Chapter 9: Strategy Review, Evaluation and Control

Strategic Management: Concepts and Cases. 9th edition Fred R. David

PowerPoint Slides by Anthony F. Chelte Western New England College
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Chapter Outline
The Nature of Strategy Evaluation

A Strategy-Evaluation Framework Published Sources of StrategyEvaluation Information

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Chapter Outline
Characteristics of an Effective Evaluation System Contingency Planning Auditing
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Chapter Outline
Using Computers to Evaluate Strategy Guidelines for Effective Strategic Management

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Ch 9-4

Implementing Strategies

Organizations are most vulnerable when they are at the peak of their success.

-- R.T. Lenz

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Ch 9-5

Strategy Review, Evaluation & Control

Systematic Review, Evaluation & Control
Strategies become obsolete Internal environments are dynamic External environments are dynamic

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Ch 9-6

Strategy Evaluation
Strategy evaluation is vital to the organizations well-being

Alert management to potential or actual problems in a timely fashion Erroneous strategic decisions can have severe negative impact on organizations
Fred R. David Prentice Hall Ch 9-7

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

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Ch 9-8

Strategy Evaluation
Strategy evaluation
Complex and sensitive undertaking
Overemphasis can be costly and counterproductive

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Ch 9-9

Strategy Evaluation
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?
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Strategy Evaluation
Four Criteria (Richard Rummelt):

Consistency Consonance Feasibility Advantage

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Rummelts Criteria
Consistency
Strategy should not present inconsistent goals and policies.
Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency
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Rummelts Criteria
Consonance
Need for strategies to examine sets of trends
Adaptive response to external environment Trends are results of interactions among other trends
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Rummelts Criteria
Feasibility
Neither overtax resources or create unsolvable subproblems
Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy
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Rummelts Criteria
Advantage
Creation or maintenance of competitive advantage
Superiority in resources, skills, or position
Ch 9-15

Fred R. David Prentice Hall

Strategy Evaluation
Difficulty in strategy evaluation

1. Increase in environments complexity 2. Difficulty predicting future with accuracy 3. Increasing number of variables

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Ch 9-16

Strategy Evaluation
Difficulty in strategy evaluation

4. Rate of obsolescence of plans 5. Domestic and global events 6. Decreasing time span for planning certainty
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Process of Strategy Evaluation

Strategy evaluation should
Initiative managerial questioning Trigger review of objectives and values Stimulate creativity in generating alternatives
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Reviewing Bases of Strategy

Review of underlying bases of strategy
Develop revised EFE Matrix Develop revised IFE Matrix

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Ch 9-19

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
Ch 9-20

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Reviewing Bases of Strategy

Review effectiveness 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
Ch 9-21

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Reviewing Bases of Strategy

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?
Ch 9-22

Fred R. David Prentice Hall

Reviewing Bases of Strategy

Monitor Threats and Opportunities and Weaknesses and Strengths

Are opportunities still opportunities? Other external opportunities? Are threats still threats? Are there other threats? Are we vulnerable to a hostile takeover?
Fred R. David Prentice Hall Ch 9-23

Evaluation Framework

I. Review Underlying Bases

Yes III. Take Corrective Actions

Differences?

NO II. Measure Firm Performance

Differences?

Yes

NO
Continue present course
Ch 9-24

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Measuring Organizational Performance

Comparing expected to actual results Investigating deviations from plan Evaluating individual performance Progress toward stated objectives

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Ch 9-25

Measuring Organizational Performance

Quantitative criteria for strategy evaluation

Financial Ratios:
Compare performance over different periods Compare performance to competitors Compare performance to industry averages

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Ch 9-26

Measuring Organizational Performance

Key Financial Ratios
Return on investment Return on equity Profit margin Market share

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Ch 9-27

Measuring Organizational Performance

Key Financial Ratios
Debt to equity Earnings per share Sales growth Asset growth

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Ch 9-28

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
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Characteristics of Evaluation
Basic requirements for effective strategy evaluation
Economical Meaningful Generate useful information Timely information Provide a true picture of what is happening
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Strategy-Evaluation Assessment Matrix

Have major changes occurred in the firms internal strategic position? Have major changes occurred in the firms external strategic position?

Has the firm progressed satisfactorily toward achieving its stated objectives?

Result

No Yes Yes Yes Yes No No No

No Yes Yes No No Yes Yes No

No Yes No Yes No Yes No Yes

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Corrective actions Corrective actions Corrective actions Corrective actions Corrective actions Corrective actions Corrective actions Continue course
Ch 9-31

Contingency Planning

Premise of sound strategic management

Planning to deal with unfavorable and favorable events before they occur.

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Ch 9-32

Contingency Planning

Contingency Planning
Alternative plans that can be put into effect if certain key events do not occur as expected

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Ch 9-33

Auditing

Financial audits to determine correspondence between assertions based on strategic plans and established criteria
Environmental audits to insure sound and safe practices
Ch 9-34

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Key Terms

Advantage Auditing Consistency Consonance Contingency Plans Corporate Agility Feasibility

Fred R. David Prentice Hall Ch 9-35

Key Terms

Future Shock Management by Wandering Around Measuring Organizational Performance Planning Process Audit (PPA) Reviewing the Underlying Bases of an Organizations Strategy

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Ch 9-36

Key Terms

Revised EFE Matrix Revised IFE Matrix Taking Corrective Actions

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Ch 9-37