorandum of Understanding (MOU): Memorandum of
Understanding is an agreement between a public enterprise and the
Government where clearly specify their commitments and
responsibilities.
• 6. Budgetary control: It is used to indicate the appraisal of
performance by a comparison of the actual with the budget and
corrective action for the same. Here budgets are used as an instrument
of control.
• 7. Zero-based Budgeting: Here annual budgets, revaluation of plans,
projects and programmes decide whether any change in resource
projects and programmes decide whether any change in resource
allocation is required to achieve the company‟s goals.
21. STRATEGIC ALTERNATIVES
• Strategic Alternatives Business environments are highly
uncertain and executives need to be innovative and
flexible to survive.
• They achieve this through strategic alternatives that
enable their companies to maintain a competitive edge
over rivals.
over rivals.
• Some alternative strategies include price focus,
differentiation, diversification and adjacent businesses
22. Environment Alanalysis
• Environmental analysis is a strategic tool. It is a process to identify all
the external and internal elements, which can affect the organization’s
performance.. These evaluations are later translated into the decision-
making process. The analysis helps align strategies with the firm’s
environment.
• Our market is facing changes every day. Many new things develop over
time and the whole scenario can alter in only a few seconds. There are
some factors that are beyond your control. But, you can control a lot of
some factors that are beyond your control. But, you can control a lot of
these things.
• There are many strategic analysis tools that a firm can use, but some are
more common. The most used detailed analysis of the environment is
the PESTLE analysis.
• This is a bird’s eye view of the business conduct. Managers and strategy
builders use this analysis to find where their market currently.
• PESTLE analysis consists of various factors that affect the business
environment. Each letter in the acronym signifies a set of factors. These
factors can affect every industry directly or indirectly.
23. Product Portfolio Models
• Portfolio Model is a technique used to analyse organisations in relation
to their environments
• Portfolio (set, collection, assortment, range, group)
• A business Portfolio may be any collection of brands/products, markets,
branches /divisions, income generating assets, etc.
• PA is usually applied to firms with multiple SBUs (more than one
product/services, customer categories, markets , divisions)
• Helps managers in taking decisions regarding which SBUs to allocate
• Helps managers in taking decisions regarding which SBUs to allocate
more or less resources to at a given strategic point in time
• After portfolio analysis firm makes an informed strategic choice e.g.
– To have a balanced portfolio (minimize risk and maximize return) of
all portfolios
– To actively deploy a retrenchment strategy
24.
25. • Have been developed by large firms in developed world, mostly named
against their inventors
• Are applicable even to smaller firms with multiple SBUs.
– Examples are shown below:
• The B.C.G model (Growth/Share matrix)
• The G.E Multi-directional model (competitive strengths/Attractiveness
matrix)
• Contribution Margin Analysis (how much profit margin does that biz
portfolio contribute?)
portfolio contribute?)
• Gap Analysis.
26. Boston Consulting Group (BCG) Model
• The BCG matrix was developed by the Boston Consultancy group in
1970s. It is also called the “Growth share matrix”. This is the most
popular and the simplest matrix to describe a corporation’s portfolio of
businesses or products.
• According to this technique, business or products are classified as low or
high performance depending upon their market growth rate & relative
market share.
• This is the most popular business portfolio matrix
• This is the most popular business portfolio matrix
• It analyses the business portfolio in relation to market share and market
/ industry growth.
• The above 2 variables (share & growth) range from low to high
• A SBU is positioned in the model and the firms strategy is guided by the
SBU’s positioning.
27. • To understand the Boston Matrix you need to understand how market
share & market growth interrelated.
• Market share is the percentage of the total market that is being serviced
by your company measured either in the revenue terms or unit volume
terms.
28. • Market Growth Rate: Market Growth is used as a
measure of a market’s attractiveness.
29. Why We Need BCG Matrix
• To assess
– Profile of product /business
– Cash demands of products
– The development cycle of product
– Resource allocation & divestment decisions
Main Steps of BCG Matrix
Main Steps of BCG Matrix
- Identifying & dividing a company into SBU
- Assessing & 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 objective for each SBU
32. Stars (High share and High growth)
• Star products all have rapid growth and dominant market share.
• This means that star products can be seen as market leading products.
• These products will need a lot of investment to retain their position, to
support further growth as well as to maintain its lead over competing
products.
• This being said, star products will also be generating a lot of income
due to the strength they have in the market.
due to the strength they have in the market.
• The main problem for product portfolio managers it to judge whether
the market is going to continue to grow or whether it will go down.
• Star products can become Cash Cows as the market growth starts to
decline if they keep their high market share.
33. Cash Cows (high share, low growth)
• Cash cows don’t need the same level of support as before.
• This is due to less competitive pressures with a low growth market and
they usually enjoy a dominant position that has been generated from
economies of scale.
• Cash cows are still generating a significant level of income but is not
costing the organisation much to maintain.
• These products can be “milked” to fund Star products.
• These products can be “milked” to fund Star products.
34. Dogs (low share, low growth)
• Products classified as dogs always have a weak market share in a low
growth market.
• These products are very likely making a loss or a very low profit at best.
• These products can be a big drain on management time and resources.
• The question for managers is whether the investment currently being
spent on keeping these products alive could be spent on making
something that would be more profitable.
something that would be more profitable.
• The answer to this question is usually yes.
35. Question mark / Problem Child (low share, high growth)
• Also sometime referred to as Question Marks, these products prove to be
tricky ones for product managers.
• These products are in a high growth market but do not seem to have a
high share of the market.
• The reason for this could be that it's a very new product to the market.
• If this is not the case, then some questions need to be asked.
• What is the organisation doing wrong?
• What is the organisation doing wrong?
• What are its competitors doing right?
• It could be that these products just need more investment behind them
to become Stars.
40. GE Matrix
• Developed in 1970’s
• General Electric or GE McKinsey Matrix.
• A strategic tool for portfolio planning.
• A portfolio is a group of businesses that make up a company (SBU’s)
• No business has infinite amount of money to run effectively.
• The GE Matrix helps to determine;
– Which SBU should receive more or less investment.
–
– What new products or SBU’s are needed in the portfolio.
– Which products or SBU’s need to be divested.
This is a form of portfolio analysis used for classifying product lines or
strategic business units within a large company
It was developed by McKinsey for the US General Electric Company
It assesses areas of the business in terms of two criteria:
1. – The attractiveness of the industry/market concerned
2. – The strength of the business
41. • How does it differ from the BCG Matrix?
• There are similarities: –
– Two dimensions are used to create a matrix
– Each cell suggests an appropriate strategy
– In both cases we are concerned with the future strategy for a
particular area (e.g. a division) within the firm
• There are major differences;
– The GE matrix involves a wider analysis of the firm’s operations
– The GE matrix involves a wider analysis of the firm’s operations
– The dimensions of the GE matrix are industry attractiveness and
business strength (rather than market share and market growth)
– There are nine cells and a wider choice of strategies
– The Boston Matrix focuses on products within the firms product
range
– The GE matrix can be extended to look at strategic business units.
42. 1. Attractiveness of the Industry
• The vertical axis of the matrix is industry attractiveness
• This concerns the attractiveness to a firm of entering, or remaining, in
a particular industry
• Industry attractiveness is assessed by considering a range of factors
each of which is given a weighting to produce a composite picture
• Criteria which makes a market attractive;
Factors Which Makes Market Attractiveness
Factors Which Makes Market Attractiveness
1. Market size 7. Growth rate 13. PEST factors
2. Industry profitability 8. Intensity of competition 14. Profit margins
3. Differentiation 9. Industry fluctuations 15Government regulation
4. Variability of demand 10. Entry and exit barrier 16. Volatility
5. Availability of Market
intelligence
11. Availability of Work
force
17. Global opportunities
6. Overall returns in the
industry
12. Rate of technological
change
18. Customer/supplier
relations
43. 2. Strength of the Business
• Business unit strength: Horizontal axis of the matrix is the strength of the business unit
• This refers to how strong the firm or SBU is in terms of the market
• A market might be very attractive but the firm lacks strengths in terms of supplying the
market
• As with industry attractiveness a composite of industry strength is based on weighting a
range of factors
• Notice that the Boston Matrix dimensions are included in the GE matrix- market
growth is an element of industry attractive and market share is an element in business
strength
Factors Assessing Internal Strengths of Business Unit
1. Production capacity 8. Production flexibility 15. Unit costs
2. R and D capabilities 9. Quality 16. Reliability
3. Company image 10. Product uniqueness 17. Cost and profitability
4. Service quality 11. Manufacturing capability 18. Organisational skills
5. Market share 12. Growth in market share 19. Marketing capabilities
6. Management competence 13. Skills of workforce 20. Distribution network
7. Size and quality of sales
force
14. Profit margins relative to
competitors
21. Customer loyalty and
Brand recognition
44. GE Matrix
Business Unit Strength
Industry
Attractiveness
Strong Average Weak
High Grow Grow Hold
Industry
Attractiveness
High Grow Grow Hold
Medium Grow Hold Harvest
Low Hold Harvest Harvest
45. • Advantages
• Helps to prioritize the limited resources in order to achieve
the best returns.
• Managers become more aware of how their products or
business units perform.
• Identifies the strategic steps the company needs to make to
improve the performance of its business portfolio.
• Disadvantages
• Disadvantages
• Requires a consultant or a highly experienced person to determine
industry’s attractiveness and business unit strength as accurately
as possible.
• It is costly to conduct.
• It doesn’t take into account the synergies that could exist between
two or more business units.
50. Strategic Control System
• Strategic control is also focused on the achievement of future goals,
rather than the evaluation of past performance.
• Strategic control is concerned with tracking a strategy as it is being
implemented, detecting problems or changes in its underlying premises,
and making necessary adjustments
• Schreyogg and Steinmann (1987) : “The critical evaluation of plans,
• Schreyogg and Steinmann (1987) : “The critical evaluation of plans,
activities, and results, thereby providing information for the future
action“.
• The most important purpose of strategic control is to help achieve
organizational goals through monitoring and evaluating the strategic
management process.
51. Characteristics of strategic control
• It is a continuous process
• It is a management process
• It is embedded in each level of organizational hierarchy
• It is forward looking
• It is closely linked with planning
• It is a tool for achieving organizational activities
• It is an end process