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Prentice Hall, Inc. © 2008 11-1
STRATEGIC MANAGEMENT & BUSINESS POLICY
11 TH
EDITIONTHOMAS L. WHEELEN J. DAVID HUNGER
CHAPTER 11 Evaluation& Cont ol
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The evaluation and controlprocess
• Ensure that a compan is achievin! "hatit set out to accomplish. It comparesper#ormance "ith desired result andprovides the #eed $ac% necessar #ormana!ement to evaluate results and ta%ecorrective action, as needed.
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Evaluation an! Cont ol
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' #ive step #eed$ac% model
• (etermine "hat to measure ) Top mana!ers andoperational mana!ers need to speci# "hatimplementation process and results must $e capa$le o#$ein! measured in a reasona$l o$*ective and consistentmanner. The #ocus should $e on the most si!ni#icantelement in a process the ones that account #or hi!hestproportion o# e+pense or the !reatest num$er o#pro$lems. easurement must $e #ound #or all important
areas, re!ardless o# di##icult .• Esta$lish standards o# per#ormance) tandards used to
per#ormance are detailed e+pressions o# strate!ico$*ectives the are measure o# accepta$le per#ormance
11-
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/ont,
the deviation, the #ollo"in! uestions must $e ans"ered)1. Is the deviation onl a chance #luctuation2. 're the process $ein! carried out incorrectl
&. 're the process appropriate to the achievement o# thedesired standard 'ction must $e ta%en "ill not onlcorrect the deviation $ut also prevent it is happenin!a!ain.
. 3ho is the $est person to ta%e corrective action
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Evaluation an! Cont ol
Evaluation and Control Information –
6 Performance data 6 Activity reports
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easurin! per#ormance
• The end result o# activit . 3hich measures to selectassess per#ormance depends on the or!ani7ational unitto $e appraised and the o$*ective to $e achieved. Theo$*ectives that "ere esta$lished earlier in the strate!#ormulation part o# strate!ic mana!ement process
dealin! "ith pro#ita$ilit , mar%et share, and costreduction, amon! others9 should certainl $e used tomeasure corporate per#ormance once the strate!ies
have $een implemented
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Evaluation an! Cont ol
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T pes o# control
• /ontrol can $e esta$lish to #ocus on actualper#ormance results out put9, on theactivities that !enerate the per#ormance
$ehavior9, or on resources that are usedin per#ormance input9
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Evaluation an! Cont ol
Types of Controls – 6 Behavior controls
• ome e+amples o# $ehavior controls are
compan procedures, uotas o# sales calls topotential customers, and rules re!ardin!attendance and tardiness.•;ehavior controls are ver appropriate "henresults are hard to measure and a clear cause-e##ect e+ists $et"een activities $ehaviors9 andresults.
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Evaluation an! Cont ol
Types of Controls –
6 Input controls•=esources 6 s%ills, a$ilities, values, motives.•Input controls are the least use#ul and are mostappropriate "hen output is di##icult to measureand there is no clear cause-e##ect relationship$et"een $ehavior and per#ormance such as incolle!e teachin!9.
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Evaluation an! Cont ol
Types of Controls –
6 Behavior controls•I > :000 tandards eries is a "a o#o$*ectivel documentin! a compan ?s hi!h levelo# ualit operation.•I > 1 000 tandards eries is a "a o# todocument the compan ?s impact on theenvironment.
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Evaluation an! Cont ol
Types of Controls –
6 Activity Based Costing (ABC)• 'llocation o# indirect and #i+ed costs toindividual products or product lines•;ased on value-added activities
• ore accurate char!e o# costs
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T pes o# /ontrols
Enterprise =is% ana!ement E= 9• E= 9 is a corporate "ide, inte!rated process #or
mana!in! the uncertainties that could ne!ativel or
positivel in#luence the achievement o# a corporation?so$*ectives. In the past, "as done in a #ra!mentedmanner #unctions or $usiness units. Individuals "ouldmana!e process ris%, sa#et ris%, and insurance,#inancial and other assorted ris%s. 's a result o# this#ra!mented approach, companies "ould ta%e hu!e ris%sin some areas o# the $usiness "hile over mana!in!su$stantiall smaller ris%s in other areas.
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Evaluation an! Cont ol
Primary "easures of Performance –
6Traditional #inancial "easures•=eturn on investment =>I9
•Earnin!s per share EP 9•=eturn on e uit =>E9
•>peratin! cash #lo"•Aree cash #lo"
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Traditional Ainancial easures
• =eturn on investment =>I9It is simpl the result o# dividin! net income $e#ore ta+es$ the total amount invested in the compan t picallmeasured $ total assets9.
• Earnin! per chair EP/9 "hich involves dividin! net earnin!s $ the amount o#
common stoc%, also has several de#iciencies as anevaluation o# past and #uture per#ormance.
• =eturn on e uit =>E9 3hich involves dividin! net income $ total e uit .
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E l i ! C l
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Evaluation an! Cont ol
Primary "easures of Performance –
6 $hareholder • hareholder value) can $e de#ined as thepresent value o# anticipated #uture value streamo# cash #lo"s #rom the $usiness plus the valueo# the compan i# li uidated.•Economic value added EB'9C a#ter-ta+operatin! income 6 investment in assets +"ei!hted avera!e cost o# capital9
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I" EVA #all$ an i% ov#%#ntov# ROI' ROE' o EPS(
• Economic value added EB'9 is $ein! increasin!lrecommended as an improvement over traditional measures$ecause o# EB'Ds stron! relationship to a compan Ds stoc%price. It uses stoc% price to measure the di##erence $et"een
the pre-strate! and post-strate! value o# a corporation.Ho"ever, EB' is o#ten di##icult to calculate. It is #or thisreason that more simpler measures li%e =>I, =>E, and EPcontinue to have "idespread usa!e.
• 'nother limitation o# EB' is this its concern "ith onl oneaspect o# the tas% environment - the stoc%holder. Theconclusion seems clear. There is no one $est measure or!roup o# measures.
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I" t)# #valuation an! *ont ol o*#""a o iat# +o a *o o ation t)at #% )a"i,#"
* #ativit$(
• /ontrol is not i!nored. (ata is *ust not collectedon intermediate activities such as time in theo##ice or manner o# dress.
• The emphasis tends to $e on the end-result o#activities rather than upon the activitiesthemselves. To $e success#ul, the need $othtalent and discipline.
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ar%et value added B'9
• The di##erence $et"een mar%et value o#corporation and the capital contri$uted $shareholders and lenders.
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Evaluation an! Cont ol
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Evaluation an! Cont ol
Primary "easures of Performance –
6 Balanced $corecard Approach•Ainancial•/ustomer •Internal $usiness perspective
•Innovation and learnin!
Evaluation an! Cont ol
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Evaluation an! Cont ol
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Evaluation an! Cont ol
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Evaluation an! Cont ol
ivisional % #unctional Performance –
6 esponsi'ility Centers• tandard cost centers. ;ased on historical data•=evenue centers.•E+pense centers pro#it centers
•Investment centers. (i##erence $et"eenrevenues and cost.
Evaluation an! Cont ol
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Evaluation an! Cont ol
sing Benchmar!ing –
6 Continual process of measuring products*service* and practices against the toughestcompetitors or those companies recogni+edas industry leaders
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&0
trate! =evie"
The #irm?s internal and e+ternalenvironments are d namic. There#ore,the $est conceived and implemented
strate!ies $ecome o$solete
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&2
trate! =evie"
E##ective trate! Evaluation
• 'de uate and timel #eed$ac%The cornerstone o# e##ectiveevaluation
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&&
trate! =evie"
trate! Evaluation
• ust have 'othhort- G lon!-term #ocus
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&
trate! =evie"
Aour /riteria =ichard =umelt9)
• /onsistenc س ت ل ا• /onsonanceC#it or harmon ف ي ك ا• Aeasi$ilit ح ا ن ك م• 'dvanta!e
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&
/onsistenc Cuni#ormit
• If policy problems/issues continue to be broughtto the top for resolution, then strategies may beinconsistent.
• If success for one epartment means failure foranother epartment, then strategies may beinconsistent.
• If managerial problems continue espite changes
in personnel an are issue base , then strategiesmay be inconsistent.
A strategy should not present inconsistentgoals and policies
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&4
/onsonanceC adapt, #it
• Di!cult in matching "ey internal an e#ternalfactors in formulation of strategy.
• $ost tren s are the result of interactions among
other tren s.
• %trategy must represent an a apti&e response to
the e#ternal en&ironment an critical changesoccurring 'ithin it.
Strategists need to examine sets of trends as well as individual trends in evaluating
strategies.
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&5
Aeasi$ilit
• Important to e#amine 'hether in the past theorgani(ation has emonstrate the capabilities,abilities, competencies, s"ills, an talents to carry
out strategy.
• )imitation on strategic choice impose byin i&i ual an organi(ational capabilities must beconsi ere .
• *an the strategy be attempte 'ithin the physical,human an +nancial resources of the enterprise
Strategy must neither overtax availableresources nor create unsolvable subproblems.
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&:
trate! =evie"
• ate of obsolescence ofe&en the best plans
• Increase in omestic an'orl e&ents
• Decreasing time span for'hich planning can be
one 'ith any certainty
ontemporary%trategyE&aluationDi!culties
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0
trate! =evie"
Process o# Evaluatin! trate!ies)
• hould initiate mana!erial uestionin!o# e+pectations and assumptions• hould tri!!er a revie" o# o$*ectives
and values• hould stimulate creativit in !eneratin!
alternatives and criteria o# evaluation
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1
I. =evie" ;ases o# trate!
• (evelop a =evised EvaluationArame"or% atri+)
• ,o- have competitors reacted to ourstrategies.
• ,o- have competitors/ strategieschanged.
• ,ave ma0or competitors/ strengths and-ea!nesses changed.
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2
I. =evie" ;ases o# trate!
• 1hy are competitors ma!ing certainstrategic changes.
• 1hy are some competitors/ strategiesmore successful than others.
• ,o- satisfied are our competitors -iththeir present mar!et positions and profita'ility.
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I. =evie" ;ases o# trate!
• ,o- far can our ma0or competitors 'e pushed 'efore retaliating.
• ,o- could -e more effectively cooperate-ith our competitors.
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I. =evie" ;ases o# trate!
e uestions in Evaluatin! trate! )
• Are our internal strengths still strengths.
• ,ave -e added other internal strengths.
• Are our internal -ea!nesses still-ea!nesses.
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4
I. =evie" ;ases o# trate!
• Are our e2ternal threats still threats.
• Are there no- other e2ternal threats.
• Are -e vulnera'le to a hostile ta!eover.
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