Evaluation and Control

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 Evaluation and Control

Introduction
• Strategy can neither be formulated nor
adjusted to changing circumstances
without a process of strategy evaluation.

• Whether performed by an individual or as

part of an organisational review procedure,
strategy evaluation forms an essential step
in the process of guiding an enterprise.
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 Evaluation and Control

• Evaluation is vital to the organization’s well-

being because:

• It compares performance with desired results

and gives feedback for management to
evaluate and take corrective

• It alerts management to potential/actual

problems in a timely fashion.

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 Evaluation and Control

Strategy evaluation is often an appraisal of

performance. Strategists ask questions like:

• Have the firm’s assets increased?

• Has there been an increase in
profitability?
• Has there been an increase in sales?
• Has there been an increase in
productivity?
• Have profit margins, ROI, and EPS
ratios increased?
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 Evaluation and Control

BOARD
OF DIRECTORS

GENERAL
MANAGER

R&D CORPORATE STAFF

OPERATING CO. OPERATING CO.

OPERATING CO. OPERATING CO. OPERATING CO.
CAMEROON CAMEROON-
GABON C. A. R. D. R. C
YAOUNDE DOUALA

PRODUCT. PRODUCT PRODUCT PRODUCT

CHOCO. SPREAD CHOCO. BARS CHOCO TOFFEES CHOCO DRINK
 Evaluation and Control

What is Strategic Evaluation

• Glueck and Jauch have defined strategic
evaluation as follows: “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.

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 Evaluation and Control

There are two aspects in this phase of

strategic management:

• Evaluation which emphasizes

measurement of results of a strategic
action and
• Control which emphasizes on taking
necessary actions in the light of gap that
exists between intended results and actual
results in the strategic action.
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 Evaluation and Control

Difficulties in Strategy Evaluation

• Difficulty predicting future with accuracy

• Increasing number of variables
• Rate of obsolescence of plans
• Domestic and global events
• Decreasing time span for planning certainty

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 Evaluation and Control

Evaluation and Control Process

This process ensures that the company

achieves what it was set out to achieve. It
compares actual with desired performance
and provides feedback necessary for
management to evaluate results and take
corrective action where necessary.

This process can be viewed in five steps

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 Evaluation and Control

• Determine what to measure -this involves

clarification of the aims to be achieved, i.e.
the aims and objectives must be stated in
clear terms that should include specific
deadlines

• Establish standard of performance –

requires realistic measurement by which
the degree and quality of goal
achievement can be determined.
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 Evaluation and Control

• Measure actual performance – this should be

an ongoing repetitive process, actual
frequency of measurement being dependent
on the type of activity
• Comparing actual performance against
standards – this involves comparing
measured results with established targets or
standards previously set.
• Take corrective action – if actual results fall
outside the desired tolerance rang, action
must be taken to rectify the deviation
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Evaluation and Control
 Evaluation and Control

Objectives and Standard of Actual

targets performance performance

Comparing for
any deviations

Rectify by taking
corrective action

• Basic steps in the control process, adapted and modified from Mullins, L.J.,
Management and organizational behaviour, 4th edition, London, Pitman Publishing,
p. 595

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 Evaluation and Control

Strategic and Operational Control: A Comparison

• Strategic control is the process of taking into accounts the

changing assumptions both external and internal to the
organisation on which a strategy is based, continually
evaluating the strategy as it is being implemented and taking
corrective actions to adjust strategy according to changing
conditions or taking necessary actions to realign strategy
implementation
• Are the premises made during the strategy formulation
process proving to be correct?
• Is the strategy being implemented properly?
• Is there any need for change in the strategy? If yes, what is
the type of change required to ensure strategic
effectiveness? 14
 Evaluation and Control

• Operational control focuses on the results of

strategic action and is aimed at evaluating
the performance of the organisation as a
whole, different SBUs and other units.
• How is the organisation performing?
• Are the organisational resources being
utilised properly?
• What are the actions required to ensure the
proper utilization of resources in order to
meet organisational objectives?

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 Evaluation and Control

Types of Organizational Controls

• Depending on the stages at which control is

exercised, it may be of three types:
• Control of inputs that are required in an
action, known as feed forward control;
• Control at different stages of action process,
known as concurrent, real-time, or
steering control; and
• Post action control based on feedback from
the completed action, known as feedback
control.
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 Evaluation and Control

Feed-forward
Concurrent Control
Control

Input Processing Output

Feedback Control

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 Evaluation and Control

• Feed-forward controls,
sometimes called preliminary or
preventive controls, attempt to
identify and prevent deviations in
the standards before they occur.
Feed-forward controls focus on
human, material, and financial
resources within the organization.
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 Evaluation and Control

• Concurrent controls monitor

ongoing employee activity to ensure
consistency with quality standards.
These controls rely on performance
standards, rules, and regulations for
guiding employee tasks and
behaviours. Their purpose is to
ensure that work activities produce
the desired results.
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 Evaluation and Control

• Feedback controls involve reviewing

information to determine whether
performance meets established standards.
For example, suppose that an organization
establishes a goal of increasing its profit
by 12 percent next year. To ensure that
this goal is reached, the organization must
monitor its profit on a monthly basis. After
three months, if profit has increased by 3
percent, management might assume that
plans are going according to schedule.
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 Evaluation and Control

Some Control Techniques

• Activity-Based Costing (ABC) is a

method used for the allocation of indirect
and fixed cost to individual product lines
based on the value-added activities going
into that product. This method is useful in
doing a value chain analysis of a firm’s
activities for making outsourcing decisions.

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 Evaluation and Control

• Enterprise Risk Management (ERM) is an

integrated process for managing the
uncertainties that could negatively or
positively influence the achievement of a
corporation’s objectives. The process of
rating risk involves the following
– Identify the risk using scenario analysis or
brainstorming
– Rank the risk using some scale of impact and
likelihood
– Measure the risk using some agreed upon
standard
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 Evaluation and Control
Primary Measures of Corporate
Performance
• The days when simple financial measures
such as ROI or EPS were used alone to
assess the overall corporate performance
are coming to an end. Analysts now
recommend a broad range of methods to
evaluate the success or failure of a
strategy. Some of these methods are
stakeholder measures, shareholder value
and the balance scorecard approach.

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 Evaluation and Control

• Traditional financial methods - these

methods were used to measure corporate
performance in terms of profit.

• ROI
• EPS
• ROE
• Operating Cash flow
• Free cash flow

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 Evaluation and Control

• Stakeholder Measures – top

management should establish
one or more simple stakeholder
measures for each stakeholder
category according to its own set
of criteria

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 Evaluation and Control

• Shareholder value – This can be defined as

the present value of anticipated future stream
of cash flows from the business plus the value
of the company, if liquidated. The New York
consulting firm Stern Stewart & Company
devised and popularised two shareholder
value measures known as the Economic value
Added (EVA) and the Market Value Added
(MVA). The basic concepts of these are that
businesses should not invest in projects
unless they can generate profit above the cost
of capital.
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 Evaluation and Control

• Economic value added (EVA) is a

performance measure developed by Stern
Stewart & Co that attempts to measure the
true economic profit produced by a
company. It is frequently also referred to
as "economic profit", and provides a
measurement of a company's economic
success (or failure) over a period of time.

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 Evaluation and Control

• Market value added (MVA), on the other

hand, is simply the difference between the
current total market value of a company and
the capital contributed by investors
(including both shareholders and
bondholders). MVA is not a performance
metric like EVA, but instead is a wealth
metric; measuring the level of value a
company has accumulated over time. As a
company performs well over time, it will
retain earnings
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 Evaluation and Control

Balanced Scorecard
Balanced Scorecard
Evaluate strategies from 4 perspectives:
1. Financial performance: how do we appear to
shareholders?
2. Customer knowledge: how do customers view us?
3. Internal business processes: what must excel us?
4. Learning & growth: Can we continue to improve
and create value?
Besides, performance of people and performance
according to stakeholders can be added.

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 Evaluation and Control

Balanced Scorecard
Area of Objectives Measure or Target Time Expectation Primary Responsibility

Customers  Sales Growth In 2 years  

1      
2      
Managers/Employees      
1      
2      
Operations/Processes      
1      
2      

Community/Social Responsibility      
1      
2      

Business Ethics/Natural Environment      

1      
2      
Financial      
1      
2      
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 Evaluation and Control

Balanced scorecard(Chococam)

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Evaluation and Control

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 Evaluation and Control

Evaluating Top Management & BoD –

– Chairman-CEO Feedback Instrument
using the 17-item questionnaire developed
by Ram Charan.
– It focuses on
• Company performance
• Leadership of the organization
• Team building and management succession
• Leadership of external constituencies

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 Evaluation and Control

• Management Audit is used to evaluate

how management handle the various
corporate activities such as

• Corporate social responsibilities

• Functional areas of the organization

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 Evaluation and Control

• Strategic Audit – provides a checklist of

questions, by area or issue, that enables a
systematic analysis of various corporate
functions and activities to be made.

• It is useful as a diagnostic tool to pinpoint

corporate-wide problems

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 Evaluation and Control

• Divisional & Functional Performance –

– Responsibility Centers – are used to isolate a unit

so that it can be evaluated separately from the rest
of the corporation

• Standard cost centers

• Revenue centers
• Expense centers
• Profit centers
• Investment centers

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 Evaluation and Control

• Using Benchmarking –

– Continual process of measuring products,

service, and practices against the
toughest competitors or those companies
recognized as industry leaders

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 Evaluation and Control

• International Measurement Issues –

– International transfer pricing

– Repatriation of profit
– piracy

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 Evaluation and Control

• Strategic Information Systems –

– Enterprise Resource Planning (ERP)

– Divisional and functional IS support

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 Evaluation and Control

• Problems in Measuring Performance –

– Short-term orientation
– Goal displacement
• Behavior substitution
• Suboptimization

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 Evaluation and Control

• Guidelines for Proper Control –

– Minimum amount of information necessary

– Meaningful activities and results
– Timely
– Long and short-term
– Pinpointing exceptions
– Meeting/exceeding standards

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