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Fred R. David Prentice Hall Ch 9-1 Chapter 9: Strategy Review, Evaluation and Control Strategic Management: Concepts and Cases. 9 th edition Fred R. David PowerPoint Slides by Anthony F. Chelte Western New England College

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Fred R. David Prentice Hall Ch 9-2 Chapter Outline The Nature of Strategy Evaluation A Strategy-Evaluation Framework Published Sources of Strategy- Evaluation Information

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Fred R. David Prentice Hall Ch 9-3 Chapter Outline Characteristics of an Effective Evaluation System Contingency Planning Auditing

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Fred R. David Prentice Hall Ch 9-4 Chapter Outline Using Computers to Evaluate Strategy Guidelines for Effective Strategic Management

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Fred R. David Prentice Hall Ch 9-5 Implementing Strategies Organizations are most vulnerable when they are at the peak of their success. -- R.T. Lenz

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Fred R. David Prentice Hall Ch 9-6 Systematic Review, Evaluation & Control – –Strategies become obsolete –Internal environments are dynamic –External environments are dynamic Strategy Review, Evaluation & Control

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Fred R. David Prentice Hall Ch 9-7 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 Strategy Evaluation

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Fred R. David Prentice Hall Ch 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 Strategy Evaluation

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Fred R. David Prentice Hall Ch 9-9 Strategy evaluation – –Complex and sensitive undertaking –Overemphasis can be costly and counterproductive Strategy Evaluation

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Fred R. David Prentice Hall Ch 9-10 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? Strategy Evaluation

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Fred R. David Prentice Hall Ch 9-11 Four Criteria (Richard Rummelt): Consistency Consonance Feasibility Advantage Strategy Evaluation

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Fred R. David Prentice Hall Ch 9-12 Consistency –Strategy should not present inconsistent goals and policies. Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency Rummelts Criteria

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Fred R. David Prentice Hall Ch 9-13 Consonance –Need for strategies to examine sets of trends Adaptive response to external environment Trends are results of interactions among other trends Rummelts Criteria

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Fred R. David Prentice Hall Ch 9-14 Feasibility –Neither overtax resources or create unsolvable subproblems Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy Rummelts Criteria

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Fred R. David Prentice Hall Ch 9-15 Advantage –Creation or maintenance of competitive advantage Superiority in resources, skills, or position Rummelts Criteria

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Fred R. David Prentice Hall Ch 9-16 Difficulty in strategy evaluation – 1.Increase in environments complexity 2.Difficulty predicting future with accuracy 3.Increasing number of variables Strategy Evaluation

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Fred R. David Prentice Hall Ch 9-17 Difficulty in strategy evaluation – 4.Rate of obsolescence of plans 5.Domestic and global events 6.Decreasing time span for planning certainty Strategy Evaluation

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Fred R. David Prentice Hall Ch 9-18 Strategy evaluation should – –Initiative managerial questioning –Trigger review of objectives and values –Stimulate creativity in generating alternatives Process of Strategy Evaluation

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Fred R. David Prentice Hall Ch 9-19 Review of underlying bases of strategy – –Develop revised EFE Matrix –Develop revised IFE Matrix Reviewing Bases of Strategy

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Fred R. David Prentice Hall Ch 9-20 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 Reviewing Bases of Strategy

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Fred R. David Prentice Hall Ch 9-21 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 Reviewing Bases of Strategy

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Fred R. David Prentice Hall Ch 9-22 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? Reviewing Bases of Strategy

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Fred R. David Prentice Hall Ch 9-23 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? Reviewing Bases of Strategy

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Fred R. David Prentice Hall Ch 9-24 Evaluation Framework I. Review Underlying Bases Continue present course II. Measure Firm Performance III. Take Corrective Actions Differences? Yes NO Yes NO

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Fred R. David Prentice Hall Ch 9-25 Comparing expected to actual results Investigating deviations from plan Evaluating individual performance Progress toward stated objectives Measuring Organizational Performance

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Fred R. David Prentice Hall Ch 9-26 Quantitative criteria for strategy evaluation – –Financial Ratios: Compare performance over different periods Compare performance to competitors Compare performance to industry averages Measuring Organizational Performance

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Fred R. David Prentice Hall Ch 9-27 Key Financial Ratios – –Return on investment –Return on equity –Profit margin –Market share Measuring Organizational Performance

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Fred R. David Prentice Hall Ch 9-28 Key Financial Ratios – –Debt to equity –Earnings per share –Sales growth –Asset growth Measuring Organizational Performance

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Fred R. David Prentice Hall Ch 9-29 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 Measuring Organizational Performance

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Fred R. David Prentice Hall Ch 9-30 Basic requirements for effective strategy evaluation – –Economical –Meaningful –Generate useful information –Timely information –Provide a true picture of what is happening Characteristics of Evaluation

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Fred R. David Prentice Hall Ch 9-31 Strategy-Evaluation Assessment Matrix Continue courseYesNo Corrective actionsNoYesNo Corrective actionsYes No Corrective actionsNo Yes Corrective actionsYesNoYes Corrective actionsNoYes Corrective actionsYes Corrective actionsNo Result Has the firm progressed satisfactorily toward achieving its stated objectives? Have major changes occurred in the firms external strategic position? Have major changes occurred in the firms internal strategic position?

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Fred R. David Prentice Hall Ch 9-32 Premise of sound strategic management – –Planning to deal with unfavorable and favorable events before they occur. Contingency Planning

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Fred R. David Prentice Hall Ch 9-33 Contingency Planning – –Alternative plans that can be put into effect if certain key events do not occur as expected Contingency Planning

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Fred R. David Prentice Hall Ch 9-34 Financial audits to determine correspondence between assertions based on strategic plans and established criteria Environmental audits to insure sound and safe practices Auditing

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Fred R. David Prentice Hall Ch 9-35 Key Terms Advantage Auditing Consistency Consonance Contingency Plans Corporate Agility Feasibility

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Fred R. David Prentice Hall Ch 9-36 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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Fred R. David Prentice Hall Ch 9-37 Key Terms Revised EFE Matrix Revised IFE Matrix Taking Corrective Actions

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