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 Fred R. David Prentice Hall

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

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

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

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

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

Strategy Evaluation Strategy evaluation is vital to the organization’s 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

Strategy Evaluation 3 Basic Activities – Examining the underlying bases of a firms’ strategy Comparing expected to actual results Corrective actions to ensure performance conforms to plans Fred R. David Prentice Hall

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

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? Fred R. David Prentice Hall

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

Rummelt’s Criteria Consistency Strategy should not present inconsistent goals and policies. Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency Fred R. David Prentice Hall

Rummelt’s Criteria Consonance Need for strategies to examine sets of trends Adaptive response to external environment Trends are results of interactions among other trends Fred R. David Prentice Hall

Rummelt’s Criteria Feasibility Neither overtax resources or create unsolvable subproblems Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy Fred R. David Prentice Hall

Rummelt’s Criteria Advantage Creation or maintenance of competitive advantage Superiority in resources, skills, or position Fred R. David Prentice Hall

Strategy Evaluation Difficulty in strategy evaluation – Increase in environment’s complexity Difficulty predicting future with accuracy Increasing number of variables Fred R. David Prentice Hall

Strategy Evaluation Difficulty in strategy evaluation – Rate of obsolescence of plans Domestic and global events Decreasing time span for planning certainty Fred R. David Prentice Hall

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

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

Reviewing Bases of Strategy Review effectiveness of strategy – Competitors’ reaction to strategy Competitors’ change in strategy Competitors’ changes in strengths and weaknesses 4. Reasons for competitors’ strategic change Fred R. David Prentice Hall

Reviewing Bases of Strategy Review effectiveness of strategy – Reasons for competitors’ successful strategies Competitors’ present market positions and profitability Potential for competitor retaliation Potential for cooperation with competitors Fred R. David Prentice Hall

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? 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

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

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

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

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

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

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 Fred R. David Prentice Hall

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

Strategy-Evaluation Assessment Matrix Continue course Yes No Corrective actions Result Has the firm progressed satisfactorily toward achieving its stated objectives? Have major changes occurred in the firm’s external strategic position? Have major changes occurred in the firm’s internal strategic position? Fred R. David Prentice Hall

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

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

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

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

Key Terms Future Shock Management by Wandering Around Measuring Organizational Performance Planning Process Audit (PPA) Reviewing the Underlying Bases of an Organization’s Strategy Fred R. David Prentice Hall

Key Terms Revised EFE Matrix Revised IFE Matrix Taking Corrective Actions Fred R. David Prentice Hall