CHAPTER 9

STRATEGY REVIEW,EVALUATION,

and CONTROL

REPORTER:

MA. SYLVIA A. BAIS

COMPREHENSIVE STRATEGIC-MANAGEMENT MODEL

Develop Vision and

Mission StatementsCHAPTER 2

Perform External

AuditCHAPTER 3

Perform Internal

AuditCHAPTER 4

Establish Long-term ObjectivesCHAPTER 5

Generate, Evaluate,

and Select Strategies

CHAPTER 6

Implement Strategies –

Management Issues

CHAPTER 7

Implement Strategies – Marketing,

Finance, Accounting,

R&D, and MIS Issues

CHAPTER 8

Measure and Evaluate

Performance

CHAPTER 9

Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40.

Chapter 10: Business Ethics, Social Responsibility, and Environmental Sustainability

Chapter 11: Global/International Issues

STRATEGY FORMULATION

STRATEGY IMPLEMENTATION

STRATEGY EVALUATION

WHY

DOSTRATEGIES FAIL ?

The Nature of Strategy Evaluation

Evaluation and Control ensures that a company is achieving what it set out to accomplish by comparing performance with desired results and taking corrective action as needed

Strategic-Management process result

Erroneous strategic decisions

Timely evaluations

Strategy Evaluation- Adequate and timely feedback

- Complex and sensitive undertaking

- Essential to ensure that stated objectives are being achieved.

Too little or no evaluation can create even worse problem.

- An appraisal of how well an organization has performed.

Three Basic Activities of Strategy Evaluation

EXAMINING COMPARI

NGTAKING

CORRECTIVE ACTIONS

Evaluation and Control Process

Determine what to measure

Establish standards of performance

Measure performance

Take corrective

action

Does performance

match standards?

STOP

YES

NO

Evaluating an Implemented StrategyISSUE CONCLUSIONS

Were strategies poorly executed?

Were strategies and their requirements communicated

effectively?Poor communication.

Were the underlying assumptions and premises

valid?

Were the alternative scenarios defined and

assessed?

Were the current situation and important trends properly diagnosed?

Did the existing strategies produce the desired

results?

Did management commit to and follow through with the strategies?

Were results monitored and strategies revised as needed?

Was strategy formulation adversely affected?

Were supporting functional strategies consistent with the

business unit strategies?

Were resource allocations sufficient and consistent with the selected

strategies?

Weak commitment of operating management.

Failure to establish proper feedback mechanism.

Invalid planning bases: incorrect strategy

formulation.

Inconsistent functional plans.

Incorrect assessment of resource requirements.

Successful strategy and results.

YES

YES

NONO

NO

YES

YES

YES

NO

YES

YES

NO

YES

NO

NO

YES

NO

NO

NO

Rumelt’s Criteria for Evaluating StrategiesCONSISTENCY CONSONANCE FEASIBILITY ADVANTAGE

• If managerial problems continue despite changes in personnel and if they tend to be issue-based rather than people-based, then strategies may be inconsistent.

• If success for one organizational department means, or is interpreted to mean, failure for another department, then strategies maybe inconsistent.

• If policy problems and issues continue to be brought to the top for resolution, then strategies may be inconsistent.

Rumelt’s Criteria for Evaluating StrategiesCONSISTENCY CONSONANCE FEASIBILITY ADVANTAGE

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.

For example, the day-care explosion came about as a combined result of many trends that included a rise in the average level of education, increased inflation, and an increase in women in the workforce. Although single economic or demographic trends might appear steady for many years, there are waves of change going on at the interaction level.

Rumelt’s Criteria for Evaluating StrategiesCONSISTENCY CONSONANCE FEASIBILITY ADVANTAGE

The financial resources of a business are the easiest to quantify and are normally the first limitation against which strategy is evaluated. It is sometimesforgotten, however, that innovative approaches to financing are often possible.

A less quantifiable, but actually more rigid, limitation on strategic choice is that imposed by individual and organizational capabilities. In evaluating a strategy, it is important to examine whether an organization has demonstrated in the pastthat it possesses the abilities, competencies, skills, and talents needed to carry out a given strategy.

Rumelt’s Criteria for Evaluating StrategiesCONSISTENCY CONSONANCE FEASIBILITY ADVANTAGE

Competitive advantages normally are the result of superiority in one of three areas: (1) resources, (2) skills, or (3) position.

Positional advantage tends to be self-sustaining as long as the key internal and environmental factors that underlie it remain stable. This is why entrenched firms can be almost impossible to unseat, even if their raw skill levels are only average. Although not all positional advantages are associated with size, it is true that larger organizations tend to operate in markets and use procedures that turn their size into advantage, while smaller firms seek product/market positions that exploit other types of advantage. The principal characteristic of good position is that it permits the firm to obtain advantage from policies that would not similarly benefit rivals without the same position.

REASONS WHY STRATEGY EVALUATION IS DIFFICULT TODAY1.A dramatic increase in the

environment’s complexity2.The increasing difficulty of predicting

the future with accuracy3.The increasing number of variables4.The rapid rate of obsolescence of even

the best plans5.The increase in the number of both

domestic and world events affecting organizations

6.The decreasing time span for which planning can be done with any degree of certainty

PROCESS OF EVALUATING STRATEGIES

- Should initiate managerial questioning of expectations and assumptions

- Should trigger a review of objectives and values

- Should stimulate creativity in generating alternatives and criteria of evaluation

STRATEGY-EVALUATION FRAMEWORK

BENEFITS OF STRATEGY EVALUATION

Evaluation activities may renew confidence in the current business strategy or point to the need for actions to correct some weaknesses, such as erosion of product superiority or technological edge. In many cases, the benefits of strategy evaluation are much more far-reaching, for the outcome of the process may be a fundamentally new strategy that will lead, even in a business that is already turning a respectable profit, to substantially increased earnings. It is this possibility that justifies strategy evaluation, for the payoff can be very large.