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Evaluation of the strategy. Organizations are most vulnerable when they are at the peak of their success Erroneous strategic decisions can inflict severe.

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Presentation on theme: "Evaluation of the strategy. Organizations are most vulnerable when they are at the peak of their success Erroneous strategic decisions can inflict severe."— Presentation transcript:

1 Evaluation of the strategy

2 Organizations are most vulnerable when they are at the peak of their success Erroneous strategic decisions can inflict severe penalties and can be exceedingly difficult, if not impossible, to reverse. Strategy evaluation is vital to an organization’s well-being; timely evaluations can alert management to problems or potential problems before a situation becomes critical. Strategy Evaluation

3 1.Examine the underlying bases of a firm’s strategy 2.Compare expected to actual results 3.Identify corrective actions to ensure that performance conforms to plans Strategy Review, Evaluation, & Control 3 Basic Activities

4 Complex & sensitive undertaking Overemphasis can be costly & counterproductive No evaluation can create even worse problems. Strategy evaluation is essential to ensure that stated objectives are being achieved. Strategy Review, Evaluation, & Control Strategy Evaluation

5 Strategy Review, Evaluation, & Control Have assets increased Increase in profitability Increase in sales Increase in productivity Increased Profit margins Some ways to evaluate of Strategic Performance

6 Strategy Review, Evaluation, & Control 1.Increase in environment’s complexity 2.Difficulty predicting future with accuracy 3.Increasing number of variables Difficulties in Strategy Evaluation 4.Rate of obsolescence of plans 5.Domestic and global events 6.Decreasing time span for planning certainty Table 9-2 provides examples of organizational demise.

7 Strategy Review, Evaluation, & Control Initiate managerial questioning of evaluation and assumptions Trigger review of objectives & values Stimulate creativity in generating alternatives Managers and employees of the firm should continually be aware of progress being made toward achieving the firm’s objectives. As critical success factors change, organizational members should be involved in determining appropriate corrective actions. Strategy Evaluation Should --

8 Strategy Review, Evaluation, & Control Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses? Monitor Strengths & Weaknesses; Opportunities & Threats

9 Strategy Review, Evaluation, & Control Are opportunities still opportunities? Other opportunities develop? Are threats still threats Other threats emerged? Are we vulnerable to hostile takeover? Monitor Strengths & Weaknesses; Opportunities & Threats

10 See p.340 to 342 : compare EEF to new EEF …

11 Evaluation Framework I. Review Underlying Bases Continue present course II. Measure Firm Performance III. Take Corrective Actions Differences? Yes NO Yes NO

12 Strategy Review, Evaluation, & Control Compare expected to actual results Investigate deviations from plan Evaluate individual performance Progress toward stated objectives Failure to make satisfactory progress signals a need for corrective action. Measuring Organizational Performance: based on an long term and annual objectives

13 Strategy Review, Evaluation, & Control Financial Ratios –Compare performance over different periods –Compare performance to competitors –Compare performance to industry averages Quantitative Criteria for Strategy Evaluation

14 Strategy Review, Evaluation, & Control Return on investment (ROI) Return on equity (ROE) Profit margin Market Share Key Financial Ratios Debt to equity Earnings per share (EPS) Sales growth Asset growth

15 Strategy Review, Evaluation, & Control taking corrective action, requires making changes to reposition a firm competitively for the future. Examples of changes that may be needed are altering an organization’s structure, replacing one or more key individuals, selling a division, or revising a business mission. Taking corrective action raises employees’ and managers’ anxieties. Research suggests that participation in strategy-evaluation activities is one of the best ways to overcome individuals’ resistance to change. Taking Corrective action:

16 Strategy Review, Evaluation, & Control Strategy-evaluation activities must be economical; too much information can be just as bad as too little information. Strategy-evaluation activities should also be meaningful; they should specifically relate to a firm’s objectives. Strategy-evaluation activities should provide timely information; on occasion and in some areas, managers may need information daily. Strategy evaluation should be designed to provide a true picture of what is happening. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM

17 Strategy Review, Evaluation, & Control Return on investment (ROI) Return on equity (ROE) Profit margin Market Share Key Financial Ratios Debt to equity Earnings per share (EPS) Sales growth Asset growth

18 Strategy Review, Evaluation, & Control Currently process is more an “art” than “science” Should strategies be visible or hidden from stakeholders –Visible: Participation and openness enhances understanding, commitment, and communication within the firm. –Hidden: Secrecy limits rival firms from imitating or duplicating the firm’s strategies and undermining the firm. Should process be more top-down or bottom up –Top executives are the only persons in the firm with the collective experience…; to make key strategy decisions. –Lower- and middle-level managers and employees who will be implementing the strategies need to be actively involved in the process of formulating the strategies to assure their support and commitment. 21 st Century Challenges in strategic Management

19 Questions Formulation, implementation, and evaluation forms a framework for strategic management. Discuss the importance of the IT department in this framework. It is essential that IT professional understand strategy formulation, implementation, and evaluation if they are develop enterprise systems that can help the realisation of organisation strategy. Discuss the validity of this statement. Discuss whether strategic management is an “art”, a science or an art and a science.


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