Chapter09[1] Strategy Evaluation
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Transcript of Chapter09[1] Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-1
Chapter 9:
Strategy Review, Evaluation and
Control
Strategic Management:
Concepts and Cases. 9th edition
Fred R. David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Fred R. David
Prentice Hall
Ch 9-2
Chapter Outline
• The Nature of Strategy Evaluation
• A Strategy-Evaluation Framework
• Published Sources of Strategy-
Evaluation Information
Fred R. David
Prentice Hall
Ch 9-3
Chapter Outline
• Characteristics of an Effective Evaluation System
• Contingency Planning
• Auditing
Fred R. David
Prentice Hall
Ch 9-4
Chapter Outline
• Using Computers to Evaluate Strategy
• Guidelines for Effective Strategic Management
Fred R. David
Prentice Hall
Ch 9-5
Implementing Strategies
Organizations are most vulnerable when
they are at the peak of their success.
-- R.T. Lenz
Fred R. David
Prentice Hall
Ch 9-6
Systematic Review, Evaluation & Control –
– Strategies become obsolete
– Internal environments are dynamic
– External environments are dynamic
Strategy Review, Evaluation &
Control
Fred R. David
Prentice Hall
Ch 9-7
• Strategy evaluation is vital to the organization’s
well-being
• Alert management to potential or actual
problems in a timely fashion
• Erroneous strategic decisions can have severe
negative impact on organizations
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-8
3 Basic Activities –
1. Examining the underlying bases of a firms’
strategy
2. Comparing expected to actual results
3. Corrective actions to ensure performance
conforms to plans
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-9
Strategy evaluation –
– Complex and sensitive undertaking
– Overemphasis can be costly and
counterproductive
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-10
In many organizations, evaluation is an appraisal of performance –
• Have assets increased?
• Increase in profitability?
• Increase in sales?
• Increase in productivity?
• Profit margins, ROI and EPS ratios increased?
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-11
Four Criteria (Richard Rummelt):
• Consistency
• Consonance
• Feasibility
• Advantage
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-12
Consistency
– Strategy should not present inconsistent
goals and policies.
• Conflict and interdepartmental bickering
symptomatic of managerial disorder and strategic
inconsistency
Rummelt’s Criteria
Fred R. David
Prentice Hall
Ch 9-13
Consonance
– Need for strategies to examine sets of
trends
• Adaptive response to external environment
• Trends are results of interactions among other
trends
Rummelt’s Criteria
Fred R. David
Prentice Hall
Ch 9-14
Feasibility
– Neither overtax resources or create
unsolvable subproblems
• Organizations must demonstrate the abilities,
competencies, skills and talents to carry out a
given strategy
Rummelt’s Criteria
Fred R. David
Prentice Hall
Ch 9-15
Advantage
– Creation or maintenance of competitive
advantage
• Superiority in resources, skills, or position
Rummelt’s Criteria
Fred R. David
Prentice Hall
Ch 9-16
Difficulty in strategy evaluation –
1. Increase in environment’s complexity
2. Difficulty predicting future with accuracy
3. Increasing number of variables
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-17
Difficulty in strategy evaluation –
4. Rate of obsolescence of plans
5. Domestic and global events
6. Decreasing time span for planning
certainty
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-18
Strategy evaluation should –
– Initiative managerial questioning
– Trigger review of objectives and values
– Stimulate creativity in generating alternatives
Process of Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-19
Review of underlying bases of strategy –
– Develop revised EFE Matrix
– Develop revised IFE Matrix
Reviewing Bases of Strategy
Fred R. David
Prentice Hall
Ch 9-20
Review effectiveness of strategy –
1. Competitors’ reaction to strategy
2. Competitors’ change in strategy
3. Competitors’ changes in strengths and
weaknesses
4. Reasons for competitors’ strategic change
Reviewing Bases of Strategy
Fred R. David
Prentice Hall
Ch 9-21
Review effectiveness of strategy –
5. Reasons for competitors’ successful strategies
6. Competitors’ present market positions and profitability
7. Potential for competitor retaliation
8. Potential for cooperation with competitors
Reviewing Bases of Strategy
Fred R. David
Prentice Hall
Ch 9-22
Monitor Threats and Opportunities and
Weaknesses and Strengths
• Are our internal strengths still strengths?
• Have we added additional strengths?
• Are our weaknesses still weaknesses?
• Have we other internal weaknesses?
Reviewing Bases of Strategy
Fred R. David
Prentice Hall
Ch 9-23
Monitor Threats and Opportunities and Weaknesses and Strengths
• Are opportunities still opportunities?
• Other external opportunities?
• Are threats still threats?
• Are there other threats?
• Are we vulnerable to a hostile takeover?
Reviewing Bases of Strategy
Fred R. David
Prentice Hall
Ch 9-24
Evaluation FrameworkI. Review Underlying Bases
Continue present course
II. Measure Firm Performance
III.
Take
Corrective
Actions
Differences?
Differences?
Yes
NO
Yes
NO
Fred R. David
Prentice Hall
Ch 9-25
• Comparing expected to actual results
• Investigating deviations from plan
• Evaluating individual performance
• Progress toward stated objectives
Measuring Organizational
Performance
Fred R. David
Prentice Hall
Ch 9-26
Quantitative criteria for strategy evaluation –
– Financial Ratios:• Compare performance over different periods
• Compare performance to competitors
• Compare performance to industry averages
Measuring Organizational
Performance
Fred R. David
Prentice Hall
Ch 9-27
Key Financial Ratios –
– Return on investment
– Return on equity
– Profit margin
– Market share
Measuring Organizational
Performance
Fred R. David
Prentice Hall
Ch 9-28
Key Financial Ratios –
– Debt to equity
– Earnings per share
– Sales growth
– Asset growth
Measuring Organizational
Performance
Fred R. David
Prentice Hall
Ch 9-29
Qualitative evaluation of strategy -
– Internal consistency of strategy
– Consistency of strategy with environment
– Strategy appropriate in view of resources
– Acceptable degree of risk
– Appropriate time frame
– Workability of the strategy
Measuring Organizational
Performance
Fred R. David
Prentice Hall
Ch 9-30
Basic requirements for effective strategy evaluation –
– Economical
– Meaningful
– Generate useful information
– Timely information
– Provide a true picture of what is happening
Characteristics of Evaluation
Fred R. David
Prentice Hall
Ch 9-31
Strategy-Evaluation Assessment Matrix
Continue courseYesNoNo
Corrective actionsNoYesNo
Corrective actionsYesYesNo
Corrective actionsNoNoYes
Corrective actionsYesNoYes
Corrective actionsNoYesYes
Corrective actionsYesYesYes
Corrective actionsNoNoNo
Result
Has the firm progressed
satisfactorily toward achieving its stated
objectives?
Have major changes
occurred in the firm’s external strategic position?
Have major changes
occurred in the firm’s internal strategic position?
Fred R. David
Prentice Hall
Ch 9-32
Premise of sound strategic management –
– Planning to deal with unfavorable and
favorable events before they occur.
Contingency Planning
Fred R. David
Prentice Hall
Ch 9-33
Contingency Planning –
– Alternative plans that can be put into effect if
certain key events do not occur as expected
Contingency Planning
Fred R. David
Prentice Hall
Ch 9-34
• Financial audits to determine
correspondence between assertions
based on strategic plans and established
criteria
• Environmental audits to insure sound
and safe practices
Auditing
Fred R. David
Prentice Hall
Ch 9-35
Key Terms
• Advantage
• Auditing
• Consistency
• Consonance
• Contingency Plans
• Corporate Agility
• Feasibility
Fred R. David
Prentice Hall
Ch 9-36
Key Terms
• Future Shock
• Management by Wandering Around
• Measuring Organizational Performance
• Planning Process Audit (PPA)
• Reviewing the Underlying Bases of an Organization’s Strategy
Fred R. David
Prentice Hall
Ch 9-37
Key Terms
• Revised EFE Matrix
• Revised IFE Matrix
• Taking Corrective Actions