Strategic evaluation and Strategic evaluation and ControlControl

It could be defined as the process of determining effectiveness of given strategy in achieving the organisational objectives and taking corrective action wherever required.It brings the organisation on the right track. It answers two sets of questions: • First set of questions are more generalized eg. Is the strategy guiding the organisation is the management on the right track.• Second set of questions deals with performance and operational control issues.

Importance of strategic evaluationThe importance lies in its ability to coordinate the task

performed by individual managers, groups, divisions or SBU’s through control of performance.

The integration of strategy formulation and implementation forms the basis for the creation of the organisational structure and system design.

Several motives for strategic evaluation are:i. Coordination of tasks ii.Need for feedback, appraisal and rewards.iii.Check on validity of strategic choice.iv.Congruence between decisions and intended strategy.v.Successful culmination of strategic management.vi.Creating inputs for new strategic planning.

Barriers in EvaluationLimits of controls.Difficulties in measurement.Resistance to evaluation Short terminismRelying on efficiency versus effectiveness

Requirements for effective evaluationControl should involve only minimum amount

of informationControl should monitor only managerial

activities and resultsControl should be timelyLong term and short term controls should be

usedControl should aim at pin pointing exceptionsReward of meeting or exceeding standards

should be emphasised.

Strategic ControlAre the premises made during strategy

formulation proving to be correct?Is the strategy guiding the organization

towards its intended objectives?Are the organization & the managers doing

things which ought to be done?Is there a need to change & reformulate the

strategy?

Approach to Strategic Control

FormulateStrategies

FormulateStrategies

ImplementStrategies

ImplementStrategies

StrategicControl

StrategicControl

Types of Strategic ControlsPremise controlImplementation controlStrategic surveillanceSpecial alert control

Premise ControlNecessary to identify the key assumptions

(government policies, nature of competition, breakthrough in R&D) & keep track of any change in them so as to assess their impact on strategy & its implementation

Continually tests the assumptionsResponsibility: Corporate Planning Staff

Implementation ControlTo evaluate whether the plans, programmes &

projects, resulting from implementation of the strategy, are actually guiding the organization towards its predetermined objectives or not

May lead to Strategic rethinkingCan be put into practice through - Identification & monitoring of strategic thrusts - Milestone review

Strategic SurveillanceDesigned to monitor a broad range of events inside & outside

the company that are likely to threaten the course of a firm’s strategy

Is a more general form of controlInformation for this can be obtained through formal yet simple

strategic information scanning systems like Knowledge management systems & organizational learning

Special Alert ControlBased on a trigger mechanism for rapid response &

immediate reassessment of strategy in light of sudden & unexpected events (eg: sudden fall of a govt., natural catastrophe, unfortunate industrial disaster etc.)

Hope for the best ~ Prepare for the worstCan be handled by formulation of contingency

strategies, & by assigning responsibility of unforeseen events to

crisis management teams

OPERATIONAL CONTROLOperational control is aimed at allocation and

use of organizational resources through evaluation of the performance of organizational units.

Operational control is concerned with action or performance

PROCESS OF EVALUATIONThe process of evaluation basically deals with

four steps:-Setting standards of performanceMeasurement of performanceAnalyzing variancesTaking corrective action

Strategy/plan/

objectives

Analyzing variance

Setting standards of performance

Management of

performance

Actual performance

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Setting of standards The key managerial tasks, derived from the strategic requirements, can be

analyzed for finding out the key areas of performance. The special requirements for the performance of the key tasks can help to

determine the type of standards to be set. Performance indicator that best express the special requirements could then be

decided upon to be used for evaluation.

Measurement of performance Operationally, measuring is done through the accounting, reporting and

communication systems. A variety of evaluation techniques are used for measurement.

Analyzing variances The measurement of actual performance and comparing it

with the standard or budgeted performance leads to an analysis of variance. Three situation may arise:-

1. the actual performance matches the budgeted performance.2. The actual performance is better from the budgeted

performance.3. The actual performance is below from the budgeted

performance.

Taking corrective action Three courses of corrective action:1. Checking of performance :- it requires going into the details

of the organization structure and systems.2. Checking of standards:- standard check may result in a

lowering of standards or elevation of standards.3. Reformulate strategies, plans and objectives.

Evaluation techniques for strategic controlThe essence of strategic control is to continually

assess the changing environment to observe events that may significantly affect the course of an organization's strategy.

Techniques for strategic control could be classified into two groups on the basis of the type of environment faced by the organization.

The organization that operate in a relatively stable environment may use strategic momentum control, while those which face a relatively turbulent environment may find strategic lead control more appropriate.

STRATEGIC MOMENTUM CONTROLResponsibility control centre :- it form the core

of management control systems and are of four types: revenue, expenses, profit and investment centre. Each of these centre is designed on the basis of the measurement of inputs and outputs.

The underlying success factors: it enable organization to focus on the critical success factors to examine the factors that contribute to the success of strategies.

Generic strategies: it based on the assumption that the strategies adopted by firms similar to another firm are comparable.

STRATEGIC LEAP CONTROLStrategic issue management:- it is aimed at

identifying one or more strategic issues and assessing their impact on the organisation.

Strategic field analysis:- it is a way of examining the nature and extent of synergies that exists or are lacking between components of an organisation.

Systems’ modeling:- it is based on computer-based models that stimulate the essential features of the organisation and its environment.

Scenarios:- scenarios are perceptions about the likely environment a firm could face in the future.

Evaluation techniques for operational controlOperational control is aimed at the allocation

and use of organizational resources rather than environmental monitoring.

Classification of evaluation techniques into three classes:-Internal analysisComparative analysisComprehensive analysis

INTERNAL ANALYSIS:-

VRIO framework:- the basic idea behind the VRIO framework is that sustainable strategic advantages results through the use of capabilities that are valuable, rare, organised for usage.

Value chain analysis:- it focuses on a set of inter-related activities performed in a sequence, for producing and marketing a product or service.

Quantitative analysis:- it takes up the financial and non-financial parameters such as physical units or time in order to assess performance.

Qualitative analysis:- it includes those aspects which are not feasible to measure on the basis of figure and numbers.

COMPARATIVE ANALYSIS:-Historical analysis is a frequently used

method for comparing performance of a firm over a given period of time.

Industry norms is a comparative method for analysing performance that brings with it the advantage of making a firm competitive in comparison to its rivals in the same industry.

Benchmarking is a comparative method where a firm finds the best practices in an area and then attempts to bring its own performance in that area in line with the best practice.

Comprehensive analysisKey factor rating is a method that takes into

account the key factors in several areas and then sets out to evaluate performance on the basis of these.

Business intelligence systems is one of the concepts used for discovering knowledge from various internal and external data available to the organization, to support effective decision- making.

The balanced scorecard method is based on the identification of four key performance measures of customer perspective, internal business perspective, innovation and learning perspective and the financial perspective.

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