Prof.

Guru Aradhya

Ch 9-1

Module 8
Strategy Review, Evaluation, & Control

Prof.Guru Aradhya

Ch 9-2

Overview
Strategic Review & Audit Strategic control guiding and evaluating strategies Establishing Strategic controls Operational Control Systems Monitoring performance and evaluating deviations Challenges of strategy Implementation

Prof.Guru Aradhya

Ch 9-3

The best formulated and implemented strategies

become obsolete as a firms external and internal

environments change. It is essential therefore, that

strategists systematically review, evaluate and control

the execution of strategies.

Prof.Guru Aradhya

Ch 9-4

Areas for Strategy Review

Market performance and Direction

Products and Services

Operational Matters

Financial Matters
Organization and the People

Prof.Guru Aradhya

Ch 9-5

Strategy Evaluation & Control

Strategic evaluation and control can be considered as

the last step of strategic management. However, since

strategic management is an on going process, review and

control can be taken as the process for future course of

action

Prof.Guru Aradhya

Ch 9-6

Evaluation of strategy is that phase of the strategic

management process in which the top managers

determine whether their strategic choice as implemented

is meeting the objectives of the enterprise

Professor William F Glueck & Lawrence R Junch

Prof.Guru Aradhya

Ch 9-7

Strategy Evaluation
it is the process through which the strategists know the

extent to which a strategy is able to achieve its

objectives it is the process through which the strategists know the extent to which a strategy is able to achieve its

objectives
Prof.Guru Aradhya
Ch 9-8

Why Strategy Evaluation & Control?

Wrong Postulations in Planning Laxities on the Part of Managers To develop Right Reward System Formulation of New Strategies Modifying the Present Strategies Integration of Individual Tasks Keeping Check on Validity of Strategic Choice Taking Supporting Decisions
Ch 9-9

Prof.Guru Aradhya

Importance of strategic evaluation and control

Motivational tool Means to secure feedback Better and updated strategies Evaluation of Decision making Checks on validity

Prof.Guru Aradhya

Ch 9-10

Characteristics of an effective evaluation and control system

Suitable Simple Selective Sound and Economical Flexible

Reasonable Objective Responsibility for failures Acceptable Forward-looking

Prof.Guru Aradhya

Ch 9-11

Who does Strategic Evaluation & Control?

Board of Directors Chief Executives Financial Controllers, Company Secretaries & Auditors SBU Audit & Executive Committees Middle level & Other Managers

Prof.Guru Aradhya

Ch 9-12

Levels of strategic evaluation and control

Strategy Formulation is done on the basis of a number of assumptions or premises. Strategic controls are early warning signals or warning systems which differ from post-action controls that evaluate only after the completion of implementation stage.

Prof.Guru Aradhya

Ch 9-13

STRATEGIC CONTROL
FOUR BASIC TYPES OF STRATEGIC CONTROL ARE:
PREMISE CONTROL IMPLEMENTATION CONTROL STRATEGIC SURVELLIANCE SPECIAL ALERT CONTROL

Prof.Guru Aradhya

Ch 9-14

Types of strategic control

Premise Control: Every strategy is based on certain assumptions about environmental & organizational factors. Some of these factors are highly significant and any change in them can affect the strategy to a large extent. Implementation Control: the implementation of strategy result in a series of plans, programmes, & projects. Resource allocation is done to implement these. Implementation control is aim at evaluation whether the plans, programs & projects are actually guiding the organization towards its predetermined objectives or not.
Prof.Guru Aradhya
Ch 9-15

Types of strategic control

Strategic surveillance:
The premise and implementation types of strategic controls are specific in nature strategic surveillance, on the other hand, is aimed at a more generalized and overarching control designed to monitor a broad rage of events inside and outside the company that are likely to threaten the course of firms strategy. Special Alert Control:

The last of the strategic control systems is the special alert control, which is based on a trigger mechanism for rapid response & immediate reassessment of strategy in the light of sudden & unexpected events.

Prof.Guru Aradhya

Ch 9-16

Operational Control is aimed at the allocation and use of organizational resources through an evaluation of the performance of organization units, such as divisions, SBUs and so on, to assess their contribution to the

achievement of organizational objectives.

Organization is concerned with action or performance,

and this is probably the reason why it is used so

extensively in organization.
Prof.Guru Aradhya
Ch 9-17

Two types of Operational Control

Post-action measures the results after an action is completed. It is used by all top managers in order to identify the overall results of strategy Steering Is designed to detect variations from the standards and to permit corrective actions before an operation is fully completed. It is used by functional and lower level managers to have periodic results as per periodic controls are used.
Prof.Guru Aradhya
Ch 9-18

Process of Control/ Evaluation:

SETTING PERFORMAN CE STANDARDS ACTUAL PERFORMAN CE VARIANCE ANALYSIS

OBJECTIVE STRATEGIES PLANS

CORRCTIVE ACTION

REVISE

RESET

REFINE

FEED-BACK Prof.Guru Aradhya

Ch 9-19

Techniques of strategic evaluation & control

Evaluation Techniques for Strategic Control:
Heart of strategic control is to assess continuously then changing environment is order to trace events and forces that influence the very course of action. The essence of strategic control is to continually assess the changing environment to uncover events that may significantly affect the course of organizations strategy. Classified in to 2 groups: Strategic Momentum Control Strategic Leap Control
Prof.Guru Aradhya
Ch 9-20

Strategic Momentum Control

Aims at assuring the strategists that the strategies formulated and implemented are still acceptable as their assumptions and have not changed as they are valid to date. These techniques encourage maintaining the existing tempo of strategic momentum.

Responsibility Control centre's: Is a sub-unit of an org which is called responsibility centre whose head is called Responsibility Centre Manager and is held responsible for all the activities and events that come under his purview.
Prof.Guru Aradhya
Ch 9-21

Underlying Success Factors: Are those that help the org to focus on key success factors which are most important & unavoidable to achieve goals behind the chosen strategy.
Generic Strategies Approach: Strategic control works on the postulation that the strategies followed by similar org are comparable as these firms are competitive. Applying 5Ws and 1H

Prof.Guru Aradhya

Ch 9-22

Strategic Leap Control

Those org which are working under turbulent water , there is no option than to take skip with a view to bring in change in org strategy to match the org to the environment which is unstable Strategic leap control helps such firms to get out of such whirlpool successfully.

Prof.Guru Aradhya

Ch 9-23

Strategic issue management: to identify one or more strategic issue & implications on the org. It is a forthcoming development either inside or outside the org, which is likely to have an important impact on the ability of the enterprise to meet its objectives

Strategic Field Analysis: kind of examination or scrutiny which examines the nature & extent of synergies that exist b/w components of an org. Strategists evaluate the organizations capability to generate synergies where they do not exist.
Ch 9-24

Prof.Guru Aradhya

Systems Modelling: is founded on computer based models that simulate the essential features of the organization and its environment. Org are able to exercise pre-action control by assessing the impact of the environment on the firm by following a particular strategy through systems modelling Writing of Scenarios: scenario writing is a part of
environmental analysis Scenario is a perception of the likely environment a form is likely to face in future. Tool of analyzing the environment, helps in creating the possible environments to give different shades to different perceptive for an on looker.
Ch 9-25

Prof.Guru Aradhya

2. Evaluation Techniques for Operational Control:

Operational Control is to do with allocation and use if organizational resources in the most optimum manner.

These techniques are based on Internal techniques

as against

external environmental scanning which is under the jurisdiction of strategic control.

1.

Evaluation Techniques are: Internal Analysis

2.
3.

Comparative Analysis
Comprehensive Analysis
Ch 9-26

Prof.Guru Aradhya

Operational control systems

Strategic control concerns with steering with companys future direction. Strategic control can be useful to top management in monitoring and steering the basic strategic direction of the company. Therefore, operating managers also need appropriate control methods at all levels for strategy formulation and implementation and control operational system of an organization or company.

Prof.Guru Aradhya

Ch 9-27

Types of Operational control systems Financial Techniques Budgetory Control Zero based budgeting Financial Analysis Parta System Net Work techniques Management by Objectives Memorandum Of Understanding

Prof.Guru Aradhya

Ch 9-28

Financial Techniques : mainly relate to financial analysis of an organization. A. Budgetory Control- is a system of controlling costs which includes the preparation of budgets. Is the establishment of budgets relating to the responsibilities of executives of a policy & continuous comparison of the actual with the budgeted results, either

To secure by individual action the objective of the policy

Budgetory control is an instrument of planning, coordination and control including communication.

Ch 9-29

Prof.Guru Aradhya

B. Zero Based Budgeting- is a modern management

tool for planning & controlling expenditure. ZBB is an operating planning and budgeting process which require each manager to justify his entire budget request in detail from scratch-zero base. ZBB is the requirement that budgeting process starts from zero, with all expenses completely justified. ZBB works on the principle of periodic reevaluation of plans, programs and projects to decide whether or not a change in resource allocation is required to achieve given goals.

Prof.Guru Aradhya

Ch 9-30

C. Financial Analysis- is a very powerful and popular

technique which is used in spite of its historical approach. It uses mainly ratio analysis so as to assess the financial health of any unit It can be a comparative analysis or trend analysis over the period of time. This also makes possible interfirm comparison. This financial analysis speaks of profitability, liquidity, solvency and leverage position of a firm

Prof.Guru Aradhya

Ch 9-31

D. Parta System- it is an indigenous system used by Marwari business units whereby the firms keep track of daily cash generation Parta is the predetermined budget of net cash inflows from operations before tax dividend. The parta is decided well in advance by the family owned business or it may be company head where the actual cash generations are compared with standard parameter of parta on daily bases.

Prof.Guru Aradhya

Ch 9-32

Network Techniques: are part of operations research-OR and the most common versions are PERT, CPM and Networks. These are used extensively in allocation of resources to different projects where scheduling and its control is a must.

Prof.Guru Aradhya

Ch 9-33

Management by Objectives: it is an approach to planning that helps to overcome barrier. MBO is a strategy of planning & getting results in the direction that mgmt wishes & needs to take while meeting the goals and satisfaction of its participants. MBO is based on regular evaluation of performance against objectives that are decided mutually by juniors and seniors. By the process of consultation, objective setting leads to the establishment of a control system that operates on the basis of commitment & self-control.
Ch 9-34

Prof.Guru Aradhya

Memorandum by Objectives: is based on the novel idea of commitment It is an agreement b/w the enterprise and the controlling authority where the parties to MOU express their commitments & responsibilities. MOU makes commitment to pay one time royalty payment, the moment the publisher gets the manuscript from the author or authors & promise to pay again one time payment for reprints & subsequent new editions.

Prof.Guru Aradhya

Ch 9-35

Types of Operational control systems

1. Budgeting systems: Budgeting systems provide efficient resource allocation among the divisions/functions of the company. A budget involves simply resource allocation plan, helps managers for coordination operations, and facilitates managerial control. Types of strategic Budgets I) Revenue Budgets II) Capital Budget III) Expenditure Budget

Prof.Guru Aradhya

Ch 9-36

Types of Operational control systems

2. Scheduling: Scheduling is the key factor in the success of the
strategy. It is simply a planning tool for allocating the use of a time-constrained resource or arranging the sequence of interdependent activities or arranging the sequence of interdependent activities . 3. Key-Success Factors: Key factors are very important to implementation of the project. Successful key factors are listed below: Improved productivity High employee morale Improved product/service quality Growth in market share
Prof.Guru Aradhya
Ch 9-37

KSF
KSF for customer service

Delivery cycle in days Percentage of orders shipped complete Field service delays

Prof.Guru Aradhya

Ch 9-38

FOR COMPLETE MORALE :

Trends in turnover

Attitude survey
Absenteeism vs. plan

FOR COMPETITION:
number

of new products introduced &

number of firms competing directly .

Prof.Guru Aradhya

Ch 9-39

Monitoring & Measuring Performance

The evaluation process operates at the performance level as action takes place, Standards of performance act as the benchmark against which the actual performance is to be compared.

It is important, however, to understand how the measurement

of performance can take place.

Prof.Guru Aradhya

Ch 9-40

Appropriate Measures of Performance

Traditional Financial Measures Stakeholder Measures Shareholder Value Balanced Scorecard Using Benchmarking to Evaluate Performance

Prof.Guru Aradhya

Ch 9-41

Strategy audit
Strategy audit is one of the methods for evaluating the

performance of the chosen strategy.

Strategy audit can help evaluate the firms corporate and top management and each of the functional areas, which is associated with strategy implemented exercise.

Prof.Guru Aradhya

Ch 9-42

Checklist for Strategy Audit

Current Situation Record of Performance Corporate and Top Management Evaluation of Strategy External Environment Internal Environment Strategy Implementation and Control
Prof.Guru Aradhya
Ch 9-43

Process of Strategy Audit

Resource Audit

Value Chain Analysis

Core Competence Analysis

Performance Analysis
Portfolio Analysis

SWOT Analysis
Prof.Guru Aradhya
Ch 9-44

Strategy Review, Evaluation, & Control

-- Strategies become obsolete -- Internal environments are dynamic -- External environments are dynamic

Prof.Guru Aradhya

Ch 9-45

Strategy Evaluation

Vital to the organizations well-being

Alert management to potential/actual problems

in a timely fashion

Erroneous strategic decisions can have severe

negative impact on organizations

Prof.Guru Aradhya

Ch 9-46

3 Basic Activities
1.

Examine the underlying bases of a firms strategy

2.
3.

Compare expected to actual results

Identify corrective actions to ensure that

performance conforms to plans

Prof.Guru Aradhya

Ch 9-47

Strategy Evaluation

Complex & sensitive undertaking

Overemphasis can be costly & counterproductive

Prof.Guru Aradhya

Ch 9-48

Appraisal of Strategic Performance

Have assets increased

Increase in profitability
Increase in sales

Increase in productivity
Profit margins, ROI, & EPS ratios increased

Prof.Guru Aradhya

Ch 9-49

Strategy Review, Evaluation, & Control

Consistency Consonance Feasibility Advantage
Prof.Guru Aradhya
Ch 9-50

Rumelts 4 Criteria

Consistency

Strategy should not present inconsistent goals & policies

Prof.Guru Aradhya

Ch 9-51

Strategy Review, Evaluation, & Control

Consistency Consonance Feasibility Advantage
Prof.Guru Aradhya
Ch 9-52

Rumelts 4 Criteria

Consonance

Need for strategies to examine sets of trends

Prof.Guru Aradhya

Ch 9-53

Strategy Review, Evaluation, & Control

Consistency Consonance Feasibility Advantage
Prof.Guru Aradhya
Ch 9-54

Rumelts 4 Criteria

Feasibility

Neither

overtax

resources

or

create

unsolvable sub-problems

Prof.Guru Aradhya

Ch 9-55

Strategy Review, Evaluation, & Control

Consistency Consonance Feasibility Advantage
Prof.Guru Aradhya
Ch 9-56

Rumelts 4 Criteria

Advantage

Creation or maintenance of competitive advantage

Prof.Guru Aradhya

Ch 9-57

Difficulties in Strategy Evaluation

1.

Increase in environments complexity

2.
3.

Difficulty predicting future with accuracy

Increasing number of variables

4.
5.

Rate of obsolescence of plans

Domestic and global events

6.

Decreasing time span for planning certainty

Ch 9-58

Prof.Guru Aradhya

Strategy Evaluation Should -

Initiate managerial questioning Trigger review of objectives & values Stimulate creativity in generating alternatives

Prof.Guru Aradhya

Ch 9-59

Strategy Review, Evaluation, & Control

Review of Underlying Bases of Strategy -

Develop revised EFE Matrix Develop revised IFE Matrix

Prof.Guru Aradhya

Ch 9-60

Strategy Review, Evaluation, & Control

Monitor Strengths & Weaknesses; Opportunities & Threats

Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses?

Prof.Guru Aradhya

Ch 9-61

Review Effectiveness of Strategy -1. 2. 3. 4. 5. 6.

7. 8.

Competitors reaction to strategy Competitors change in strategy Competitors changes in strengths & weaknesses Reasons for competitors strategic change Reasons for competitors successful strategies Competitors present market positions & profitability Potential for competitor retaliation Potential for cooperation with competitors
Ch 9-62

Prof.Guru Aradhya

Strategy Review, Evaluation, & Control

Monitor Strengths & Weaknesses; Opportunities & Threats

Are opportunities still opportunities? Other opportunities develop? Are threats still threats Other threats emerged? Are we vulnerable to hostile takeover?
Ch 9-63

Prof.Guru Aradhya

Prof.Guru Aradhya

Ch 9-64

Evaluation Framework

I. Review Underlying Bases

Yes III. Take Corrective Actions

Differences?

NO II. Measure Firm Performance

Differences?

Yes

NO
ContinueAradhya course Prof.Guru present
Ch 9-65

Measuring Organizational Performance

Compare expected to actual results

Investigate deviations from plan

Evaluate individual performance

Progress toward stated objectives

Prof.Guru Aradhya

Ch 9-66

Quantitative Criteria for Strategy Evaluation

Financial Ratios
Compare performance over different periods Compare performance to competitors Compare performance to industry averages

Prof.Guru Aradhya

Ch 9-67

Key Financial Ratios

Return on investment (ROI) Return on equity (ROE) Profit margin Market Share

Prof.Guru Aradhya

Ch 9-68

Key Financial Ratios

Debt to equity

Earnings per share (EPS)

Sales growth Asset growth

Prof.Guru Aradhya

Ch 9-69

Qualitative Evaluation of Strategy

Internal consistency of strategy

Consistency with environment

Appropriateness in view of resources

Prof.Guru Aradhya

Ch 9-70

Qualitative Evaluation of Strategy

Acceptable degree of risk

Appropriate time frame

Workability of the strategy

Prof.Guru Aradhya

Ch 9-71

Balanced Scorecard

-- Evaluate strategies from 4 perspectives:

1. Financial performance

2. Customer knowledge
3. Internal business processes

4. Learning & growth

Prof.Guru Aradhya
Ch 9-72

Balanced Scorecard
Area of Objectives Customers 1 2 Managers/Employees 1 2 Operations/Processes 1 2 Community/Social Responsibility 1 Measure or Target Time Expectation Primary Responsibility

2
Business Ethics/Natural Environment 1 2 Financial 1 2

Prof.Guru Aradhya

Ch 9-73

Prof.Guru Aradhya

Ch 9-74

Characteristics of Strategy Evaluation

Economical

Meaningful
Generates useful information

Timely information
Provides accurate picture of events

Prof.Guru Aradhya

Ch 9-75

Strategy-Evaluation Assessment Matrix

Have major changes occurred in the firms internal strategic position? Have major changes occurred in the firms external strategic position?

Has the firm progressed satisfactorily toward achieving its stated objectives?

Result

No Yes Yes Yes Yes No No No

Prof.Guru Aradhya

No Yes Yes No No Yes Yes No

No Yes No Yes No Yes No Yes

Corrective actions Corrective actions Corrective actions Corrective actions Corrective actions Corrective actions Corrective actions Continue course
Ch 9-76

Contingency Planning

Alternative plans that can be put into effect if

certain key events do not occur as expected

Prof.Guru Aradhya

Ch 9-77

Auditing

Financial audits determine correspondence

between assertions based on strategic plan

& established criteria

Environmental audits insure sound and safe

practices
Prof.Guru Aradhya
Ch 9-78

21st Century Challenges in Strategic Management

Process is more an art than science Should strategies be visible or hidden from stakeholders Should process be more top-down or bottom up

Prof.Guru Aradhya

Ch 9-79

Prof.Guru Aradhya

Ch 9-80