1

MOD V: Strategy Management

Evaluation and Control

Evaluation and control involves monitoring of the progress of strategic plan
implementation, reviewing performance data and activity reports and taking
corrective measures as required

Evaluation and Control ensures that a company is achieving what it set out to
accomplish by comparing performance with desired results and taking
corrective action as needed

Strategic evaluation and control could be defined as the process of

determining the effectiveness of a given strategy in achieving the
organisational objectives and taking corrective action whenever
requirement

Strategic evaluation operates at two levels

▪ Strategic level - wherein we are concerned more with the consistency
of strategy with the environment
▪ Operational level - wherein the effort is directed at assessing how well
the organisation is pursuing a given strategy

Participants in strategic evaluation

o Shareholders
o Board of directors
o Chief executives
o Profit center heads
o Financial controllers
o Company secretaries
 2

o External & internal auditors

o Audit and executive committees
o Corporate planning staff or department
o Middle level managers

Measuring performance
o The objectives that were established earlier in the strategy formulation
part of the strategic management process - dealing with profitability,
market share, cost reduction etc - should be used to measure
corporate performance once the strategies have been implemented
o Appropriate measures are to be established
o Profitability objective can be measured by ROI and earnings per share

Types of controls
▪ Output controls- specify what is to be accomplished by focusing on
the end result
▪ Behavior controls specify how something is done through policies,
rules, standard operating procedures and orders from supervisors
▪ Input controls emphasize resources
 3

Primary Measures
a) Corporate Performance
▪ Return on Investment (ROI) - Result of dividing net income before taxes
by the total amount invested in the company
▪ Earnings per share (EPS) – dividing net earnings by the amount of
common stock
▪ Return on equity (ROE) – Dividing net income by total equity
▪ Operating cash flow – The amount of money generated by a company
before the cost of financing and taxes

b) Stakeholder measures
▪ Shareholder Value - the present value of the anticipated future streams
of cash flows from the business plus the value of the company if
 4

liquidated
▪ Economic Value Added (EVA)- measures the difference between the
pre-strategy and post-strategy values for the business
EVA=After tax income-total annual cost of capital

▪ Market Value Added (MVA)- measures the difference between the

market value of a corporation and the capital contributed by
shareholders and lenders.
Measures the stock market’s estimate of the net present value of a
firm’s past and expected capital investment projects

Balanced score card Approach : Using key performance measures

Combines financial measures that tell results of actions already taken with
operational measures on customer satisfaction, internal processes and the
corporation’s innovation and improvement activities
Management develops goals and objectives around 4 areas :
• 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

Using Benchmarking to evaluate performance

▪ The continual process of measuring products, services and practices
against the toughest competitors or those companies recognized as
industry leaders
▪ Based on the concept that it makes no sense to reinvent something that
someone else is already using. It involves openly learning how others
do something better than one’s own company so that the company
not only can imitate, but perhaps even improve on its techniques
▪ Steps
o Identify the area or process to be examined. It should be an
activity that has the potential to determine a business units
competitive advantage
o Find behavioral and output measures of the area or process
and obtain measurements
o Select an accessible set of competitors and best-in-class
companies against which to benchmark
o Calculate the differences among the company’s performance
measurements and those of the best-in-class and determine
why the differences exist
 5

o Develop tactical programs for closing performance gaps

o Implement the programs and then compare the resulting new
measurements with those of the best-in-class companies

Benchmarking can also increase sales, improve goal setting, and

boost employee motivation

Problems in measuring performance

• Lack of quantifiable objectives or performance standards
• Inability to use information systems to provide timely and valid
information
• Short term orientation- managers only consider current tactical or
operational issues and ignore long-term strategic issues
• Lack of time
• Do not recognize importance of long-term issues
• Are not evaluated on a long-term basis
• Goal Displacement- confusion of the means with ends
• Behavior substitution- when people substitute activities that do
not lead to goal accomplishment for activities that do lead to
goal accomplishment because the wrong activities are
rewarded
• Sub-optimization- when a unit optimizing its goal
accomplishment is to the detriment of the organization as a
whole

Strategic Control
Strategic controls take into account the changing assumptions that
determine a strategy, continually evaluate the strategy as it is being
implemented, and take the necessary steps to adjust the strategy to
the new requirements
Strategic controls are early warning systems and differ from post-
action controls which evaluate only after the implementation has been
completed

Strategic Control types

▪ Premise control
o Premise control is necessary to identify the key
assumptions, and keep track of any change in them so
 6

as to assess their impact on strategy & implementation

o Premise control serves the purpose of continually testing
the assumptions to find out whether they are still valid or
not
o This enables the strategists to take corrective action at
the right time rather than continuing with a strategy
which is based on erroneous assumptions

▪ Implementation control
o May be put into practice through the identification and
monitoring of strategic thrusts such as an assessment of
the marketing success of a new product after pre-
testing, or checking the feasibility of a diversification
program, after making initial attempts at seeking
technological collaboration
▪ Strategic surveillance
o Can be done through a broad-based general monitoring
on the basis of selected information sources to uncover
events that are likely to affect the strategy of an
organisation
▪ Special alert control
o Special alert control is based on trigger mechanism for
rapid response and immediate reassessment of strategy
in the light of sudden and unexpected events

Guidelines for proper control

▪ Controls should involve only the minimum amount of
information needed to give a reliable picture of events (80/20
Rule)
▪ Controls should monitor only meaningful activities and results,
regardless of measurement difficulty
▪ Controls should be timely so that corrective action can be taken
before it is too late
▪ Long-term and short-term goals should be used
▪ Controls should aim at pinpointing exceptions
▪ Emphasize the reward of meeting or exceeding standards
rather than punishment for failing to meet standards

Strategic Audit
Strategic audit is a type of management audit. It provides a checklist of
 7

questions, by area or issue, that enables a systematic analysis of various

corporate functions and activities to be made. It is extremely useful as a
diagnostic tool to pinpoint corporate wide problem areas and to highlight
organizational strengths and weaknesses. A strategic audit can help
determine why a certain area is creating problems for a corporation and help
generate solutions to the problem. It is very useful in evaluating the
performance of top management
▪ Can help determine why a certain area is creating problems for
corporation and help generate solutions to the problem
▪ It presents many of the critical questions needed for a detailed strategic
analysis of any business corporation
▪ Steps
o Current situation
▪ Current performance
▪ Strategic posture – what are the corporation’s current
mission, objectives , strategies and policies
o Corporate Governance
▪ Board of directors – Who is on the board, how long,
share, level of involvement etc
▪ Top Management
o External environment – Opportunities & Threats
▪ Natural physical environment – related to sustainability
issues
▪ Societal environment - What are the general forces, and
their impact
▪ Task environment – what forces drive industry
competition
▪ Summary of external factors – EFAS table
o Internal Environment – Strengths & Weakness
▪ Corporate structure
▪ Corporate culture
▪ Resources – Marketing, Finance, R&D, Operations &
logistics, HRM
▪ Summary of internal factors – IFAS
o Analysis of strategic factors (SWOT)
▪ Situational analysis – SFAS table
▪ Review mission & objectives
o Strategic alternatives & recommended strategies
▪ Strategic Alternatives – TOWS Matrix
▪ Recommended strategy
 8

o Implementation
▪ What kind of programs – TQM, Six Sigma etc to
developed to implement the recommended strategy
▪ Develop new standard operating procedures as
applicable
o Evaluation & Control
▪ Adequate performance evaluation & control measures

Using computers to evaluate strategy: Strategic Information Systems

(To be updated )
▪ Balanced Score Card
Developed by Norton & Kaplan
▪ The balanced score card is a strategic planning and management
system that is used extensively in business and industry, govt, and
non profit organizations, worldwide to align business activities to the
vision and strategy of the organization, improve external and internal
communications, and monitor organization performance against
strategic goals
▪ Analyze 4 key perspectives
▪ Financial perspective
o Financial results
o sales growth
o Cash flow
o Return on capital employed
o Return on investment
▪ Customer perspective
o Focus on time, cost, quality and service
o Delivering value to customers
o Customer acquisition, retention, profitability, market share etc
▪ Learning & growth
o Training & learning opportunities
o Job satisfaction
o Employee turnover
▪ Internal Process perspective
o Identify process bottlenecks
o Process alignment
o Process automation
 9

▪ Outcome Metrics
o Develop metrics based on the priorities of strategic plan, which
provides the key business drivers and criteria for metrics that
managers most desire to watch
o Processes are then designed to collect information relevant to
these metrics and reduce it to numerical form for storage,
display and analysis
o Decision makers examine the outcomes of various measured
processes and strategies and track the results to guide the
company and provide feedback
▪ Management by fact
o Data and information required for performance measurement
and improvement are of many types, including : customer,
product and service performance, operations, market,
competitive comparisons, supplier, employee related and cost
and financial.
o Analysis entails using data to determine trends, projections and
cause & effect, that might not be evident without analysis.
o Data & analysis support a variety of company purposes, such
as planning, reviewing company performance, improving
operations, comparing company performance with competitors
or with best practices benchmarks

Strategy for Entrepreneurial Ventures and Small

Business
▪ A small business firm is independently owned and operated , is not
dominant in its field, and does not engage in innovative practices
▪ An entrepreneurial venture is any business whose primary goals
are profitability and growth, and that can be characterised by
innovative strategic practices
▪ Often defined as a person who organizes and manages a business
undertaking and who assumes risk for the sake of profit, an
entrepreneur is the ultimate strategist . Its usually the entrepreneur
who takes all strategic and operational decisions
 10

Strategic decision making process for entrepreneurial ventures is

composed of 8 interrelated steps
 11

Factors affecting a new venture’s success

o The structure of the industry entered
o The new ventures business strategy
▪ Key to success for most new ventures are (10 to
differentiate the product from those of other competitors
in the areas of quality and service and (2) to focus the
product on customer needs in a segment of the market
in order to achieve a dominant share of that part of the
market
o Behavioral characteristics of the entrepreneur
▪ Four entrepreneurial characteristics are key to a new
venture’s success, and they are
● The ability to identify potential venture
opportunities better than most people
● A sense of urgency that makes them action
oriented
● A detailed knowledge of the keys to success in
 12

the industry and the physical stamina to make

their lives
● Access to outside help to supplement their skills,
knowledge & abilities

Strategy for non-profit organizations

▪ A profit making organization depends on revenue obtained from the
sale of its goods and services to customers, who typically pay for the
costs and expenses of providing the product or services plus a profit
▪ A not-for-profit organization, depends heavily on dues, assessments,
or donations from its membership or on funding from a sponsoring
agency, to pay for much of its costs and expenses
▪ Sources of revenue for non-profit organizations
o Heavy funding by recipient of the service
o Partial funding by recipient of service
▪ Some strategic management concepts can be equally applied to
business and not-for-profit organizations, where as others cannot.
o The marketplace orientation underlying portfolio analysis, does
not translate into situations in which client satisfaction and
revenue are only indirectly linked
o Industry analysis and competitive strategy are primarily relevant
to not-for-profits that obtain most of their revenue from user
fees rather than from donors or taxpayers
o The concept of competitive advantage is less useful to a typical
not-for-profit than the related concept of institutional
advantage, which sets aside the profit making objective of
competitive advantage. A not-for-profit can be said to have
institutional advantage when it performs its tasks more
effectively than other comparable organizations
o SWOT analysis, mission statements, stakeholder analysis and
corporate governance are just as relevant to a not-for-profit as
they are to a profit making organization.
o Portfolio analysis can be very helpful, but is used very
differently in not-for-profit organizations than in business firms
▪ Constraints on strategic management in non-profit organizations
o Service is often intangible and hard to measure
o Client influence may be weak
o Strong employee commitments to professions or to a cause
may undermine allegiance to the organizations employing them
 13

o Resource contributors may intrude on the organization’s

internal management
o Restraints on the use of rewards and punishments

▪ Impacts
o On strategy formulation
▪ Goal conflicts interfere with rational planning : As non
profit orgs lacks a single clear cut performance criterion,
divergent goals & objectives are likely, especially with
multiple sponsors
▪ An integrated planning focus tends to shift from results
to resources
▪ Ambiguous operating objectives create opportunities for
internal politics and goal displacement
▪ Professionalization simplifies detailed planning but adds
rigidity.
o On strategy implementation
▪ Decentralization is complicated. The difficulty of setting
objectives for an intangible, hard to measure service
mission complicates the delegation of decision-making
authority. The top management retains all decision
making authority so that low level managers cannot take
any actions to which sponsors may object
▪ Linking pins for external-internal integration become
important : Because of the heavy dependence on outside
sponsors, a special need arises for people in buffer roles
to related to both inside and outside groups.
▪ Job enlargement and executive development can be
restrained by professionalism
o On strategy evaluation
▪ Special complications to evaluation and control arising
from the constraining characteristics also affect how
behavior is motivated and performance is controlled.
▪ Rewards and penalties have little or no relationship to
performance: When desired results are vague and the
judgment of success is subjective, predictable and
impersonal feedback cannot be established.
▪ Inputs rather than outputs are heavily controlled:
Because its inputs can be measured much more easily
than outputs, a non profit organization tends to focus
 14

more on the resources going into performance than on

the performance itself. The emphasis is thus on setting
maximum limits for costs and expenses.

o Non Profit Org Strategies

▪ Focus on Strategic piggybacking, mergers and strategic
alliances
▪ Strategic Piggybacking :
● Refers to the development for a non-profit
organization that would generate the funds
needed to make up the difference between
revenues and expenses.
● The new activity is typically related in some
manner to the not-for-profit’s mission but its
purpose is to help subsidize the primary service
programs
● It is a type of social entrepreneurship in which a
non-profit organization starts a new venture to
achieve social goals
● Example : The Baptist Hospital of Nashville,
Tennessee , built and operates a $15 million, 18
acre office and training field complex, which it
rents to Nashville’s professional football team
▪ Mergers
● Dwindling resources are leading an increasing
number of non-profit to considers mergers as a
way of reducing costs through economies of
scope and reducing program duplication and
raising prices because of increase market power.
● For example, the merger of Baptist health
Systems and Research Health Services created
Health Midwest in Kansas City
▪ Strategic Alliances
● Strategic alliances involve developing cooperative
ties with other organizations.
● Non profit organizations, often use alliances as a
way to enhance their capacity to serve clients or
to acquire resources while still enabling them to
keep their identities
15