Chapter 6

Strategy
Evaluation
Presented by:
Group 1
TOPICS
Overview of Strategic Evaluation

Strategic Control

Techniques of Strategic Evaluation and

Control

Global Issues in Strategic Management

Intellectual Property
SUBTOPICS
Strategy
Analysis
Evaluation

Corrective
Significance
Actions

The Process of
Performance
Strategy
Measurement
Evaluation
Evaluation

is a systematic determination of
a subject’s merit, worth and
significance, using criteria
governed by a set of standards.
Evaluation

is the structured interpretation and

giving of meaning to predicted or
actual impacts of proposals or
results.
• The primary purpose of
evaluation, in addition to
gaining insight into prior or
existing initiatives, is to enable
reflection and assist in the
identification of future change.
 Overview
of
Strategic
Evaluation
• Strategic evaluation occurs as
the final step in the final step in
a strategic management
cycle. Without it, a business has
no way to gauge whether or not
strategic management
strategies and plans are
fulfilling business objectives.
 Significance
Strategic evaluations provide an objective
method for testing the efficiency and
effectiveness of business strategies, as well
as a way to determine whether the
strategy being implemented is moving the
business toward its intended strategic
objectives.
Performance
Measurement

Strategic evaluations start by

defining a performance ideal
according to business objectives.
 2 types of
performance
Benchmark
• Qualitative benchmarks are
subjective factors such as skills,
competencies and flexibility.

• Quantitative benchmarks
include “hard facts” such as net
profit, earnings per share of
stock or staff turnover rates.
 Analysis
Strategic evaluations work under the
assumption that because the business
environment is fluid and constantly changing,
variances will commonly exist between ideal and
actual performance. Regular strategic
evaluations provide an objective, effective way
for a business to evaluate, analyze and modify
performance expectations.
 Corrective Actions
When strategic evaluations pinpoint areas
where the business is not meeting strategic
objectives, corrective actions can attempt to
solve the problem. For example, if a business
discovers strategic technical objectives are not
being met because employees do not have up to-
date qualifications, the business can design
training programmes that bring skillsets in line
with technical objectives.
 The
Process of
Strategy
Evaluation
 1. Fixing benchmark of
performance

While fixing the benchmark, strategists

encounter questions such as - what
benchmarks to set, how to set them and
how to express them. In order to determine
the benchmark performance to be set, it is
essential to discover the special
requirements for performing the main task.
The organization can use both
quantitative and qualitative
criteria for comprehensive

Quantitative criteria Qualitative factors are

includes determination subjective evaluation of
of net profit, ROI, factors such as - skills
earning per share, cost and competencies, risk
of production, rate of taking potential,
employee turnover etc. flexibility etc.
 2. Measurement of
performance

The standard performance is a bench mark

with which the actual performance is to be
compared. The reporting and
communication system help in measuring
the performance.
If appropriate means are available for
measuring the performance and if the
standards are set in the right manner,
strategy evaluation becomes easier. But
various factors such as managers
contribution are difficult to measure.
Similarly divisional performance is
sometimes difficult to measure as
compared to individual performance.
 3. Analysing Variance

While measuring the actual performanceand

comparing it with standard performance
there may bevariances which must be
analysed. The strategists must mention the
degree of tolerance limits between which
the variance between actual and standard
performance may be accepted.
 4. Taking Corrective
Action

Once the deviation in performance is

identified, it is essential to plan for a
corrective action. If the performance is
consistently less than the desired
performance, the strategists must carry a
detailed analysis of the factors responsible
for such performance.
Another rare and drastic corrective
action is reformulating the strategy
which requires going back to the
process of strategic management,
reframing of plans according to new
resource allocation trend and
consequent means going to the
beginning point of strategic
management process.
STRATEGIC
CONTROLS
 STRATEGIC CONTROL
Strategic control is a term used to describe the
process used by organizations to control the
formation and execution of strategic plans; it is a
specialized form of management control, and
differs from other forms of management control
(in particular from operational control) in respects
of its need to handle uncertainty and ambiguity at
various points in the control process.
The purpose of control at the strategic level
is not to answer the question:’ ‘Have we
made the right strategic choices at some
time in the past?” but rather “How well are
we doing now and how well will we be
doing in the immediate future for which
reliable information is available?”
Various authors have proposed that all strategic control systems
necessarily comprise a small set of standard elements, the absence of
any one of which makes strategic control impossible to achieve (e.g.
Goold & Quinn, Muralidharan).

The four elements strategic control proposed by Muralidharan are:

• the articulation of the strategic outcomes being sought

• the description of the strategic activities to be carried out
(attached to specific managed resources) in pursuit of the required
outcomes
• the definition of of a method to track progress made by the against
these two elements (usually via the monitoring of a small number of
performance measures and associated target values)
• the identification of an effective intervention mechanism that would
allow observers (usually the organization's managers) to change /
correct / adjust the organization's activities when targets are not
achieved
History
Although control was one of the six ‘functions of management’.
listed by Henri Fayol in 1917, the idea of strategic control as a
distinct activity does not appear in the management literature until
the late 1970’s (e.g. “Strategic Control: a new task for top
management” by J H Horovitz, which was published in 1979, is a
candidate for first paper to explicitly discuss the topic), but the first
definition of strategic control in a form consistent with modern
usage of the term is probably in a paper by Reufli and Sarrazin
published in 1981.

As Reufli and Sarrazin observed, the key issue with strategic

control mechanisms is the need to dealing with uncertainty and
ambiguity. A landmark study by Michael Goold and Andrew
Campbell identified that a variety of control methods are used
across a continuum ranging from purely financial controls at one
extreme, through to detailed strategic planning systems at the
other.
 Links to Other Tools

Although strategic control is a general

management topic rather than a proscriptive tool,
its reliance on feedback on organisational
performance has resulted in a long association
with performance management tools such as the
balanced scorecard and its derivatives such as the
performance measurement, and with strategy
implementation frameworks such as that proposed
by Hrebiniak and Joyce.
 Control
Controlling is one of the managerial functions like planning,
organizing, staffing and directing.

Features of Controlling
• One can control future happenings but not the happened. Hence in
here all the past performance is measured for taking corrective
actions for future periods.
• Every manager in an organization has to perform the control
function. The control may be quality control, inventory control,
production control, or even administrative
control.
• Control is a continuous process, it follow a definite pattern and time-
table, month after month and year after year on a continuous basis.
 Importance of Controlling

Control system acts as an adjustment in

organizational operations. It mainly
checks whether plans are being
observed and suitable progress
towards the objectives is being made or
not, and if necessary any action to
control the deviations.
Two Levels of Control: Strategic
and Operational:

Strategic control is Operational control, in

concerned with tracking the contrast to strategic
strategy as it is being control, is concerned with
implemented, detecting any executing the strategy.
problem areas or potential Where operational
problem areas suggesting controls are imposed, they
that the strategy is function within the
incorrect, and making any framework established by
necessary adjustments. the strategy.
Types of
control
Types of Control

Pro- activity
Pro-activity can be defined as the monitoring of problems in a way that
provides their timely prevention, rather than after the fact reaction.
Types of Control

Concurrent Controls

The process of monitoring and

adjusting ongoing activities and
processes is known as concurrent
control.
 Types of Control

Feedback Controls

Finally, feedback controls involve

gathering information about a completed
activity, evaluating that information, and
taking steps to improve the similar
activities in the future.
 Types of Control

Control as a Feedback Loop

In this latter sense, all these types of control function as a feedback
mechanism to help leaders and managers make adjustments in the strategy,
as perhaps is reflected by changes in the planning, organizing, and leading
components.

This feedback loop is characterized in the following figure.

Outcome and Behavioral Controls
Controls also differ depending on what is monitored,
outcomes or behaviour.

Outcome controls are generally preferable when just one or

two performance measures (say, return on investment or
return on assets) are good gauges of a business’s health.

Behavioral controls involve the direct evaluation of

managerial and employee decision making, not of the results
of managerial decisions. Behavioral controls tie rewards to a
broader range of criteria, such as those identified in the
Balanced Scorecard.
Financial and Non financial Controls

Finally, across the different types of controls in terms of level

of pro activity and outcome versus behavioral, it is important
to recognize that controls can take on one of two
predominant forms: financial and non financial controls.

Financial control involves the management of a firm’s costs

and expenses to control them in relation to budgeted
amounts.

Non financial control track aspects of the organization that

aren't immediately financial in nature but are expected to
lead to positive performance outcomes.
 Strategic Evaluation and Control
Strategic evaluation and control is exercise by top
management. It is long term oriented. It focuses on external
environment. It is proactive and provides early warning about
the performance of the strategy.

The characteristic of strategy evaluation and control are :

1. Right direction: Strategy evaluation and control ensures that

the strategy is moving in the right direction. It is objective
oriented.
2. Proactive : Strategy evaluation and control is an early
warning system of control. It pro acts by continual questioning
the direction of strategy. It is based on timely information.
3. Future oriented: Strategy evaluation and control aims to
steer the future direction of strategy.
 Strategic Evaluation and Control

4. Focus : Strategic evaluation and control focuses

on forces and events in the external environment.
5. Time horizon: Strategic evaluation and control
has a long term time horizon.
6. Responsibility: Strategic evaluation and control
is the responsibility of top management.
7. Techniques: Strategic evaluation and control is
based on environment surveillance, premises re-
examination, implementation review,
information gathering and special
alert technique.
Techniques
of
strategic
evaluation
and
control
Evaluation and control mechanisms are set in
place to inform every stage of the strategic
management process.

Effective evaluation and control can tell us

what we are doing well and what we are
not.
The role of organizational systems in
strategic evaluation and control is as
follows:
Planning system
Development system
Motivation system
Appraisal system
Control System
Information system
 Planning system
The role of the planning system is
basicallyconfined to the strategic
formulation process. However,
asforward linkages between
formulation and implementation
ofstrategy, planning manager
assist in the implementationprocess.
 Development system
The development system comprises various
stages covering recruitment of personnel,
education and training of managers to
impact required knowledge, skills and
attitudes, career planning and grooming of
managers for top positions and the
development of the organization through
planned interventions to make it more
responsive and adaptive.
 Motivation system
This system aims to stimulate positive
behaviour so that firm’s employees will be
encouraged to achieve its strategic
objectives. Firms introduce a system of
incentives, both financial and non-financial.
The nature and scale of incentives will
depend on the firm’s capability to pay, its
culture, industry practices, statutory
obligations etc.
 Appraisal system
The appraisal system makes use of
quantitative and subjective factors to assess
performance of units as well as their
managers. The methods used to appraise will
depend on the nature of the strategy chosen.
Expansion strategies aim at long- term
improvements whilst a stability strategy will
focus on efficiencies in current operations. The
common performance appraisal methods used
are rating scale and ranking method.
 Control System
The control system plays a significant role in
enforcing strategic behaviour so that the firm
moves towards achieving its declared objectives.
The strategists try to ensure integration of both
the formal and informal controls both are
considered necessary to make the strategy
work. If expansion strategy is adopted, informal
control may be preferred for speedy
implementation. Use of formal control may
become necessary if stability is the chosen
strategy
 Information system
The performance of employees at different level
is measured on the basis of reports generated
through the information system. It’s purpose to
enable managers to keep trace of performance
through control reports. All the techniques used
for strategic evaluation and controls are based
on the use of an information system. They
provide relevant and timely data to managers to
enable them to evaluate performance and
strategy, and take corrective action.
Elaborate Methods For
Evaluation
-Determine what to measure
-Establish standards of Performance
-Measure actual performance
-Compare actual performance with
the standard
-Take corrective action
 Determine what to measure
Top managers and operational managers
must specify implementation process and
results to be monitored and evaluated. The
processes and results must be measurable
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
exposure or the greatest no. of problems
 Establish standards of
Performance
Standards used to measure performance
are detailed expressions of strategic
objectives. They are measures of
acceptable performance results. Each
standard can be usually includes a
tolerance range, which defines any
acceptable deviations. Standards can be
set not only for final output, but also for
intermediate stages of production output.
Measure actual performance

Measurements must be made at

predetermined times.
Compare actual
performance with the
standard
if the actual performance results
are within the desired tolerance
range, the measurement process
stops here.
 Take corrective action
If the actual results fall out side the
desired tolerance range, action must
be taken to correct the deviation. The
action must not only correct the
deviation but also prevent its
recurrence.
Objectives
of
Strategy
Evaluation
and
Control
“Organizations are most vulnerable when they are at
the peak of their success” Erroneous strategic decisions
can inflict severe penalties and can be exceedingly
difficult, if not impossible, to reverse. “Strategy
evaluation is vital to an organization’s well-being; timely
evaluations can alert management to problems or
potential problems before a situation becomes critical.
Through evaluation and Control process, corporate
activities and Performance results are monitored so that
actual performance can be compared with desired
performance.
Objectives of Strategy
Evaluation and Control

Measuring Performance
Primary Measures of Corporate
Performance
Balance Score Card
Strategic Audit
1. Measuring Performance
• Performance is the end result of activity. Which
measures to select to assess performance depends on
the organizational unit to be appraised and the
objectives to be achieved.
• The objectives that were established in the
strategy formulation part of the strategic
management process (dealing with profitability,
market share and cost reduction, among others)
should certainly be used to measure corporate OR
over all performance once the strategies have been
implemented.
2. Primary Measures of Corporate
Performance
The days when simply financial measures such as
ROI or EPS were used alone to assess overall
corporate performance are coming to an end.
Analysis now recommended a broad range of
methods to evaluate the success or failure of a
strategy.
Some of the important methods are:
• Stakeholder measures:
• Shareholder values
• Balance Score Card approach
• Strategic Audit
3. Balance Score Card
Rather than evaluate corporation using a few
financial measures, Kaplan and Norton argue for a
“balanced score card”, including non-financial as
well as financial measures. BSC evaluate strategies
from 4 perspectives:
1. Financial performance: how do we appear to
shareholders?
2. Customer knowledge: how do customers view us?
3. Internal business perspective: What must we excel
at?
4. Innovation & Learning: Can we continue to
improve and create Value?
4. Strategic Audit
Strategy audit is one of the methods for
evaluating the performance of the chosen
strategy. It provides a checklist of questions, by
area or issue, which enables a systematic
analysis of various organizational functions or
activities. Audit is an extremely useful
diagnostic tool to pinpoint the problems areas
and highlights organizational strengths and
weaknesses for corporate planning.
However, the main objective of
strategic audit is to develop
benchmarks. The process involves the
following steps:
• Identification of functions or
process, usually an activity which can
give a business unit competitive
advantage, that has tobe audited.
Determination of Measures of Performance of
the Function or Process

Strategic Audit helps to:

• Evaluate current performance result
• Review corporate governance
• Scan and assess the external environment
• Scan and assess the internal environment
• Analyze Strategic Factor using SWOT.
• Generate and evaluate strategic alternatives
• Implement strategies
• Evaluate and control
Controlling
Controls can be established to
focus either on actual
performance results (OUT PUT),
on the activities that generate the
performance (Behaviour) or
resources that are used in
performance (INPUT).
 The Primary
Types of
Organizational
Control
Strategic control, the process of evaluating strategy,
is practiced both after the strategy is formulated and
after it is implemented.
Management control focuses on the accomplishment
of the objectives of the various sub strategies
comprising the master strategy and the
accomplishment of the objectives of the intermediate
plans (for example, “are quality control objectives
being met?”).
Operational control is concerned individual and
group performance as compared with the individual
and group role prescriptions required by
organizational plans (for example, “are individual
sales quotes being met?”).
Guidelines
for Proper
Control
Measuring performance is a crucial part of Evaluation and
Control.
1. Controls should involve only the minimum amount of
information needed to give a reliable picture of events. Too
many controls create confusion. Focus on the strategic
factors by following the 80/20 rule: Monitor those 20% of
the factors that determine 80% of the results.
2. Controls should monitor only meaningful activities and
result.
3. Controls should be timely.
4. Controls should be long term and short term
5. Controls should pinpoint exceptions.
6. Controls should be used to reward meeting or
exceeding standards rather than to punish failure to
meet standards
Thank You
for Listening!
Group 1 First Presenters:

Bilangel, Rizzia
De Asis, Welrose D.
Rosendal, Mary Denves C.

BSBAMM3-A