sm 8_strategy evaluation

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Strategy Evaluation

Session 8

19 November 2011

Civil Service College Dhaka

Presentation byDr. Muhammad G. Sarwar

Email: [email protected]

Cell: 01821443741
mailto:[email protected]:[email protected]


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Strategic Management: course outline

Sl. No. Topic Title Session no.

1 Strategic Management: an overview 1

2 Strategy Formulation

Designing Vision and Mission Statements 1

External Assessment 1

Internal Assessment 1

Setting Objectives and Strategic Options 1

Strategy Analysis and Choice 1

3 Strategy Execution 1

4 Strategy Evaluation 1

Total 8

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Contents of 8thSession

Defining strategy evaluation

Nature of strategy evaluation

Process of strategy evaluation

Strategy Evaluation Framework

Contingency planning

A critique of strategic management

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Defining strategy evaluation

Strategy evaluation is a systematic review of theformulated strategies at the execution stages totake corrective actions and to control theexecution process.

Strategic evaluation is a critical necessity for

timely interventions as the organizations externaland internal strategic positions change rapidly

Three basic activities:1. Examining the underlying basis of strategy,

2. Comparing expected results with actual results, and3. Taking corrective actions to ensure that

performance conforms to plans.

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Nature of strategy evaluation

Strategy evaluation is a complex undertaking.It must have both a long-term and short-term

focus.

Richard Rumelts four criteria to evaluatestrategy:

1. Consistency,

2. Consonance,

3. Feasibility, and

4. Advantage.

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Rumeltsfour criteria to evaluate strategy

1. Consistency: Organizational conflicts and inter-departmentalbickering may be a sign of strategic inconsistency. A strategymust not present inconsistent goals and policies.

2. Consonance: Consonance refers to examine sets of trends, aswell as individual trends, in evaluating strategies.

3. Feasibility: The final broad test of strategy is its feasibility, that

is, whether the strategy can be attained within the limits ofphysical, human and financial resources of the organization.

4. Advantage: In evaluating strategy, organizations may examinethe nature of positional advantages associated with thestrategy. Competitive advantages normally are the result ofsuperiority in one of the three areas:

I. Resources,

II. Skills, and

III. Position.

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Process of strategy evaluation

Like strategy formulation and execution,

strategy evaluation should also involve

managers and employees of all level as much

as possible.

Strategy evaluation should be performed on a

continuing basis, rather than at the end of

specified period of time or just after problemsoccur.

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Strategy Evaluation Framework

Examining the underlying bases of strategy

Comparing expected results with actual results

Taking corrective actions to ensure thatperformance conforms to plans

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Strategy Evaluation Assessment MatrixChanges occurred in

internal strategic

position?

Changes occurred in

external strategic

position?

Satisfactory progress

toward attaining

stated goals?

Action to be taken

No No No Take corrective

actions

Yes Yes Yes Take corrective

actions

Yes Yes No Take corrective

actions

Yes No Yes Take corrective

actions

Yes No No Take corrective

actions

No Yes Yes Take corrective

actions

No Yes No Take corrective

actions

No No Yes Continue existing

strategy 9


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Reviewing Underlying Bases of Strategy

Reviewing underlying bases of organizationalstrategy is approached by:

Developing revised EFE Matrix; and

Developing revised IFE Matrix.

Revised EFE Matrix should focus on how effective theorganizations strategies to have been in response to

key opportunities and threats.

Revised IFE Matrix should focus on changes in the

organizations management, marketing, finance,production operation, R&D and IMS strengths andweaknesses.

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Measuring Organizational Performance

Measuring organizational performance involves

comparing expected results to actual results,

investigating deviations from plans, evaluating

individual performance, and examining progress

being made toward attaining stated objectives. Strategy evaluation is based on both quantitative

and qualitative criteria.

Selecting exact set of criteria for evaluating strategies

depends on particular organizations size, industry

environment, strategies, and management

philosophy.

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(cont.)

Quantitative criteria commonly used toevaluate strategies are financial ratios that are

used to make three critical comparisons:

1. Comparing organizations performance overdifferent time periods;

2. Comparing organizations performance to

competitors; and

3. Comparing organizations performance to

industry average.

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Measuring Organizational Performance(cont.)

Key financial ratios that are particularly useful as

criteria for strategy evaluation are:

1. Return on investment

2. Return on equity3. Profit margin

4. Market share

5. Debt to equity

6. Earnings per share

7. Sales growth

8. Asset growth.

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Potential problems associated with quantitative

Criteria for evaluation of strategies are:

Most quantitative criteria are geared to annualobjectives rather than long-term objectives.

Different accounting methods can provide different

results on many quantitative criteria

Intuitive judgments are almost always involved in

deriving quantitative criteria.

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Qualitative criteria are also important in

evaluating strategies. Underlying declining

performance may be due to:

Employee absenteeism

Employee turnover rate

Low employee satisfaction Low employee productivity.

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(cont.)

Seymour Tillesssix qualitative questions that

are useful in evaluating strategies:

1. Is the strategy internally consistent?2. Is the strategy consistent with the industry environment?

3. Is the strategy appropriate in view of available resources?

4. Is the strategy workable?

5. Does the strategy have an appropriate time frame?

6. Does the strategy formulated on acceptable degree of risk?

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Taking Corrective Actions Corrective actions requires making changes to

reposition a organization competitive path. Examplesof changes are:

Altering organizations structure,

Replacing key individuals,

revising a business mission,

Revising organizational objectives,

Devising new policies,

Reallocating resources, etc

Corrective actions should place an organization in a better

position to capitalize upon internal strengths and externalopportunities.

Continuous strategy evaluation keeps strategies of anorganization on right path towards an effective strategic

management. 17


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Contingency Planning

Regardless of how carefully strategies are

formulated, unforeseen events like natural disasters,

war, inflation, entry of foreign competitors, etc may

upset the strategy.

To minimize the negative impact of these unforeseenevents, organizations develop contingency plans.

Contingency plan is defined as alternative plans that

can be put into effect if unexpected events occur

that upset the organizational strategy.

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Recapitulation: Strategic Management

What is Strategic Management? Strategic Management is an art and science of

formulating, implementing and evaluating cross-

functional decisions that enable an organization

to achieve its objectives (Fred R. David, 2008).

Strategic Management is the approaches to grow,

attract and please clients, compete successfully

and achieve targeted levels of organizationalperformance (Arther A. Thompson, 2010)

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(contd.)

In ultimate analysis Strategic Management isthe Quest for Competitive Advantage.

4 most frequently used strategic approaches:

Striving to be the industrys low-cost provider

Outperforming rivals based on quality, diversity,

style, technology, valueadded services etc

Focusing on a narrow market niche

Developing capability that rivals cant easily

imitate.

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Model

StrategyFormulation

StrategyImplementation

StrategyEvaluation

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Recapitulation: Strategy as a Blend of

Proactive Initiatives and Reactive Adjustments

Strategy Evolves over Time

Prior

version

ofstrategy

New initiatives

+

ongoing strategy

elements

+Adaptive reactions

to changing

circumstances

Latest

version

ofstrategy

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Strategic Management 8thSession:

references

Fred R. David (2008), Strategic

Management: Concepts and Cases, 11thEdition, Prentice Hall (Chapter 9)

Arthur A. Thompson, Jr. (2010) Crafting and

Executing Strategy: the quest for

comparative,16thEdition, McGraw Hill (Chapter11, 12 & 13)

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Thanks

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sm 8_strategy evaluation

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