Chapter 11- Strategic Evaluation and control

Definition:
• It can be defined as the process of determining the effectiveness of a given strategy
in achieving the organizational objectives and taking corrective action wherever
required

Why we do strategic evaluation and control

 Many companies do it to test the effectiveness of strategy

 It is also done to find out whether the strategy is implemented or not
 Strategic evaluation is to evaluate the effectiveness of strategy in achieving
organizational objectives
 It helps the organization to perform the crucial task of keeping the organization on
the right track

Importance of strategic evaluation

• Strategic evaluation helps to keep a check on the validity of a strategic choice

• An ongoing process of evaluation would, in fact, provide feedback on the continued

relevance of the strategic choice made during the formulation phase. This is due to
the efficacy of strategic evaluation to determine the effectiveness of strategy

• During the course of strategy implementation managers are required to take scores
of decisions

• Strategic evaluation can help to assess whether the decisions match the intended
strategy requirement

• In the absence of such evaluation, managers would not know explicitly how to
exercise such discretion

• If it is not done than the company has no way to gauge whether or not strategic
management strategies and plans are fulfilling business objectives.

• Strategic management attempts to coordinate and bring business resources and

actions in line with the mission and vision of the business.

• Strategic plans outline the action steps necessary for achieving strategic business
goals.

Process of Strategic Evaluation:

 1. FIXING BENCHMARK OF PERFOMANCE

• While fixing the benchmark, strategists encounter questions such as – what benchmarks to
set, how to set them and how to express them.

• In order to determine the benchmark performance to be set, it is essential to discover the

special requirements for performing the main task.

• The organization can use both quantitative & qualitative criteria for comprehensive
assessment of performance.

• Quantitative criteria includes determination of net profit, ROI, earning per share, cost of
production, rate of employee turnover etc. Among the qualitative factors are subjective
evaluation of factors such as – skills & competencies , risk taking potential , flexibility etc.

2. Measurement of Performance

• The standard performance is a benchmark with the actual performance is to be compared.

• The reporting & communication system help in measuring the performance.

• For measuring the performance, financial statements like – balance sheet, profit & loss
account must be prepared on an annual basis.

3. Analysing Variance

• While measuring the actual performance and comparing it with standard performance
there may be variances which must be analysed.

• The strategists must mention the degree of tolerance limits between which the variance
between actual & standard performance may be accepted.

4. Taking Corrective Action

• Once the deviation in performance is identified, it is essential to plan a corrective action.

• If the performance is consistently less than the desired performance, the strategists must
carry a detailed analysis of the factors responsible for such performance.

Strategic Control
“Strategic control focuses on the dual questions of whether:
(1) The strategy is being implemented as planned; and
(2) The results produced by the strategy are those intended. “
This definition refers to the traditional review and feedback stages which constitutes the last
step in the strategic management process. Normative models of the strategic management
process have depicted it as including their primary stages: strategy formulation, strategy
implementation, and strategy evaluation (control).
Strategy evaluations concerned primarily with traditional controls processes which involves
the review and feedback of performance to determine if plans, strategies, and objectives
are being achieved, with the resulting information being used to solve problems or take
corrective actions.

1. Premise Control in Strategic Control

Every strategy is based on certain planning premises or predictions. Premise control is
designed to check methodically and constantly whether the premises on which a strategy is
grounded on are still valid. If you discover that an important premise is no longer valid, the
strategy may have to be changed. The sooner you recognize and reject an invalid premise,
the better. This is because the strategy can be adjusted to reflect the reality.
Planning premises/assumptions are established early in the strategic planning process and
act as a basis for formulating strategies.
It involves the checking of environmental conditions. Premises are primarily concerned with
two types of factors:
Environmental factors (for example, inflation, technology, interest rates, regulation, and
demographic/social changes).
Industry factors (for example, competitors, suppliers, substitutes, and barriers to entry).
All premises may not require the same amount of control. Therefore, managers must select
those premises and variables that are likely to change and would a major impact on the
company and its strategy if they did.

2. Strategic Surveillance in Strategic Control

Strategic surveillance is designed to observe a wide range of events within and outside your
organization that are likely to affect the track of your organization’s strategy. It’s based on
the idea that you can uncover important yet unanticipated information by monitoring
multiple information sources. Such sources include trade magazines, journals such as The
Wall Street Journal, trade conferences, conversations and observations.
Compared to premise control and implementation control, strategic surveillance is designed
to be a relatively unfocused, open, and broad search activity.Strategic surveillance appears
to be similar in some way to “environmental scanning.” The rationale, however, is different.
Environmental, scanning usually is seen as part of the chronological planning cycle devoted
to generating information for the new plan.
By way of contrast, strategic surveillance is designed to safeguard the established strategy
on a continuous basis.
 3. Implementation Control in Strategic Control
Implementing a strategy takes place as a series of steps, activities, investments and acts that
occur over a lengthy period. As a manager, you’ll mobilize resources, carry out special
projects and employ or reassign staff. Implementation control is the type of strategic control
that must be carried out as events unfold. There are two types of implementation controls:
strategic thrusts or projects, and milestone reviews. Strategic thrusts provide you with
information that helps you determine whether the overall strategy is shaping up as planned.
With milestone reviews, you monitor the progress of the strategy at various intervals or
milestones.
Strategic implementation control provides an additional source of feedforward information.
Strategic implementation control does not replace operational control. Unlike operations
control, strategic implementation control continuously questions the basic direction of the
strategy. The two basis types of implementation control are:

 Monitoring strategic thrusts (new or key strategic programs). Two approaches

are useful in enacting implementation controls focused on monitoring strategic
thrusts: (1) one way is to agree early in the planning process on which thrusts are
critical factors in the success of the strategy or of that thrust; (2) the second
approach is to use stop/go assessments linked to a series of meaningful
thresholds (time, costs, research and development, success, etc.) associated with
particular thrusts

 Milestone Reviews. Milestones are significant points in the development of a

programme, such as points where large commitments of resources must be
made. A milestone review usually involves a full-scale reassessment of the
strategy and the advisability of continuing or refocusing the direction of the
company. In order to control the current strategy, must be provided in strategic
plans.

4. Special Alert Control in Strategic Control

A special alert control is the rigorous and rapid reassessment of an organization’s strategy
because of the occurrence of an immediate, unforeseen event. An example of such event is
the acquisition of your competitor by an outsider. Such an event will trigger an immediate
and intense reassessment of the firm’s strategy. Form crisis teams to handle your company’s
initial response to the unforeseen events.
“A special alert control is the need to thoroughly, and often rapidly, reconsider the firm’s
basis strategy based on a sudden, unexpected event.”
The analysts of recent corporate history are full of such potentially high impact surprises
(i.e., natural disasters, chemical spills, plane crashes, product defects, hostile takeovers
etc.).
While Pearce and Robinson suggest that special alert control be performed only during
strategy implementation, Preble recommends that because special alert controls are really a
subset of strategic surveillance that they be conducted throughout the entire strategic
management process.

Participants in strategy evaluation and control

In one sense, all the stakeholders of a company are participants in the evaluation process
because all of them are directly or indirectly involved in the performance of the company
and all significant performance are strategic. Internal stakeholders have greater
involvement because they are more directly associated with the strategic process.

Indirect Participants
These are those who are indirectly involved in the performance of the company.
1) Shareholders: Every company is responsible or accountable to the shareholders for
its performance and results. Therefore, the shareholders, particularly the majority
holders, keep a watch on implementation of major strategies or projects because
their stakes are high in the outcome or results. They convey their reaction by their
concern through AGMs or special/extraordinary general body meetings or the board
of directors or the CEO.
2) Financial institutions: Financial institutions may also do the same.
3) Government: Government does not involve directly in performance of company, but
may get effected when the company cuts the salary of employees for the purpose of
maximising profit.It monitors progress and exercises control over an enterprise
through the administrative ministry concerned which is always represented on the
board of directors.
4) Board of Directors: Board of Directors does not directly involve itself in evaluation
and control of the strategy implementation process but it conducts periodic reviews
of the company’s performance and result and if any major strategy is under
implementation whether for growth or diversification or internal reconstruction it
will come under review of board.

Direct participants
These are directly involved in performance of the company.
1) CEO: CEO is finally responsible for implementation, evaluation, control of and any
midterm changes in strategy or revision of objectives or targets. He may get directly
 involved in the process or participate primarily through the top management who
may represent different functional areas.
2) Top management: Top management job is to assist the CEO in his plans and
endeavours to guide the strategy implementation process.
3) CFO/financial controller : Financial controller and his team are primarily focus on
financial implementation, evaluation and control based budgeting and financial
analysis.Evaluation is done with respect to the financial targets in terms of
investment or expenditure vis-à-vis financial achievements or shortfalls.
4) SBU or profit or profit centre head : In large multi-business organisation, SBU or
profit centre heads play a critical role in the strategy evaluation and control process.
Many implementation actually takes place at the SBU level in terms of functions and
operations. SBU facilitates evaluation by the CEO or top management.
5) Strategic planning group: Strategic planning group has a major role to play in the
evaluation and control process because they are initiators of strategy. As a
centralised group or department, they see through the implementation process to
ensure that their concepts, thoughts and plans are properly put into action.
6) Other managers/Special Committee/Task Force : Managers in different functional
and operational areas may participate in the strategy evaluation and control process
in different ways. Task force or special committee is formed to see through the
entire implementation process.

Barriers in implementation, evaluation and control

The direct participants often face dilemma or barriers in implementation, evaluation and
control. These relate to resistance to implementation and evaluation, Short-termism and
Limits of control.

 If the strategy involves a major transformation or shift in the organisation

paradigm, managers tends to show resistance to the entire process because of
uncertainties involved.
 Short termism is a common tendency among managers in matters of strategy
formulation and implementation. Managers generally prefers short term
strategies and results so that benefits of the employees accrue quickly.
 Limits of control refers to the dilemma of ‘too much vs too little’. Imposition of
too rigid a control mechanism hinder the initiative or efficiency of the managers.

Evaluation and control criteria: pre-implementation

Suitability:
One of the prime purposes of strategic analysis is to gain a clear understanding of the
organisation and the environment in which it is operating. A simple summary of this
situation might include a listing of the major opportunities and threats which face the
organisation, its particular strengths and weaknesses, and any expectations which are an
important influence on strategic choice.

Suitability is a criterion for assessing the extent to which a proposed strategy fits the
situation identified in the strategic analysis, and how it would sustain or improve the
competitive position of the organisation. Some authors have referred to this as
‘consistency’. Suitability can also be thought of as a ‘first round’ look at strategies, since
many of the questions below are revisited in more detail when assessing the acceptability or
feasibility of a strategy. Suitability is therefore a useful criterion for screening strategies.
 First, establishing the logic of each strategic option available
 Second, analysing relative merits of various option when alternative option
are available
 Third, evaluating the alternatives for final selection of strategy

Positioning
Is the
positioning viable?
Life Cycle Analysis Business Profile
Does it fit Will it lead to
the stage we will financial
be in? performance?

Suitability
Portfolio Analysis
Value Chain
Does it
Analysis Does
strengthen the
it improve value of Is this a balance of
money?
good activities?
strategy?

The following questions need to be asked about strategic options:

Does the strategy exploit the company strengths -- such as providing work for skilled
craftsmen -- or environmental opportunities -- for example, helping to establish the
company in new growth sectors of the market.
How far does the strategy overcome the difficulties identified in the strategic analysis
(resource weaknesses and environmental threats)? For example, is the strategy likely to
improve the organisation’s competitive standing, resolve the company’s liquidity problems,
or decrease dependence on a particular supplier?
Does it fit in with the organisation’s purposes? For example, would the strategy achieve
profit targets or growth expectations, or would it retain control for an owner-manager?
Feasibility:
An assessment of the feasibility of any strategy is concerned with whether it can be
implemented successfully. The scale of the proposed changes needs to be achievable in
resource terms. As suggested earlier, this assessment will already have started during the
identification of options and will continue through into the process of planning the details of
implementation. However, at the evaluation stage there are a number of fundamental
questions which need to be asked when assessing feasibility.
 First, compatibility of the strategy with internal competences of the company –
resources, capabilities and skills
 Second, practicability of the strategy in term of environment – market structure,
competitors, government controls
 Third, easiness of implementation – steps or stages are not ambiguous or mutually
conflicting

M-Model:-
 M achinery - sufficient spare capacity?
M anagement - Sufficient skills?
M oney - How much needed? Cashflows likely?
M anpower - Amount and skills of employees needed?
M arkets - Current brand strong enough or new one required? What share is critical?
M aterials - Quality? New suppliers needed?
M ake-up - Does the org structure need changing?
M oo-able - Does the new strategy moo like a heifer - sorry got carried away.

For example:
Can the strategy be funded?
Is the organisation capable of performing to the required level (e.g., quality level, service
level)?
Can the necessary market position be achieved, and will the necessary marketing skills be
available?
Can competitive reactions be coped with?
How will the organisation ensure that the required skills at both managerial and operative
level are available?
Will the technology (both product and process) be available to compete effectively?
Can the necessary materials and services be obtained?

It is also important to consider all of these questions with respect to the timing of the
required changes.
Acceptability:
Alongside suitability and feasibility is the third criterion, acceptability. This can be a difficult
area, since acceptability is strongly related to people's expectations, and therefore the issue
of ‘acceptable to whom?’ requires the analysis to be thought through carefully. Factors
considered for deciding about the acceptability of a strategy are
 Return on investment
 Risk involvement
 Stakeholders expectations from or reaction to possible outcome

Some of the questions that will help identify the likely consequences of any strategy are as
follows:
What will be the financial performance of the company in profitability terms? The parallel in
the public sector would be cost/benefit assessment.
How will the financial risk (e.g., liquidity) change?
What will be the effect on capital structure (e.g., gearing or share ownership)?
Will any proposed changes be appropriate to the general expectations within the
organisation (e.g., attitudes to greater levels of risks)?
Will the function of any department, group or individual change significantly?
Will the organisation’s relationship with outside stakeholders (e.g., suppliers, government,
unions, customers) need to change?
Will the strategy be acceptable in the organisation’s environment (e.g., will the local
community accept higher levels of noise)?

Evaluation and control criteria: post-implementation

1. What is Quantitative evaluation?

A quantitative evaluation is a statistical assessment applied to a business or an organization.
The method measures things such as product sales, customer growth, and other finite
information mathematically. This data is used to create a factual picture of the subject. It
can be expressed in percentages or numbers, depending on the presentation style.

2. Quantitative Evaluation Criteria

• Market Share : absolute market share : Absolute Market Share is the assessment of
how well a business is performing in the market as compared to its competitors in a
 particular market. This absolute market share can be useful for external observers as
they can interpret from it the strength and influence of a company in the specific
market.

• Market Share : relative market share : Relative market share works to measure a
business against its single, strongest competitor. This is a way of measuring a
business' strength in relation to either a company that is pursuing it or that it is
pursuing.. For instance, a market share leader would want to eye relative market
share measurements with its top competitor to see if the competitor is making any
inroads to cutting into their market share and swiping its customers.

• Sales ratio : actual to target sales : Actual sales to target sales refers to ratio of
number of sales that needs to be done in a particular period and number of sales
completed. For e.g : if company A set its target to achieve sales of 10000 unit in a
particular year but they are able to sell only 8000 units. Here 10000 becomes target
sales and 8000 becomes actual sales.

• Sales ratio : relative sales growth : Relative sales growth refers to growth in sales of
the company to that of the leader or nearest rival. For e.g : sales growth of HUL as
compared to its rival P&G.

3. Problems faced in Quantitative Evaluation

 Incomplete or inadequate database : Information or database are keys to

quantitative evaluation, whether it is capital or investment , return on equity,
earnings per share etc. Incomplete or inadequate database can always create
problems of accuracy while doing quantitative evaluation.
 Different accounting systems ; Different accounting methods may give different
results about many quantitative indicators. The human factor or subjective
element is always associated with choice of deriving quantitative criteria.
 Selection of database period : If an abnormal year or period ( either
extraordinarily high achievement or very poor performance) is chosen as the
base period, all relative or comparative assessments will give misleading results.

 Time of Evaluation of data : In terms of choice of different time points during

implementation, if evaluation is done too early shortfalls or deviations may not
be known, on the other hand if evaluation is done at the end of implementation
it may be too late to take appropriate decision.

 Frequency of measuring quantitative evaluation : For strategic evaluation ,

measurement should be done frequently, for eg : quarterly , to properly monitor
and control the implication process and take necessary decisions (if required).
4. What is qualitative evaluation?
Qualitative evaluation supplements the quantitative analysis by including those aspects
which are not feasible to measure on the basis of figures and numbers. The methods that
could be used for qualitative analysis are based on intuition, judgment, and informed
opinion.
5. Qualitative Evaluation Criteria
Comparative analysis : Comparative analysis consist of historical analysis, industry norms
and benchmarking compares performance of a firm with its own past performance.
a) Historical analysis is a frequently used method for comparing performance of a
firm over a given period of time. This method has the added benefit for the firm to
note how the performance has taken place over a period of time and to analyse
the trend or pattern.
b) Industry norm is a comparative method for analyzing performance that brings the
advantage of making a firm competitive in comparison to its rivals in the same
industry. It enables a firm to bring its performance at least up to the level of other
firms and then attempt to surpass it.
c) Benchmarking is a comparative method where a firm finds the best practices in an
area and then attempts to brings its own performance in that area in line with the
best practice.

Comprehensive Analysis : It adopts a total approach rather than focusing on one

area of activity or a function.
a) Key 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 the same. This
is a comprehensive method as it takes a holistic view of the performance areas
in an organization.
b) Business intelligence system is one of the concepts used for discovering
knowledge from various internal and external data points available to an
organization.

Special purpose techniques : This technique is used in particular situation by some

organizations to asses performance and perform operation control.

a.) Network techniques such as PERT and CPM & their variants are used for
operational control of scheduling and resource allocation in projects. These
are tried and tested techniques with proven effectiveness.
b.) Management by objectives is the system proposed by Peter Drucker based on
regular evaluation of performance against objectives that are decided by the
superior.