1

EVALUATION AND
CONTROL
 Evaluation and Control
2
Process
Evaluation and control
steps
 Guidelines for Proper
3
Control
1. Controls should involve only the minimum amount
of information needed to give a reliable picture of
events.
2. Controls should monitor only meaningful activities
and results, regardless of measurement difficulty.
3. Controls should be timely so that corrective action
can be taken before it is too late.
4. Long-term and short-term goals should be used.
5. Controls should aim at pinpointing exceptions.
6. Emphasize the reward of meeting or exceeding
standards rather than punishment for failing to
meet standards.
 Contents
1 The nature of strategy evaluation
2 A strategy evaluation framework
3. Challenges of strategy evaluation
4. Characteristics of An effective evaluation system
5. The Balanced Scorecard
5. Strategic Control Process
6. The contingency planning
7. Current Challenges in Strategic Management
The Nature of Strategy Evaluation
 The best formulated and best implemented strategies
become obsolete as a firm’s external and internal
environments change.
 It is essential, therefore, that strategists systematically
review, evaluate, and control the execution of strategies.
 Strategy evaluation is important because organizations face
dynamic environments in which key external and internal
factors often change quickly and dramatically.
 Success today is no guarantee of success tomorrow
 Adequate and timely feedback is the cornerstone of effective
Strategy Evaluation.
Cont’d …
 Strategy-evaluation activities should be performed on a
continuing basis, rather than at the end of specified periods
of time or just after problems occur.

Strategy evaluation includes three basic activities:

 Examining the underlying bases of a firm’s strategy

 Comparing expected results with actual results, and

 Taking corrective actions to ensure that performance

conforms to plans
Strategy Review and Evaluation

Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage
 Strategy should be:
 Consistent between goals and policies
 Consonant to examine sets of trends, as well as
individual trends
 Feasible not to overtax resources nor create
unsolvable sub-problems Feasibility is concerned with
whether the resources required to implement the strategy are
available, can be developed or obtained.

Resources include funding, people, time and information.

Feasibility can be evaluated by cash flow analysis,
forecasting, break-even analysis, etc….

 Create or maintain previous competitive advantage

Cont’d …
Suitability
 Suitability deals with the overall rationale of the strategy.

 Whether it makes economic sense?

 Whether the organization obtains economies of scale,

economies of scope or experience economy?

 Would it be suitable in terms of environment and

capabilities?

Acceptability
Acceptability is concerned with the expectations of the
identified stakeholders (mainly shareholders, employees and
customers) with the expected performance outcomes, which
can be return, risk and stakeholder reactions.
 Challenges to Strategy Evaluation

 A dramatic increase in the environment’s complexity

 The increasing difficulty of predicting the future with
accuracy
 The rapid rate of obsolescence of even the best plans
 The increase in the number of both domestic and world
events affecting organizations
 The decreasing time span for which planning can be
done with any degree of certainty
 A Strategy-Evaluation Framework

1. Reviewing Bases of Strategy

approached by developing a revised EFE Matrix and IFE Matrix.

 A revised IFE Matrix should focus on changes in the

organization’s management, marketing, finance/accounting,
operations, R&D, and management information systems
strengths and weaknesses.
 A revised EFE Matrix should indicate how effective a firm’s
strategies have been in response to key opportunities and threats.
 Cont’d …
Some key questions to review the base for strategy in evaluating
strategies:

 Are our internal strengths still strengths?

 Have we added other internal strengths? If so, what are they?
 Are our internal weaknesses still weaknesses?
 Do we now have other internal weaknesses? If so, what are they?
 Are our external opportunities still opportunities?
 Are there now other external opportunities? If so, what are they?
 Are our external threats still threats?
 Are there now other external threats? If so, what are they?
Strategy Evaluation Framework
The following figure illustrates relationships among
strategy evaluation activities: in terms of key questions
that should be addressed, alternative answers to those
questions, and appropriate actions for managers to take.

Corrective actions are needed except when:

1) external and internal factors have not changed

significantly and
2) the firm is making satisfactory progress toward
achieving its objectives
 Cont’d …
2. Measuring Organizational Performance
This activity includes:

 comparing expected results or standard to

actual results,
 investigating deviations from plans

Strategy evaluation is based on both

quantitative and qualitative criteria.
 Cont’d…
Quantitative criteria commonly used to evaluate strategies
are financial ratios, which strategists use to make three
critical comparisons:

1. comparing the firm’s performance over different time

periods,
2. comparing the firm’s performance to competitors’, and
3. comparing the firm’s performance to industry averages.
 Cont’d …
Some key financial ratios that are particularly useful as
criteria for strategy evaluation are as follows:

1. Return on investment (ROI)

2. Return on equity (ROE)
3. Profit margin
4. Market share
5. Debt to equity
6. Earnings per share
7. Sales growth
8. Asset growth
 Cont’d …
Factor Actual Expected Variance Actions
Result Result

• Corporate Revenues
• Corporate Profits
• Corporate ROI

• Région 1 Revenues
• Region 1 Profits
• Region 1 ROI

• Product 1 Revenues
• Product 1 Profits
• Product 1 ROI
 Cont’d …
Some potential problems are associated with using
quantitative criteria for evaluating strategies.
 most quantitative criteria are geared to annual

objectives rather than long-term objectives.

 different accounting methods can provide different

results on many quantitative criteria.

 intuitive judgments are almost always involved in

deriving quantitative criteria.

 For these and other reasons, qualitative criteria are also

important in evaluating strategies.

 3. Taking Corrective Actions

Requires making changes to competitively reposition a firm for

the future.
 Alter the firm’s structure

 Replace one or more key individuals

 Divest a division

 Alter the firm’s vision and/or mission

 Revise objectives

 Alter strategies

 Devise new policies

Cont’d …
 Install new performance incentives
 Raise capital with stock or debt
 Add or terminate salespersons, employees, or managers
 Allocate resources differently
 Outsource (or rein in) business functions

Taking corrective actions does not necessarily mean that

existing strategies will be abandoned or even that new
strategies must be formulated.
Characteristics of an Effective Evaluation System

 Must be economical; too much information can be just

as bad as too little information; and too many controls
can do more harm than good.
 Should be meaningful; they should specifically relate to
a firm’s objectives. should provide managers with useful
information about tasks over which they have control
and influence.
 Should provide timely information; on occasion and in
some areas, managers may daily need information.
 Cont’d …
 Should be designed to provide a true picture of what is
happening.
 Should not dominate decisions; it should foster mutual
understanding, trust, and common sense
 Contingency Planning
Regardless of how carefully strategies are formulated, implemented,
and evaluated, unforeseen events, such as strikes, boycotts, natural
disasters, arrival of foreign competitors, and government actions, can
make a strategy obsolete.

To minimize the impact of potential threats, organizations should

develop contingency plans as part of their strategy-evaluation process

Contingency plans can promote a strategist’s ability to respond quickly

to key changes in the internal and external bases of an organization’s
current strategy
The Balanced Scorecard
the Balanced Scorecard is an important strategy-
evaluation tool. It is a process that allows firms to
evaluate strategies from four perspectives:

 financial performance,
 customer knowledge,
 internal business processes, and
 learning and growth.

The Balanced Scorecard analysis requires that firms

seek answers to the following questions and utilize
that information, in conjunction with financial
measures, to adequately and more effectively
evaluate strategies being implemented:
The BSC…..
1. How well is the firm continually
improving and creating value along
measures such as innovation,
technological leadership, product
quality, operational process efficiencies,
and so on?
2. How well is the firm sustaining and
even improving upon its core
competencies and competitive
advantages?
3. How satisfied are the firm’s customers?
The BSC…..
 Nature of Control

Management control refers to the process by which an organization

influences its subunits and members to behave in ways that lead to
the attainment of organizational objectives.
There are many methods/ techniques used in strategic control
systems
Every organization has its own way of using a particular technique
according to the requirements of the organization.

• System of financial control

• Budget – i.e. preparation and allocation of resources

• Time-related control

• Audits

• MBO
 Types of Control

Management can implement controls:

 before an activity commences/start,
 while the activity is going on, or

after the activity has been completed.

The three respective types of control based on timing:

 feed forward,
 concurrent, and
 feedback.
 Problems of control systems

There are a large number of problems associated with control

systems for strategy evaluation.
An efficient system may collect a lot of irrelevant data
whereas a sophisticated system might ignore crucial
information

Some of the typical problems in control:

 There may not be a consensus on the criteria for

measuring the effectiveness and efficiency of the strategy.
 The reporting data may be invalid
 The performance norms may be based on output on which
the relevant business may not have a control
 Cont’d …
 Often performance standards may be set with inherent
contradictions.
For example, an increase in market share may be expected in
conjunction with an absolute decrease in marketing expenditure.

 Employees may consider the system to be unfair and therefore may

not accept it.
 Overemphasis on measuring short-term performance may make
managers forget about the strategy which inherently has long
connotations.
 It is very difficult to set “good”, “average”, and “poor” levels of
performance in situations where the outputs are not very tangible.
 Current Challenges In Strategic Management
 Globalization.
32  Outsourcing.
 Downsizing.
 The role of ICT.
 Sustainability.
 Business ethics and corporate social responsibility.
 The increasing demands of the various
stakeholders and government’s move to protect
the involuntary stakeholders.
 The pace of technological development.
 The dynamic role of the internet and the social
media.
 Shortening product life cycle stages.
 Diversity of the work force.
Thank You