09 SM MOD 8

8/8/2019 09 SM MOD 8

1/44

MOD 8MOD 8

STRATEGY REVIEWSTRATEGY REVIEW

EVALUATION AND CONTROLEVALUATION AND CONTROL

8/8/2019 09 SM MOD 8

2/44

2

Strategy Review

The firms internal and external

environments are dynamic. Therefore,

the best conceived and implemented

strategies become obsolete!

8/8/2019 09 SM MOD 8

3/44

3

Strategy Review

Strategy Evaluationthe Basics

Examining the underlying basis of the firmsstrategy

Setting standards of performance

Measurement of performance

Analysing variances

Taking corrective action to address performancegaps

8/8/2019 09 SM MOD 8

4/44

4

Strategy Review

Effective Strategy Evaluation

Adequate and timely feedbackThe cornerstone of effective evaluation

8/8/2019 09 SM MOD 8

5/44

5

Strategy Review

Strategy Evaluation

Must have bothShort- & long-term focus

8/8/2019 09 SM MOD 8

6/44

6

Strategy Review

Four Criteria (Richard Rumelt):

Consistency

Consonance Feasibility

Advantage

8/8/2019 09 SM MOD 8

7/44

7

Consistency

If policy problems/issues continue to be broughtto the top for resolution, then strategies may beinconsistent.

If success for one department means failure foranother department, then strategies may beinconsistent.

If managerial problems continue despite changes

in personnel and are issue based, then strategiesmay be inconsistent.

A strategy should not present inconsistentgoals and policies

8/8/2019 09 SM MOD 8

8/44

8

Consonance

Difficult in matching key internal and externalfactors in formulation of strategy.

Most trends are the result of interactions among

other trends.

Strategy must represent an adaptive response to

the external environment and critical changesoccurring within it.

Strategists need to examine sets of trendsas well as individual trends in evaluating

strategies.

8/8/2019 09 SM MOD 8

9/44

9

Feasibility

Important to examine whether in the past theorganization has demonstrated the capabilities,abilities, competencies, skills, and talents to carry

out strategy.

Limitation on strategic choice imposed byindividual and organizational capabilities must beconsidered.

Can the strategy be attempted within the physical,human and financial resources of the enterprise?

Strategy must neither overtax availableresources nor create unsolvable subproblems.

8/8/2019 09 SM MOD 8

10/44

ADVANTAGE

A strategy must provide for creation or

maintainence of a competitive advantage

in a selected area of the activity

1. Resources

2. Talent/Skills

3. Position

8/8/2019 09 SM MOD 8

11/44

11

Strategy Review

Increase in environmentscomplexity

Difficulty in predicting thefuture with accuracy

Increasing number ofvariables

ontemporaryStrategyEvaluationDifficulties

8/8/2019 09 SM MOD 8

12/44

12

Strategy Review

Rate of obsolescence ofeven the best plans

Increase in domestic andworld events

Decreasing time span forwhich planning can bedone with any certainty

ontemporaryStrategyEvaluationDifficulties

8/8/2019 09 SM MOD 8

13/44

13

Strategy Review

Process of Evaluating Strategies:

Should initiate managerial questioning of expectationsand assumptions

Should trigger a review of objectives and values

Should stimulate creativity in generating alternatives andcriteria of evaluation

8/8/2019 09 SM MOD 8

14/44

14

Evaluation FrameworkI. Review Underlying Bases

Continue present course

II. Measure Firm PerformanceIII.

Take

Corrective

Actions

Differences?

Differences?

Yes

NO

Yes

NO

8/8/2019 09 SM MOD 8

15/44

15

I. Review Bases of Strategy

Develop a Revised EFE Matrix:

How have competitors reacted to our strategies?

How have competitors strategies changed?

Have major competitors strengths and

weaknesses changed?

8/8/2019 09 SM MOD 8

16/44

16


Why are competitors making certainstrategic changes?

Why are some competitors strategies moresuccessful than others?

How satisfied are our competitors with theirpresent market positions and profitability?

8/8/2019 09 SM MOD 8

17/44

17


How far can our major competitors be

pushed before retaliating?

How could we more effectively

cooperate with our competitors?

8/8/2019 09 SM MOD 8

18/44

18


Key Questions in Evaluating Strategy:

Are our internal strengths still strengths?

Have we added other internal strengths?

Are our internal weaknesses still weaknesses?

8/8/2019 09 SM MOD 8

19/44

19


Do we now have other internal

weaknesses?

Are our external opportunities still

opportunities?

Are there now external opportunities?

8/8/2019 09 SM MOD 8

20/44

20


Are our external threats still threats?

Are there now other external threats?

Are we vulnerable to a hostile

takeover?

8/8/2019 09 SM MOD 8

21/44

Strategy Review, Evaluation, & Control

Compare expected to actual results

Investigate deviations from plan

Evaluate individual performance

Progress toward stated objectives

Failure to make satisfactory progress

signals a need for corrective action.

Measuring Organizational Performance: basedon an long term and annual objectives

8/8/2019 09 SM MOD 8

22/44

22

II. Measure Performance

Compare the firms performance over differenttime periods.

Compare the firms performance tocompetitors.

Compare the firms performance to industry

averages.

8/8/2019 09 SM MOD 8

23/44

23


Quantitative Analysis:

Return on investment

Return on equity Profit margin

Market share

Debt to equity

Earnings per share Sales growth

Asset growth

8/8/2019 09 SM MOD 8

24/44

24


Qualitative Analysis:

Is the strategy internally consistent?

Is the strategy consistent with the environment? Is the strategy appropriate in view of available

resources?

Does the strategy involve an acceptable degree

of risk?

8/8/2019 09 SM MOD 8

25/44

25


Qualitative Analysis:

Does the strategy have an appropriatetime framework?

Is the strategy workable?

8/8/2019 09 SM MOD 8

26/44

26

III. Take Corrective Action

Making changes to reposition a firmcompetitively for the future

8/8/2019 09 SM MOD 8

27/44

Strategy Evaluation, Review &

Control

-- Evaluate strategies from 4 perspectives:1. Financial performance

2. Customer knowledge

3. Internal business processes4. Learning & growth

Balanced Scorecard

8/8/2019 09 SM MOD 8

28/44

Balanced ScorecardArea 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

Financial

1

2

8/8/2019 09 SM MOD 8

29/44

29

Strategy-Evaluation Assessment Matrix

Continue courseYesNoNo

Corrective actionsNoYesNo

Corrective actionsYesYesNoCorrective actionsNoNoYes

Corrective actionsYesNoYes

Corrective actionsNoYesYes

Corrective actionsYesYesYesCorrective actionsNoNoNo

Result

Has the firm

progressedsatisfactorily

toward achievingits stated

objectives?

Have majorchanges

occurred inthe firmsexternalstrategicposition?

Have majorchanges

occurred inthe firmsinternalstrategicposition?

8/8/2019 09 SM MOD 8

30/44

Performance evaluation is the process by whichmanagers at all levels gain information about the

performance of tasks within the firm and judge that

performance against preestablished criteria as set

out in budgets, plans, and goals

Top management, middle management, and operating-

level personnel should be evaluated

Management controlrefers to the evaluation by

upper-level managers of the performance of mid-

level managers

Performance Evaluation and Control

8/8/2019 09 SM MOD 8

31/44

Operational controlmeans the evaluation of operating-level employees by mid-level managers

Management controlfocuses on higher-level managers

and long-term strategic issues (a broader objective),while operational controlfocuses on detailed short-

term performance

Operational control is a management-by-exceptionapproach while management control is more

consistent with the management-by-objectives

approach

Performance Evaluation

and Control (continued)

8/8/2019 09 SM MOD 8

32/44

Performance Evaluation and Control

(continued)

Mana

g ement

Co

ntrol

Opera

tional

Control

Financial

Management

Financial

Management

Operations

Management

Operations

ManagementMarketing

Management

Marketing

Management

Plant APlant A Plant BPlant BRegion BRegion BRegion ARegion A

ChiefExecutive

ChiefExecutive

Employee

1

Employee

1Employee

2

Employee

2Employee

3

Employee

3Employee

4

Employee

4

8/8/2019 09 SM MOD 8

33/44

In a management-by-objectives (MBO) approach, topmanagement assigns a set of responsibilities to eachmid-level manager depending on the functional areainvolved and the scope of authority of the mid-levelmanager

Areas of responsibility are often called strategicbusiness units (SBUs)

An SBU consists of a well-defined set of controllableoperating activities over which the SBU manager isresponsible

Management-by-Objectives

8/8/2019 09 SM MOD 8

34/44

Motivate managers to exert a high level of effort toachieve the goals set by top management

Provide the right incentive for managers to makedecisions consistent with the goals set by topmanagement (that is, to align managers efforts withthe desired strategic goals)

Determine fairly the rewards earned by managers fortheir efforts and skill and the effectiveness of theirdecision making

Management Control Objectives

8/8/2019 09 SM MOD 8

35/44

A common mechanism for achieving these multiple

objectives is to develop an employment contract

between the manager and top management

A contract promotes goal congruence: the contract

specifies the managers desired behaviors and the

compensation to be awarded for achieving specific

outcomes by using these behaviors

Contracts can be written or unwritten, explicit or

implied

Achieving Management

Control Objectives

8/8/2019 09 SM MOD 8

36/44

There are four questions management must askwhen developing a management control system:

Who is interested in evaluating the organizations

performance (owners, directors, creditors, employees,etc.)?

Whatis being evaluated (an individual, team, or SBU)?

When is the performance evaluation to be conducted,

and should it be based on the master budget (resourceinputs ex ante) or the flexible budget (outputs of the

managers effortex post)?

Shouldthe system by formal or informal?

Designing Management

Control Systems

8/8/2019 09 SM MOD 8

37/44

Types of Management

Control Systems

Informal Systems Formal Systems

Individual

Aspiration Level

Personal Drives

Hiring Practice

Promotion Procedur

Strategic Performan

Measurements

TeamsPeer Norms

Organization Culture

Keiretsu

Shared Responsibilit

8/8/2019 09 SM MOD 8

38/44

38

Strategy Review

Characteristics of an effective system

Evaluation activities must be economical.

Evaluation activities must be meaningful.

8/8/2019 09 SM MOD 8

39/44

39

Strategy Review


Evaluation activities must provide timely information.

Evaluation system should be designed to provide a true picture ofwhat is happening.

8/8/2019 09 SM MOD 8

40/44

40

Strategy Review


Information derived from evaluation process should facilitate action.

Evaluation process should not dominate decisions.

8/8/2019 09 SM MOD 8

41/44

41

Strategy Review

Contingency Planning

Identify both beneficial and unfavorable events that could possiblyderail the strategy or strategies.

Specify trigger points. Calculate about when contingent events arelikely to occur.

8/8/2019 09 SM MOD 8

42/44

42

Strategy Review


Assess the impact of each contingent event. Estimate the potentialbenefit or harm of each contingent event.

Develop contingency plans. Insure that they are compatible withcurrent strategy and are economically feasible.

8/8/2019 09 SM MOD 8

43/44

43

Strategy Review


Assess the counter impact of each contingency plan. Thisquantifies the potential value of each plan.

Determine early warning signals for key contingent events. Develop advance action plans to take advantage of available

lead time.

8/8/2019 09 SM MOD 8

44/44

44

Strategy Review

Auditing

Financial audits to determine correspondence betweenassertions based on strategic plans and established criteria

Environmental audits to insure sound and safe practices

09 SM MOD 8

Documents

Transcript of 09 SM MOD 8