STRATEGIC AUDIT &

STRATEGIC EVALUATION
AND CONTROL

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 Strategic Audit

Type of management audit that is

extremely useful as a diagnostic
tool to pinpoint corporate-wide
problem areas and to highlight
organizational strengths and
weaknesses.

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Evaluation and Control

Audit Steps:

• Evaluate current performance results

• Review corporate governance
• Scan and assess the external environment
• Scan and assess the internal environment
• Analyze strategic factors using SWOT
• Generate and evaluate strategic alternatives
• Implement strategies
• Evaluate and control

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 Strategic Audit of a Corporation

I. Current Situation
– A. Current Performance
– How did the corporation perform the past year overall in
terms of return on investment, market share, and
profitability?

– B. Strategic Posture
– What are the corporation’s current mission, objectives,
strategies, and policies?
– Are they clearly stated or are they merely implied from
performance?
– Mission: What business(es) is the corporation in? Why?
– Objectives: What are the corporate, business, and
functional objectives? Are they consistent with each
other, with the mission, and with the internal and
external environments?
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 Strategic Audit of a Corporation
– Strategies: What strategy or mix of strategies is the
corporation following? Are they consistent with each
other, with the mission and objectives, and with the
internal and external environments?
– Policies: What are they? Are they consistent with
each other, with the mission and objectives, with the
strategies, and with the internal and external
environments?
– Do the current mission, objectives, strategies, and
policies reflect the corporation’s international
operations — whether global or multi-domestic?

II. Corporate Governance

– A. Board of Directors
– Who are they? Are they internal or external?
– Do they own significant shares of stock?

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 Strategic Audit of a Corporation

– Is the stock privately held or publicly traded? Are

there different classes of stock with different voting
rights?
– What do they contribute to the corporation in terms of
knowledge, skills, background, and connections? If
the corporation has international operations, do board
members have international experience?
– How long have they served on the board?
– What is their level of involvement in strategic
management? Do they merely rubber-stamp top
management’s proposals or do they actively
participate and suggest future directions?

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 Strategic Audit of a Corporation
– B. Top Management
– What person or group constitutes top management?
– What are top management’s chief characteristics in terms
of knowledge, skills, background, and style? If the
corporation has international operations, does top
management have international experience? Are
executives from acquired companies considered part of
the top management team?
– Has top management been responsible for the
corporation’s performance over the past few years? How
many managers have been in their current position for
less than 3 years? Were they internal promotions or
external hires?
– Has it established a systematic approach to strategic
management?
– What is its level of involvement in the strategic
management process?
– How well does top management interact with lower level
managers and with the board of directors?

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 Strategic Audit of a Corporation
– Are strategic decisions made ethically in a responsible
manner?
– Is top management sufficiently skilled to cope with likely
future challenges?
III. External Environment: Opportunities and Threats
(SWOT)
– A. Societal Environment
– What general environmental forces are currently affecting
both the corporation and the industries in which it
competes? Which present current or future threats?
Opportunities?
– a) Economic
– b) Technological
– c) Political-legal
– d) Sociocultural
Illustration
– Are these forces different in other regions of the world?

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 Strategic Audit of a Corporation
– B. Task Environment
– What forces drive industry competition? Are these
forces the same globally or do they vary from country
to country?
– a) Threat of new entrants
– b) Bargaining power of buyers
– c) Threat of substitute products or
services
– d) Bargaining power of suppliers
– e) Rivalry among competing firms
– f)Relative power of unions, governments, special
interest groups, etc.
– What key factors in the immediate environment (that
is, customers, competitors, suppliers, creditors, labor
unions, governments, trade associations, interest
groups, local communities, and shareholders) are
currently affecting the corporation? Which are current
or future threats? Opportunities?
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 Strategic Audit of a Corporation
– C. Summary of External Factors
– Which of these forces and factors are the most
important to the corporation and to the industries in
which it competes at the present time? Which will
be important in the future?

IV. Internal Environment: Strengths and

Weaknesses (SWOT)
– A. Corporate Structure
– How is the corporation structured at present?
a) Is the decision-making authority
centralized around one group or
decentralized to many units?
b) Is it organized on the basis of functions,
projects, geography, or some combination
of these?
– Is the structure clearly understood by
everyone in the corporation? 10
 Strategic Audit of a Corporation
– Is the present structure consistent with corporate
objectives, strategies, policies, and programs as well as
with the firm’s international operations?
– In what ways does it compare with similar corporations?

– B. Corporate Culture
– Is there a well-defined or emerging culture composed of
shared beliefs, expectations, and values?
– Is the culture consistent with the current objectives,
strategies, policies, and programs?
– What is the culture’s position on important issues facing
the corporation (that is, on productivity, quality of
performance, adaptability to changing conditions, and
internationalization)?
– Is the culture compatible with the employees’ diversity of
backgrounds?
– Does the company take into consideration the values of
each nation’s culture in which the firm operates?
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 Strategic Audit of a Corporation

– C. Corporate Resources
– Marketing
a) What are the corporation’s current marketing
objectives, strategies, policies, and programs?
i) Are they clearly stated, or merely implied from
performance and/or budgets?
ii) Are they consistent with the corporation’s
mission, objectives, strategies, policies, and
with internal and external environments?
b) How well is the corporation performing in
terms of analysis of market position and
marketing mix (that is, product, price, place, and
promotion) in both domestic and international
markets? What percentage of sales comes from
foreign operations?
i) What trends emerge from this analysis?

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 Strategic Audit of a Corporation
ii) What impact have these trends had on past performance
and how will they probably affect future performance?
iii) Does this analysis support the corporation’s past and
pending strategic decisions?
iv) Does marketing provide the company with a competitive
advantage?
c) How well does this corporation’s marketing performance
compare with that of similar corporations?
d) Are marketing managers using accepted marketing
concepts and techniques to evaluate and improve product
performance? (Consider product life cycle, market
segmentation, market research, and product portfolios.)
e) Does marketing adjust to the conditions in each country
in which it operates?

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 Strategic Audit of a Corporation

– Finance
a) What are the corporation’s current financial
objectives, strategies, policies, and programs?
i) Are they clearly stated or merely implied?
ii) Are they consistent with the corporation’s
mission, objectives, strategies, policies, and
with internal and external environments?
b) How well is the corporation performing in
terms of financial analysis?
i) What trends emerge from this analysis?
ii) Are there any significant differences when
statements are calculated in Rupee terms
versus dollars?
iii) What impact have these trends had on past
performance and how will they probably affect
future performance?

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 Strategic Audit of a Corporation

iv) Does this analysis support the

corporation’s past and pending strategic
decisions?
v) Does finance provide the company with a
competitive advantage?
c) How well does this corporation’s financial
performance compare with that of similar
corporations?
d) Are financial managers using accepted
financial concepts and techniques to evaluate and
improve current corporate and divisional
performance? (Consider financial leverage,
capital budgeting, ratio analysis, and managing
foreign currencies.)
e) Does finance adjust to the conditions in each
country in which the company operates?
f) What is the role of the financial manager in the
strategic management process?
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 Strategic Audit of a Corporation

– Research and Development (R&D)

a) What are the corporation’s current R&D
objectives, strategies, policies, and programs?
i) Are they clearly stated, or merely implied
from performance and/or budgets?
ii) Are they consistent with the corporation’s
mission, objectives, strategies, policies, and
with internal and external environments?
iii) What is the role of technology in corporate
performance?
iv) Is the mix of basic, applied, and engineering
research appropriate given the corporate
mission and strategies?
v) Does R&D provide the company with an
advantage?

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 Strategic Audit of a Corporation

b) What return is the corporation receiving from

its investment in R&D?
c) Is the corporation competent in technology
transfer? Does it use concurrent engineering
and cross-functional work teams in
product and process design?
d) What role does technological discontinuity
play in the company’s products?
e) How well does the corporation’s investment in
R&D compare with the investments of
similar corporations?
f) Does R&D adjust to the conditions in each
country in which the company operates?
g) What is the role of the R&D manager in the
strategic management process?

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 Strategic Audit of a Corporation
– Operations and Logistics
a) What are the corporation’s current
manufacturing/service objectives, strategies,
policies, and programs?
i) Are they clearly stated, or merely implied
from performance and/or budgets?
ii) Are they consistent with the corporation’s
mission, objectives, strategies, policies,
and environments?
b) What is the type and extent of operations
capabilities of the corporation? How much is
done domestically versus internationally? Is the
amount of outsourcing appropriate to be
competitive? Is purchasing being handled
appropriately?
i) If product-oriented, consider plant facilities,
type of manufacturing system, age and type of
equipment, degree and role of automation and/or
robots, plant capacities and utilization,
productivity ratings, availability and type of 18

transportation.
 Strategic Audit of a Corporation

ii) If service-oriented, consider service facilities

(hospital, theater, or school buildings), type of
operations systems (continuous service over time
to same clientele or intermittent service over time
to varied clientele), age and type of supporting
equipment, degree and role of automation, facility
capacities and utilization rates, efficiency ratings
of professional/ service personnel, availability
service personnel, and availability and type of
transportation to bring service staff and clientele
together.
c) Are manufacturing or service facilities
vulnerable to natural disasters, local or national
strikes, reduction or limitation of resources from
suppliers, substantial cost increases of materials,
or nationalization by governments?

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 Strategic Audit of a Corporation
d) Is there an appropriate mix of people and machines in
manufacturing firms, or of support staff to professionals
in service firms?
e) How well does the corporation perform relative to the
competition? Is it balancing inventory costs
(warehousing) with logistical costs (just-in-time)?
Consider costs per unit of labor, material, and overhead;
downtime; inventory control management and/or
scheduling of service staff; production ratings; facility
utilization percentages; and number of clients
successfully treated by category (if service firm) or
percentage of orders shipped on time (if product firm).
i) What trends emerge from this analysis?
ii) What impact have these trends had on past
performance and how will they probably affect
future performance?
iii) Does this analysis support the corporation’s
past and pending strategic decisions?

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 Strategic Audit of a Corporation
iv) Does operations provide the company with a
competitive advantage?
f) Are operations managers using appropriate concepts and
techniques to evaluate and improve current
performance? Consider cost systems, quality control,
reliability systems, inventory control management,
personnel scheduling, TQM, learning curves, safety
programs, and engineering programs that can improve
efficiency of manufacturing or of service.
g) Does operations adjust to the conditions in each country
in which it has facilities?
h) What is the role of the operations manager in the
strategic management process?

– Human Resources Management (HRM)

a) What are the corporation’s current HRM objectives,
strategies, policies, and programs?

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 Strategic Audit of a Corporation
i) Are they clearly stated, or merely implied from
performance and/or budgets?
ii) Are they consistent with the corporation’s mission,
objectives, strategies, policies, and with internal and
external environments?
b) How well is the corporation’s HRM performing in
terms of improving the fit between the individual
employee and the job? Consider turnover, grievances,
strikes, layoffs, employee training, and quality of work
life.
i) What trends emerge from this analysis?
ii) What impact have these trends had on past
performance and how will they probably affect
future performance?
iii) Does this analysis support the corporation’s past
and pending strategic decisions?
iv) Does HRM provide the company with a competitive
advantage?

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 Strategic Audit of a Corporation
c) How does this corporation’s HRM performance compare
with that of similar corporations?
d) Are HRM managers using appropriate concepts and
techniques to evaluate and improve corporate
performance? Consider the job analysis program,
performance appraisal system, up-to-date job
descriptions, training and development programs, attitude
surveys, job design programs, quality of relationship with
unions, and use of autonomous work teams.
e) How well is the company managing the diversity of its
workforce?
f) Does HRM adjust to the conditions in each country in
which the company operates? Does the company have a
code of conduct for HRM in developing nations?
Are employees receiving international assignments to
prepare them for managerial positions?
g) What is the role of the HRM manager in the strategic
management process?

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 Strategic Audit of a Corporation
– Information Systems (IS)
a) What are the corporation’s current IS objectives,
strategies, policies, and programs?
i) Are they clearly stated, or merely implied from
performance and/or budgets?
ii) Are they consistent with the corporation’s
mission, objectives, strategies, policies, and
with internal and external environments?
b) How well is the corporation’s IS performing in
terms of providing a useful database, automating
routine clerical operations, assisting managers in
making routine decisions, and providing
information necessary for strategic decisions?
i) What trends emerge from this analysis?
ii) What impact have these trends had on past
performance and how will they probably affect
future performance?

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 Strategic Audit of a Corporation
ii) What impact have these trends had on past
performance and how will they probably affect
future performance?
iii) Does this analysis support the corporation’s
past and pending strategic decisions?
iv) Does IS provide the company with a
competitive advantage?
c) How does this corporation’s IS performance and stage
of development compare with that of similar
corporations?
d) Are IS managers using appropriate concepts and
techniques to evaluate and improve corporate
performance? Do they know how to build and manage a
complex database, conduct system analyses, and
implement interactive decision-support systems?
e) Does the company have a global IS? Does it have
difficulty with getting data across national boundaries?
f) What is the role of the IS manager in the strategic
management process?
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 Strategic Audit of a Corporation

– D. Summary of Internal Factors

– Which of these factors are the most important to the
corporation and to the industries in which it
competes at the present time? Which will be
important in the future?

V. Analysis of Strategic Factors (SWOT)

– A. Situational Analysis
– What are the most important internal and external
factors (Strengths, Weaknesses, Opportunities,
Threats) that strongly affect the corporation’s
present and future performance? List five to ten
strategic factors.
– B. Review of Mission and Objectives
– Are the current mission and objectives appropriate
in light of the key strategic factors and problems?
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 Strategic Audit of a Corporation

– Should the mission and objectives be changed? If

so, how?
– If changed, what will the effects on the firm be?

VI. Strategic Alternatives and Recommended

Strategy
– A. Strategic Alternatives
– Can the current or revised objectives be met by the
simple, more careful implementing of those
strategies presently in use (for example, fine-tuning
the strategies)?
– What are the major feasible alternative strategies
available to this corporation? What are the pros and
cons of each? Can corporate scenarios be
developed and agreed upon?
– a) Consider cost leadership and differentiation as
business strategies. 27
 Strategic Audit of a Corporation
b) Consider stability, growth, and retrenchment as
corporate strategies.
c) Consider any functional strategic alternatives
that might be needed for reinforcement of an
important corporate or business strategic
alternative.

– B. Recommended Strategy
– Specify which of the strategic alternatives you are
recommending for the corporate, business, and
functional levels of the corporation. Do you
recommend different business or functional
strategies for different units of the corporation?
– Justify your recommendation in terms of its ability
to resolve both long- and short-term problems
and effectively deal with the strategic factors.
– What policies should be developed or revised to
guide effective implementation?
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 Strategic Audit of a Corporation

VII. Implementation
– A. What kinds of programs (for example,
restructuring the corporation or instituting TQM)
should be developed to implement the
recommended strategy?
– Who should develop these programs?
– Who should be in charge of these programs?

– B. Are the programs financially feasible? Are

priorities and timetables appropriate to individual
programs?

– C. Will new standard operating procedures need

to be developed?

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 Strategic Audit of a Corporation
VIII. Evaluation and Control
– A. Is the current information system capable of
providing sufficient feedback on
implementation activities and
performance? Can it measure critical success
factors?
– Can performance results be pinpointed by area, unit,
project, or function?
– Is the information timely?

– B. Are adequate control measures in place to

ensure conformance with the recommended
strategic plan?
– Are appropriate standards and measures
being used?
– Are reward systems capable of recognizing
and rewarding good performance?
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Evaluation and Control

Evaluation & Control:

Process that ensures that the
company is achieving what it set out
to accomplish. Compares
performance with desired results.

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Evaluation and Control

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Evaluation and Control

Evaluation & Control Information:

Performance data and activity
reports

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Evaluation and Control

Measuring Performance:
Performance = end result of activity
Measures depend on organizational unit

Measures:
ROI
Steering Controls
– SPC

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Evaluation and Control

Types of Control:
Behavior Controls
Policies, rules, SOP’s, directives
Output Controls
Objectives, targets, milestones
Input Controls
Resources, knowledge, skills, values

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Evaluation and Control

Activity-Based Costing:
ABC
Allocating indirect and fixed costs to
individual product lines based on the
value-added activities going into that
product

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Evaluation and Control

Return on
Investment
(ROI)

Traditional Earnings per

Share
Financial
(EPS)
Measures
Return on
Equity
(ROE)

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Evaluation and Control

Shareholder Value
Present value of the anticipated
future stream of cash flows plus the
value of the company if liquidated.

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Evaluation and Control

Economic Value Added (EVA)

EVA = After tax operating income –
(investment in assets x weighted
average cost of capital)

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Evaluation and Control

Market Value Added (MVA)

Difference between the market value
of a corporation and capital
contributed by shareholders and
lenders.

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Evaluation and Control

Balanced Scorecard:
Financial (How do we appear to shareholders?)
Customer (How do customers view us?)
Internal Business Perspective (What
must we excel at?)
Innovation and Learning (Can we
continue to improve and create value?)

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Evaluation and Control

Evaluating Top Management

Board of Directors
Strategy Committee
Audit Committee
Compensation Committee

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Evaluation and Control

Responsibility Centers:
Standard cost centers
Revenue centers
Expense centers
Profit centers
Investment centers

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Evaluation and Control

Benchmarking:
• Identify the area or process to be examined
• Find output measures and obtain
measurements
• Select best-in-class to benchmark against
• Calculate differences and determine
reasons
• Develop tactical programs for closing gaps
• Implement programs and compare

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Evaluation and Control

Strategic Incentive Management:

Weighted-factor method
Long-term evaluation method
Strategic-funds method

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 Weighted Factor Approach to Strategic Inventive
Management

Strategic Business Unit Category Factor Weight

High Growth Return on assets 10%

Cash flow 0%
Strategic-funds programs (developmental expenses) 45%
Market-share increase 45%
100%
Medium Growth Return on assets 25%
Cash flow 25%
Strategic-funds programs (developmental expenses) 25%
Market-share increase 25%
100%
Low Growth Return on assets 50%
Cash flow 50%
Strategic-funds programs (developmental expenses) 0%
Market-share increase 0%
100%

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Questions ?

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