Chapter 9:

Strategy Review, Evaluation and

Control• The Nature of Strategy Evaluation

• A Strategy-Evaluation Framework

• Published Sources of Strategy-Evaluation Information

• Characteristics of an Effective Evaluation System

• Contingency Planning

• Auditing

• Using Computers to Evaluate Strategy

• Guidelines for Effective Strategic Management

Systematic Review, Evaluation & Control

–Strategies become obsolete

– Internal environments are dynamic

– External environments are dynamic

Strategy Review, Evaluation &

Control

Organizations are most vulnerable

when they are at the peak of their

success.

-- R.T. Lenz

• 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

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

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 EvaluationStrategy evaluation –

– Complex and sensitive undertaking.

– Overemphasis can be costly and counterproductive.

Consistency

– Strategy should not present inconsistent goals

and policies.

• Conflict and interdepartmental bickering symptomatic of

managerial disorder and strategic inconsistency

Rummelt’s Four Criteria Of Evaluation

Consonance

– Need for strategies to examine sets of

trends

• Adaptive response to external environment

• Trends are results of interactions among

other trends

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

Advantage

– Creation or maintenance of

competitive advantage

• Superiority in resources, skills, or

position

Difficulty in strategy evaluation –

1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy

3. Increasing number of variables

Strategy Evaluation

4. Rate of obsolescence of plans

5. Domestic and global events

6. Decreasing time span for planning certainty

Strategy evaluation should –– Initiative managerial questioning

– Trigger review of objectives and values

– Stimulate creativity in generating alternatives

Process of Strategy Evaluation

Review of underlying bases of strategy –

– Develop revised EFE Matrix

– Develop revised IFE Matrix

Reviewing Bases of Strategy

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

5. Reasons for competitors’ successful strategies

6. Competitors’ present market positions and profitability

7. Potential for competitor retaliation

8. Potential for cooperation with competitors

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?

• 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

Evaluation FrameworkI. Review Underlying Bases

Continue present course

II. Measure Firm Performance

III.

Take

Corrective

Actions

Differences?

Differences?

Yes

NO

Yes

NO

• Comparing expected to actual results

• Investigating deviations from plan

• Evaluating individual performance

• Progress toward stated objectives

Measuring Organizational

Performance

Quantitative criteria for strategy evaluation –

– Financial Ratios:• Compare performance over different periods

• Compare performance to competitors

• Compare performance to industry averages

Measuring Organizational

Performance

Key Financial Ratios –

– Return on investment

– Return on equity

– Profit margin

– Market share

Measuring Organizational

Performance

Key Financial Ratios –

– Debt to equity

– Earnings per share

– Sales growth

– Asset growth

Measuring Organizational

Performance

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

Basic requirements for effective strategy evaluation –

– Economical

– Meaningful

– Generate useful information

– Timely information

– Provide a true picture of what is happening

Characteristics of Evaluation

Premise of sound strategic management –

– Planning to deal with unfavorable and

favorable events before they occur.

Contingency Planning

Contingency Planning –

– Alternative plans that can be put into effect if

certain key events do not occur as expected

Contingency Planning

• Financial audits to determine

correspondence between assertions

based on strategic plans and established

criteria

• Environmental audits to insure sound

and safe practices

Auditing

Key Terms

• Advantage

• Auditing

• Consistency

• Consonance

• Contingency Plans

• Corporate Agility

• Feasibility

Key Terms

• Future Shock

• Management by Wandering Around

• Measuring Organizational Performance

• Planning Process Audit (PPA)

• Reviewing the Underlying Bases of an Organization’s Strategy

Key Terms

• Revised EFE Matrix

• Revised IFE Matrix

• Taking Corrective Actions