Strategic management theory and practicestrategic contro

Strategic Management: Theory and
Practice
Strategic Control and Crisis Management
Contributors: By: John A. Parnell
Book Title: Strategic Management: Theory and Practice
Chapter Title: "Strategic Control and Crisis Management"
Pub. Date: 2014
Access Date: March 7, 2018
Publishing Company: SAGE Publications, Ltd
City: 55 City Road
Print ISBN: 9781452234984
Online ISBN: 9781506374598
DOI: http://dx.doi.org/10.4135/9781506374598.n12
Print pages: 326-352
©2014 SAGE Publications, Ltd. All Rights Reserved.
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Strategic Control and Crisis Management
Chapter Outline
Step 1: The Focus of Strategic Control
Step 2: Strategic Control Standards (Benchmarks)
Published Information for Strategic Control
Product/Service Quality
Innovation
Market Share and Relative Market Share
Steps 3 Through 5: Exerting Strategic Control
Control Through the Formal and Informal Organizations
Crisis Management
Prominent Crises in Recent History
Crisis Planning
Trends in Strategic Management
Summary
Key Terms

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Review Questions and Exercises
Practice Quiz
Student Study Site
Notes
The strategic management process is not complete when a
strategy has been executed. It is
also necessary to evaluate its success—or failure—and take
steps to address any problems
that may have arisen along the way. Strategic control consists of
determining the extent to
which the organization's strategies are successful in attaining its
goals and objectives. The
execution process is tracked, and adjustments to the strategy are
made as necessary.1. It is
during the strategic control process that gaps between the
intended and realized strategies
(i.e., what was planned and what really happened) are identified
and addressed. For
example, Wal-Mart instituted strategic control when it cut back
its plan for U.S. supercenter
expansion in the late 2000s following lower-than-expected

global revenues.2.
The process of strategic control can be likened to that of
steering a vehicle. After the strategy
accelerator is pressed, the control function ensures that
everything is moving in the right
direction. When a simple steering adjustment is not sufficient to
modify the course of the
vehicle, the driver can resort to other means, such as applying
the break or shifting gears. In
a similar manner, strategic managers can steer the organization
by instituting minor
modifications or resort to more drastic changes, such as altering
the strategic direction
altogether.
The imperative for strategic control is brought about by two key
factors, the first of which is the
need to know how well the firm is performing. Without strategic
control, there are no clear
benchmarks and ultimately no reliable measurements of how the
company is doing. A second
key factor supporting the need for strategic control is
organizational and environmental
uncertainty. Because strategic managers are not always able to
accurately forecast the future,
strategic control serves as a means of accounting for last-minute
changes during the
implementation process. In addition, rivals may respond
immediately to a change in strategy,
requiring that managers consider additional modifications.
The focus of strategic control is both internal and external
because it is top management's
role to align the internal operations of the enterprise with its
external environment. Relying on

quantitative and qualitative performance measures, strategic
control helps maintain proper
alignment between the firm and its environment.
Although individual firms usually exert little or no influence
over the external environment,
macroenvironmental and industry forces must be continuously
monitored because shifts can
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1.
2.
3.
4.
5.
greatly influence the firm. The purpose of monitoring the
external environment is to determine
whether the assumptions on which the strategy is based remain
valid. In this context, strategic
control consists of modifying the company's operations to more
effectively defend itself
against external threats that may arise or become known.
The notion of strategic control has recently gained a

“continuous improvement” dimension,
whereby strategic managers seek to improve the efficiency and
effectiveness of all factors
related to the strategy. In other words, control should not be
seen as an action necessary only
when performance declines. Rather, managers should think
critically when considering
strategic control and look for opportunities to enhance
performance even with things seem to
be going well.
Ultimately, strategic control can be exerted by the chief
executive officer (CEO), the board of
directors, or even individuals outside the top management team.
The roles played by boards
of directors, institutional investors, and shareholders who
monitor firm strategies and often
instigate control vary across firms. The influence of the board
and others notwithstanding,
ongoing strategic control is largely a function performed by the
top management team. A five-
step strategic control process can be employed to facilitate this
process, as depicted in Figure
12.1:
Top management determines the focus of control by identifying
internal factors that can
serve as effective measures for the success or failure of a
strategy, as well as outside
factors that could trigger responses from the organization.
Standards (i.e., benchmarks) are established for internal factors
with which the actual
performance of the organization can be compared after the
strategy is implemented.
Management measures, or evaluates, the company's actual
performance both

quantitatively and qualitatively.
Performance evaluations are compared with the previously
established standards.
If performance meets or exceeds the standards, corrective action
is usually not
necessary. If performance falls below the standard, then
management usually takes
remedial action.
Step 1: The Focus of Strategic Control
The first step of the strategic control process is to determine the
focus of the control. It is
important to align the focus with the ongoing strategy to be
assessed so that its success or
failure can be evaluated accordingly. For example, executives in
a firm emphasizing
innovation may wish to focus on factors associated with
research and development (R & D)
and new product development. In contrast, strategic managers in
a firm emphasizing cost
containment might focus on factors associated with efficiency
and production processes.
Specifically, if the firm seeks to be the industry's low -cost
producer, for example, its managers
must compare its production efficiency with those of
competitors and determine the extent to
which the firm is attaining its goal.
This step creates the context for strategic control by
concentrating management effort on
areas directly linked to strategic success.
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Figure 12.1 Five-Step Strategic Control Process
Step 2: Strategic Control Standards (Benchmarks)
The second step of the strategic control process is to identify
specific strategic control
standards directly linked to the strategy. Here, executives are
clarifying the specific
performance measures that will be employed to evaluate
strategic success or failure. Firm
performance may be evaluated in a number of ways.
Management can compare current
operating results with those from the preceding quarter or year.
Profitability is the most
commonly utilized performance measure and is therefore a
popular means of gauging
performance and exerting strategic control. A number of
additional financial measures may
also be helpful, including return on investment (ROI), return on
assets (ROA), return on sales
(ROS), and return on equity (ROE), and growth in revenues. A
qualitative judgment may be
made about factors such as changes in product or service
quality.
A key problem with measuring performance is that one measure
can be pursued to the
detriment of another. The common goals of growth and
profitability represent an example of
this phenomenon. Many firms pursue growth by investing in R

& D or new product
development or by slashing prices to gain customers. Either
approach tends to reduce profits
—at least in the short term.3.
While control standards should be established for the internal
factors identified in the
previous step, the focus should not consider past performance.
Doing so can be myopic
because it ignores important external variables. For example, a
rise in ROA from 8% to 10%
may appear to be a significant improvement, but this measure
must be evaluated in the
context of industry trends. In a depressed industry, a 10% ROA
may be considered
outstanding, but that same return in a growth industry may be
disappointing if the leading
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firms earn 20%. In addition, an increase in a company's ROA is
less encouraging if
performance continues to lag behind industry standards.
Often, strategic control standards are based on competitive
benchmarking—the process of
measuring a firm's performance against that of the top
performers, usually in the same

industry. After determining the appropriate benchmarks, a firm's
managers set goals to meet
or exceed them. Best practices—processes or activities that
have been successful in other
firms— may be adopted as a means of improving performance.
Strategic control should occur constantly at various
organizational levels and within various
functions of the organization. Realistic performa nce targets, or
benchmarks, should be
established for managers throughout the organization, and they
should also be specific. For
example, if market share is identified as a key indicator of the
success or failure of a growth
strategy, a specific market share should be identified, based on
past performance and/or
industry norms. Without specificity, it is difficult to assess the
effectiveness of a strategy after
it is implemented if clear targets are not identified in advance.
Control at the functional level may include factors such as the
number of defects in
production or composite scores on customer satisfaction
surveys. Like organization-wide
benchmarks, functional targets should also be specific, such as
“3 defective products per
1,000 produced” or “97% customer satisfaction based on an
existing survey instrument.”
Published Information for Strategic Control
Key information required to exert strategic control is not always
readily available, but access
has improved significantly in the past several decades. One of
the first and best-known efforts
to amass relevant data was known as the PIMS (profit impact of

market strategy) program.
PIMS is a database that contains quantitative and qualitative
information on the performance
of thousands of firms and more than 5,000 business units. The
original PIMS survey involved
about 3,000 business units in 200 firms between 1970 and 1983.
Data collection continued
after 1983, however, with about 4,000 businesses currently
included. While PIMS continues to
be recognized as a pioneering effort in strategic control, a
variety of elaborate and targeted
databases have since emerged.4.
Fortune magazine annually publishes the most- and least-
admired U.S. corporations with
a n n u a l s a l e s o f a t l e a s t $ 5 0 0 m i l l i o n i n s
u c h d i v e r s e i n d u s t r i e s a s e l e c t r o n i c s ,
pharmaceuticals, retailing, transportation, banking, insurance,
metals, food, motor vehicles,
and utilities. Corporate dimensions are evaluated along factors
such as quality of products
and services, innovation, quality of management, market share,
financial returns and stability,
social responsibility, and human resource management
effectiveness. Publications such as
Forbes, Industry Week, Business Week, and the Industry
Standard also provide performance
scorecards based on similar criteria. Although such lists
generally include only large, publicly
traded companies, they can offer high-quality strategic
information at minimal cost to the
strategic managers of all firms, regardless of size. Published
information on three measures—
(1) quality, (2) innovation, and (3) market share—can be
particularly useful measures, and are

discussed later in the chapter.
Product/Service Quality
Over the years, there has been a positive relationship between
product/service quality—
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including both the conformance of a product or service to
internal standards and the ultimate
consumer's perception of quality—and the financial
performance of those firms. Conforming to
internal quality standards alone is not sufficient. Products and
services must also meet the
expectations of users, including both objective and subjective
measures.5.
Fortune assesses quality by asking executives, outside directors,
and financial analysts to
judge outputs of the largest firms in the United States.6. Its
studies consistently demonstrate
a significant relationship between product/service quality and
firm performance. Although the
PIMS program assesses quality through judgments made by both
managers and customers
instead of asking executives and analysts, its findings also

support a strong positive
correlation between product quality and business performance.7.
Consumer Reports is also an excellent source of product quality
data, evaluating hundreds of
products from cars to medications each year. Because Consumer
Reports accepts no
advertising, its evaluations are relatively bias free, rendering it
an excellent source of product
quality information for competing businesses. Even if the
products of a particular business are
not evaluated by this publication, that company can still gain
insight on the quality of products
and services produced by its competitors, suppliers, and buyers.
Specific published information may also exist for select
industries. One of the best known is
the “Customer Satisfaction Index” released annually by J. D.
Power for the automobile
industry. A survey of new car owners each year examines such
variables as satisfaction with
various aspects of vehicle performance; problems reported
during the first 90 days of
ownership; ratings of dealer service quality; and ratings of the
sales, delivery, and condition of
new vehicles.8. Numerous Internet sites offer quality ratings
associated with a number of
industries for everything from computers to university
professors.
Business publications often provide detailed assessments of
firms in travel-related industries.
For example, in early 2011, the Financial Times conducted an
in-depth analysis of air travel

worldwide, including information on fatal accidents in the 25
largest airlines, fatalities in
various parts of the world, and airlines banned for safety
concerns.9. Reports such as these
are not only valuable to business travelers, but executives in the
industry can often use them
as a means of evaluating firm performance.
Broadly speaking, the Internet serves as an excellent resource
for strategic managers seeking
quality assessments for its industry. For example, a number of
sites (e.g., www.dealtime.com)
provide consumer ratings of vendors. Although such
information is not always reliable,
feedback forums can provide strategic managers with valuable
insight into the quality
perceptions of their customers. Even Amazon.com ranks all
books on sales volume and
provides opportunities for readers to post comments to
prospective buyers.
Innovation
Innovation is a complex process and is conceptualized,
measured, and controlled through a
variety of means. Some researchers use expenditures for product
research and development
and process R & D as a surrogate measure.10. Expenditures on
developing new or improved
products and processes also tend to increase the level of
innovation, a finding also supported
by PIMS data.11. However, it should not be assumed that all
innovation-related expenditures

yield the same payback.
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http://amazon.com
Some firms plan and control their programs for innovation very
carefully. 3M, for instance, has
established a standard that 25% of each business unit's sales
should come from products
introduced to the market within the past 5 years. Not
surprisingly, 3M invests about twice as
much of its sales revenue in R & D as its competitors.12. This
approach is consistent with
3M's differentiation and prospector orientation at the business
level.
Market Share and Relative Market Share
Market share is a common measure of performance for a firm.
As market share increases,
control over the external environment, economies of scal e, and
profitability are all likely to be
enhanced. In large firms, market share often plays an important
role in managerial
performance evaluations at all levels in the organization.
Because market share gains
ultimately depend on other strategic variables, such as consumer

tastes, product quality,
innovation, and pricing strategies, changes in relative market
share may serve as a strategic
control gauge for both internal and external factors. As
discussed in Chapter 2, a firm's
relative market share is its proportion of total revenues when
only a select group of rivals are
considered.
For successful smaller businesses, market share may serve as a
strategic control barometer
because some businesses may strategically plan to maintain a
low market share. In this
event, the strategic control of market share emphasizes
variables that are not targeted at
growth and includes tactics that encourage high prices and
discourage price discounts.
Limiting the number of product/markets in which the company
competes also serves to limit
small market share. A small market share combined with
operations in limited product/markets
may allow a company to compete in domains where its larger
rivals cannot. Hence, for some
companies, emphasizing increases in relative market share can
trigger increases in cost or
declines in quality and can actually be counterproductive.13.
Steps 3 through 5: Exerting Strategic Control
Exerting strategic control requires that performance be
measured (Step 3), compared with
previously established standards (Step 4), and followed by
corrective action (Step 5), if
necessary. Corrective action should be taken at all levels if
actual performance is less than

the standard that has been established unless extraordinary
causes of the discrepancy can
be identified, such as a halt in production when a fire shuts
down a critical supplier. It is most
desirable for strategic managers to consider and anticipate
possible corrective measures
before a strategy is implemented whenever possible.
Top managers should monitor the price of the company's stock
as relative price fluctuations
suggest how investors value the performance of the firm. A
sudden drop in price makes the
firm a more attractive takeover target whereas sharp increases
may mean that an investor or
group of investors is accumulating large blocks of stock to
engineer a takeover or a change in
top management.
Organizational comparisons with rivals are a key basis for
exerting strategic control. For
example, the collective market share for cable televi sion
providers consistently declined
throughout the 1990s. A number of cable customers switched to
less expensive satellite
providers such as DIRECTV and Dish Network. By the early
2000s, cable's competitive
advantage of simplicity and complete local network
programming had eroded as Dish Network
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and DIRECTV began to offer small, easy-to-install, discreet
satellite dishes, including local
networks as part of the service plan. As a result, a number of
cable companies began cutting
rates in the early 2000s in an effort to regain lost market
share.14. Today, competition between
satellite television providers and cable firms remains intense.
Because individual measures of performance can provide a
limited snapshot of the firm, a
number of companies have begun using a balanced scorecard
approach to measuring
performance. When a balanced scorecard is used, performance
measurement is not based
on a single quantitative factor but on an array of quantitative
and qualitative factors, such as
ROA, market share, customer loyalty and satisfaction, speed,
and innovation.15. The key to
employing a balanced scorecard is to identify a combination of
performance measures tailored
specifically to the firm and its strategic objectives (see Table
12.1).
Implementing a balanced scorecard approach can be
challenging, however. Although the
measures are surrogates of performance, some managers might
focus on individual measures
at the expense of overall performance. For example, if a firm
emphasizes market share as a
key individual measure on the scorecard, its managers might

attempt to meet this objective by
rushing products to market or cutting prices excessively,
activities that can undermine the
long-term health and profitability of the firm. Nonetheless, this
approach has helped a large
number of firms better understand performance issues.16.
Table 12.1 Balanced Scorecard Strategic Objectives and
Measures
Strategic
Objective
Examples of Strategic Measures
Cost Leadership Annual reductions in production costs
Innovation
Percentage of revenues derived from products developed during
the
previous 5 years
Customer
Service
Percentage of customers reporting satisfaction with a product or
service
Firm Growth Market share in select industries
Product Quality
Percentage of products returned by retailers or by consumers for
warranty
service

Financial
Strength
Net income, profit margin, or return on assets (ROA)
Control through the Formal and Informal Organizations
Strategic control can occur directly through the formal
organization or indirectly through the
informal organization. The formal organization—the official
structure of relationships and
procedures used to manage organizational activity—can
facilitate or impede a firm's success.
When an organization's structure is no longer appropriate for its
mission, strategic control can
initiate a change. Top managers can exert formal control
through such actions as modifying
the structure or changing the reward system.
Popularity has increased for a means of exerting control through
the formal organization
called business process reengineering—the application of
technology and creativity in an
effort to eliminate unnecessary operations or drastically
improve those that are not performing
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well. As such, companies sought to “eliminate any process that

did not add value” to the
organization's goods and services. For example, many consumer
goods manufacturers during
this period began to rethink their packaging operations, and
many of them eliminated large,
cumbersome boxes in favor of less costly shrink-wrapping.
Some analysts have noted a
reemer-gence of this trend in the early 2000s.17.
In the 2000s, a number of organizations shifted from functional
or product divisional structures
to matrix structures and experienced considerable unanticipated
difficulty. Substantial
structural changes cannot be easily implemented and typically
require a large amount of
training and development. Strategic managers at many of these
firms underestimated the
complications associated with transforming their organizational
structures into a more complex
matrix structure.
Whereas the formal organization concerns the official structure,
the informal organization
refers to the norms, behaviors, and expectations that evolve
when individuals and groups
come into contact with one another.18. The informal
organization is dynamic and flexible and
does not require managerial decree to change. Simply stated,
informal relationships can
promote or impede strategy implementation and can play a
greater role than the formal
organization. Strategic control through the informal
organization often involves attempts to
modify the organization's culture.

When top executives use the formal organization effectively,
the informal organization tends to
reinforce the formal organization and promote the same values.
However, when the
organization's value system is unclear or even contradictory, the
informal organization will
ultimately develop its own, more consistent set of values and
rewards. For example, every
organization claims to reward high job performance. However,
when promotions and pay
increases go to individuals who have the greatest seniority
(regardless of their level of
performance), employees will lose motivation and develop their
own set of informal rules
concerning what will and will not be rewarded.
Management must recognize its limitations concerning the
informal organization. As stressed
in Chapter 11, management can influence but cannot control the
informal organization. An
effective means of influencing the informal organization is to
develop and promote a formal
organization that is consistent with the core values of the firm.
The informal organization
becomes dysfunctional when it develops means to address
inconsistencies in the formal
organization.
T h e r e l a t i o n s h i p b e t w e e n t h e f o r m a l a n d
i n f o r m a l o r g a n i z a t i o n s s h o u l d n o t b e
underestimated. In general, any change in structure may also
necessitate an appropriate
modification in the organization's reward system so that the new
forms of desired behavior will
be properly rewarded. When management fails to align the

formal organization's reward
systems with new expectations, the informal organization
typically changes to counterbalance
the inconsistencies19. (see Case Analysis 12.1).
Case Analysis 12.1 Step 24: How Should the Selected
Alternative(s) be Controlled?
How can one know in 1, 3, 5, or 10 years if an alternative has
been successfully
implemented? What should be done if sales or profits do not
increase as planned? To
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answer these questions, one needs to apply the five-step control
process with as much
specificity as possible.
First, identify what will be measured (i.e., how one will
determine the extent to which
the company is successful). Second, set the standards. For
example, if ROA and
“number of new profitable stores” are selected in Step 1, then
one might identify 15%
ROA and 22 stores per year as standards or targets.

Explain how the standards were developed. Consider the
industry and past
performance. If the industry mean for ROA is 15%, then 15%
might be an appropriate
target of performance for the company. The selected strategy
can also be considered.
If 110 additional retail locations are planned over the next 5
years, then 22 stores per
year might be an appropriate target. It is important to clearly
state how the standards
were derived. Identifying numbers without a clear basis is not
sufficient.
After performance is measured (Step 3) and compared to the
standards (Step 4),
corrective action may be taken (Step 5). In the context of a case
analysis, it is not
p o s s i b l e t o m e a s u r e p e r f o r m a n c e a f t e r t h
e s t r a t e g i c r e c o m m e n d a t i o n s a r e
implemented. Therefore, one should suggest alternative courses
of action that might
be taken if the standards are not reached. Considering the
preceding example, what
changes (if any) should be made if only 15 profitable stores are
opened in the first 2
years or if ROA is only 8%? What changes (if any) should be
made if the company
reaches its target of 22 profitable stores but ROA falls to 2%?
At what point (if any)
should the company consider retreating from the recommended
alternative(s)? It is
critical to provide considerable detail to demonstrate that all
prospective future
outcomes have been considered when outlining the present
course of action. Of

course, it is important to exert strategic control and take
corrective action whenever
necessary, not just at the end of a specified term.
Crisis Management
On April 20, 2010, British Petroleum's (BP) offshore drilling
rig known as the Deepwater
Horizon exploded in the Gulf of Mexico, triggering the largest
accidental marine oil spill in
history. Eleven workers were killed, and 17 others were injured
in the accident. The discharge
of oil that stemmed from the sea floor gusher …
Current Event Application Assignment RUBRIC
Discretion will be used for points that fall between the anchored
values
Points
0
4
8
TOTAL
Formatting
3 paragraphs with headings:
Article Summary
Course Topic Integration
Views and Opinions
Paragraphs are not separated, no headings
Paragraphs were present but no headings
Three paragraphs properly formatted WITH the required
headings

Language, Spelling, Grammar
Poorly written and difficult to understand with numerous
spelling and grammar errors
Adequately written, but may be a bit ambiguous, some grammar
or spelling errors
Language is clear and concise with few, if any, errors
Accurate Application of Course Concepts
Content reflects limited understanding of the course concepts,
applies concepts inaccurately
Content reflects some understanding of the course concepts,
mostly applies concepts accurately
Content reflects full understanding of the course concept and
applies the concept accurately
Reasoned Implications and Conclusions
Limited use of specific content and examples from course
materials, do not support the ideas being developed
Incorporates some specific content and examples but may not
fully substantiate points and ideas
Competently substantiates independent points and ideas
Incorporated External Sources
Primary article is from the last 6 months—Current!
Only incorporates course resources, no external source used,
lacking proper APA in-text citations or references; primary
older than 6 months
Accurately incorporates 1 external source but no course
resources are used, may be lacking in-text citation or reference
Accurately incorporates 1 external resource PLUS course

resources with proper in-text citations and references; main
article within 6 months
GRAND TOTAL:

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