LECTURE 11

STRATEGY MONITORING
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LEARNING OBJECTIVES

• After studying this lecture, you should be able to do the following:

• Discuss the strategy-evaluation process, criteria, and methods used.
• Discuss three activities that comprise strategy evaluation.
• Describe and develop a Balanced Scorecard.
• Identify and describe published sources of strategy-evaluation information.
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CONT.

• Identify and describe six characteristics of an effective strategy-evaluation

system.
• Discuss the nature and role of contingency planning in strategy evaluation.
• Explain the role of auditing in strategy evaluation.
• Identify and discuss three twenty-first-century challenges in strategic
management.
• Identify and describe 17 guidelines for effective strategic management
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INTRODUCTION

• The best formulated and best implemented strategies become obsolete as a firm’s external
and internal environments change. It is essential, therefore, that strategists systematically
review, evaluate, and control the execution of strategies.
• This Lecture presents a framework that can guide managers’ efforts to evaluate strategic-
management activities, to make
sure they are working, and to make timely changes.
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THE STRATEGY-EVALUATION PROCESS, CRITERIA, AND

METHODS

• It has been agreed by strategists that 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. The strategy-
evaluation process includes three basic activities:
• Examine the underlying bases of a firm’s strategy.
• Compare expected results with actual results.
• Take corrective actions to ensure that performance conforms to plans.
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CONT.

• In many organizations, strategy evaluation is simply an appraisal of how well

an organization has performed. Have the firm’s assets increased? Has there
been an increase in profitability? Have sales increased? Have productivity
levels increased? Have profit margin, return on investment, and earnings-per-
share ratios increased? Some firms argue that their strategy must have been
correct if the answers to these types of questions are affirmative
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REASONS WHY STRATEGY EVALUATION IS

MORE DIFFICULT
• A dramatic increase in the environment’s complexity
• The increasing difficulty of predicting the future with accuracy
• The increasing number of variables
• The rapid rate of obsolescence of even the best plans
• The increase in the number of both domestic and world events affecting organizations
• The decreasing time span for which planning can be done with any degree of certainty
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RUMELT’S CRITERIA FOR EVALUATING

STRATEGIES
• a. Consistency
It is important to strive for consistency when setting goals and policies.
Organizational conflict and interdepartmental bickering are often symptoms
of managerial disorder, but these problems may also be a sign of strategic
inconsistency.
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CONT.

• b. Consonance
Consonance refers to the need for strategists to examine sets of trends, as well as individual
trends, in evaluating strategies. A strategy must represent an adaptive response to the
external environment and to the critical changes occurring within it.
One difficulty in matching a firm’s key internal and external factors in the formulation of
strategy is that most trends are the result of interactions among other trends.
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CONT.

• c. Feasibility
• A strategy must neither overtax available resources nor create unsolvable sub-problems. The final broad test of
strategy is its feasibility; that
is, can the strategy be attempted within the physical, human, and financial resources of the enterprise? The
financial resources of a business
are the easiest to quantify and are normally the first limitation against which strategy is evaluated. It is sometimes
forgotten, however,
that innovative approaches to financing are often possible. Devices, such as captive subsidiaries, sale-leaseback
arrangements, and tying
plant mortgages to long-term contracts, have all been used effectively to help win key positions in suddenly
expanding industries
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CONT.

• d. Advantage
A strategy must provide for the creation or maintenance of a competitive advantage in a
selected area of activity. Competitive advantages normally are the result of superiority in
one of three areas: (1) resources, (2) skills, or (3) position. The idea that the positioning of
one’s resources can enhance their combined effectiveness is familiar to military theorists,
chess players, and diplomats. Position can also play a crucial role in an organization’s
strategy.
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THE PROCESS OF EVALUATING STRATEGIES

• Strategy-evaluation activities should be performed on a continuing basis, rather than at

the end of specified periods of time or just after problems occur. Waiting until the end of
the year, for example, could result in a firm closing the barn door after the horses have
already escaped.
• Evaluating strategies on a continuous rather than on a periodic basis allows benchmarks
of progress to be established and more effectively monitored. Some strategies take years
to implement; consequently, associated results may not become apparent for years.
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THE THREE STRATEGY-EVALUATION

ACTIVITIES

• Notice that corrective actions are almost always needed except

when (1) external and internal factors have not significantly
changed and (2) the firm is progressing satisfactorily toward
achieving stated objectives
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A STRATEGY-EVALUATION ASSESSMENT
MATRIX
Have Major changes occurred in the Have Major Changes occurred in Has the Firm Progressed Satisfactorily Result
Firm’s internal Strategic Position? the Firm’s External Strategic Toward Achieving its Stated objectives?  
  Position?
 

NO NO NO Take corrective action

YES YES YES Take corrective action
YES YES NO Take corrective action
YES NO YES Take corrective action
YES NO NO Take corrective action
NO YES YES Take corrective action
NO YES NO Take corrective action
NO NO YES Continue present strategic course
 
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MEASURING ORGANIZATIONAL
PERFORMANCE
• This activity includes comparing expected results to actual results, investigating
deviations from plans, evaluating individual performance, and examining progress being
made toward meeting stated objectives. Both long-term and annual objectives are
commonly used in this process.
• Criteria for evaluating strategies should be measurable and easily verifiable. Criteria that
predict results may be more important than those that reveal what already has happened
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CONT.

• Quantitative criteria commonly used to evaluate strategies are financial

ratios, often monitored for each segment of the firm. Strategists use
financial ratios to make three critical comparisons:
• Compare the firm’s performance over different time periods.
• Compare the firm’s performance to competitors.
• Compare the firm’s performance to industry averages
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EXAMPLE

Factors Actual Expected Variaence Action needed

Corporate Revenues        
Corporate Profits        
Corporate ROI        
Regional1 Revenues        
Regional1 Profits        
Regional1 ROI        
Regional 2 Revenues        
Regional 2 Profits        
Regional2 ROI        
Product 1 Revenues        
Product 1 Profits        
Product 1 ROI        
Product 2 Revenues        
Product 2 Profits        
Product 2 ROI        
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TAKING CORRECTIVE ACTIONS

1 Alter the firm’s structure.
2 Replace one or more key individuals.
3 Divest a division.
4 Alter the firm’s vision or mission.
 
5 Revise objectives.
6 Alter strategies.
7 Devise new policies.
8 Install new performance incentives.
9 Raise capital with stock or debt.
10 Add or terminate salespersons, employees, or managers.
11 Allocate resources differently.
12 Outsource (or rein in) business functions.
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THE BALANCED SCORECARD

• Balanced Scorecard derives its name from the perceived need of firms
to “balance” financial measures that are oftentimes used exclusively in
strategy evaluation and control with nonfinancial measures such as
product quality and customer service.
• An effective Balanced Scorecard contains a carefully chosen
combination of strategic and financial objectives tailored to the
company’s business.
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BALANCE CARD
Area of objectives Measure or Target Time Expectation Primary
Responsibility
Customers      
1      
2      
Managers/Employees      
1      
2      
Operations/Processes      
1      
2      
Community/Social Responsibility      

1      
2      
Business Ethics/Natural      
Environment
1      
2      
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CONT.

• The Balanced Scorecard concept is consistent with the notions of continuous

improvement in management (CIM) and total quality management (TQM).
• The Balanced Scorecard basic premise is that firms should establish objectives and
evaluate strategies on criteria other than financial measures. Financial measures and ratios
are vitally important in strategic planning, but of equal importance are factors such as
customer service, employee morale, product quality, pollution abatement, business ethics,
social responsibility, community involvement, and other such items.
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CHARACTERISTICS OF AN EFFECTIVE
STRATEGY EVALUATION SYSTEM
• First, strategy-evaluation activities must be economical
• Strategy-evaluation activities also should be meaningful;
• they should specifically relate to a firm’s objectives.
• Strategy-evaluation processes should be designed to provide a true picture of what
is happening
• The strategy-evaluation process should not dominate decisions
• Strategy evaluations should be simple, not too cumbersome, and not too restrictive.
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CONTINGENCY PLANNING

• A basic premise of good strategic management is that firms strive to be

proactive, planning ways to deal with unfavorable and favorable events
before they occur.
• Regardless of how carefully strategies are formulated, implemented, and
evaluated, unforeseen events, such as strikes, boycotts, natural disasters,
arrival of foreign competitors, and government actions, can make a
strategy obsolete
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AUDITING

• Auditing is defined by the American Accounting Association (AAA) as “a

systematic process of objectively obtaining and evaluating evidence
regarding assertions about economic actions and events to ascertain the
degree of correspondence between these assertions and established criteria,
and communicating the results to interested users
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CONT.

• Auditors examine the financial statements of firms to determine whether they have been
prepared according to generally accepted accounting principles (GAAP) and whether
they fairly represent the activities of the firm. Independent auditors use a set of standards
called generally accepted auditing standards (GAAS). Public accounting firms often have
a consulting arm that provides strategy-evaluation services.
• The new era of international financial reporting standards (IFRS) is approaching in the
United States, and businesses need to go ahead and get ready to use IFRS
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TWENTY-FIRST-CENTURY CHALLENGES IN STRATEGIC

MANAGEMENT

• Three particular challenges or decisions that face all strategists

today are (1) deciding whether the process should be more an
art or a science, (2) deciding whether strategies should be
visible or hidden from stakeholders, and (3) deciding whether
the process should be more top-down or bottom-up in their firm.
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GUIDELINES FOR EFFECTIVE STRATEGIC MANAGEMENT

• Keep the process simple and easily understandable.

• Eliminate vague planning jargon.
• Keep the process nonroutine; vary assignments, team membership, meeting formats, set
tings, and even the planning calendar.
• Welcome bad news and encourage devil’s advocate thinking.
• Do not allow technicians to monopolize the planning process
• To the extent possible, involve managers from all areas of the firm.
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SEVENTEEN GUIDELINES FOR THE STRATEGIC-PLANNING

PROCESS TO BE EFFECTIVE

• It should be a people process more than a paper process.

• It should be a learning process for all managers and employees.
• It should be words supported by numbers rather than numbers supported by words.
• It should be simple and nonroutine.
• It should vary assignments, team memberships, meeting formats, and even the planning calendar.
• It should challenge the assumptions underlying the current corporate strategy.
• It should welcome bad news.
• It should welcome open-mindedness and a spirit of inquiry and learning.
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CONT.

• It should not be a bureaucratic mechanism.

• It should not become ritualistic, stilted, or orchestrated.
• It should not be too formal, predictable, or rigid.
• It should not contain jargon or arcane planning language.
• It should not be a formal system for control.
• It should not disregard qualitative information.
• It should not be controlled by “technicians.”
• Do not pursue too many strategies at once.
• Continually strengthen the “good ethics is good business” policy.
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STEPS IN PREPARING A COMPREHENSIVE

WRITTEN ANALYSIS
• In preparing a written case analysis, you should follow the steps outlined here, which
correlate to the stages in the strategic-management process and the chapters in this text.
Step 1 identify the firm’s existing vision, mission, objectives, and strategies.
Step 2 Develop vision and mission statements for the organization.
Step 3 identify the organization’s external opportunities and threats.
Step 4 construct a competitive Profile Matrix (cPM).
Step 5 construct an external Factor evaluation (eFe) Matrix
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CONT.

Step 6 identify the organization’s internal strengths and weaknesses.

Step 7 construct an internal Factor evaluation (iFe) Matrix.
Step 8 Prepare a Strengths-Weaknesses-Opportunities-threats (SWOt) Matrix, n
Strategic Position and action evaluation (SPace) Matrix, Boston consulting group
(Bcg) Matrix, internal-external (ie) Matrix, grand Strategy Matrix, and
Quantitative Strategic Planning Matrix (QSPM) as appropriate. give advantages
and disadvantages of alternative strategies
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CONT.

Step 9 recommend specific strategies and long-term objectives. Show how much your
recommendations will cost. clearly itemize these costs for each projected year. compare your
recommendations to actual strategies planned by the company.
Step 10 pecify how your recommendations can be implemented and what results you can expect.
Prepare forecasted ratios and projected financial statements. Present a timetable or agenda for
action.
Step 11 recommend specific annual objectives and policies.
Step 12 recommend procedures for strategy review and evaluation.
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END OF THE COURSE

• Strategic Planning and Management Course has three major division

namely;
• Strategy formulation and its components
• Strategy implementation and its components
• Strategy Monitoring and its components