1. Chapter 9 Strategy Review, Evaluation, and Control
Strategic Management: Concepts & Cases
13th Edition
Fred David
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3. Strategy Review, Evaluation, and Control
The best formulated and best implemented strategies become obsolete as a firm’s external and internal environments change. Therefore, it is essential for strategists to systematically review, evaluate, and control the execution of strategies.
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4. Strategy Review, Evaluation, and Control
Strategy Evaluation is vital to an organization’s well being. Timely evaluations can alert management to potential or actual problems before a situation becomes critical.
Strategy Evaluation includes three basic activities:
(1) Examining the underlying bases of a firm’s strategy.
(2) Comparing expected results to actual results.
(3) Taking corrective actions to ensure that performance conforms to plans.
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5. Strategy Review, Evaluation, and Control
Strategy Evaluation
Adequate and timely feedback is the cornerstone of effective Strategy Evaluation.
Strategy Evaluation is important because organizations face dynamic environments in which key external and internal factors can change quickly and dramatically.
Strategy Evaluation is essential to ensure that the stated objectives of an organization are being achieved.
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6. Strategy Review, Evaluation, and Control
Consistency
Rumelt’s 4 Criteria
Consonance
Feasibility
Advantage
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7. Strategy Review, Evaluation, and Control
Consistency
Strategy should not present inconsistent goals and policies
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8. Strategy Review, Evaluation, and Control
Consonance
Need for strategists to examine sets of trends, as well as individual trends
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9. Strategy Review, Evaluation, and Control
Feasibility
Neither overtax resources nor create unsolvable subproblems
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10. Strategy Review, Evaluation, and Control
Advantage
Creation or maintenance of competitive advantage
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11. Strategy Review, Evaluation, and Control
Strategy Evaluation Should –
Initiate managerial questioning of expectations and assumptions
Trigger a review of objectives & values
Stimulate creativity in generating alternative strategies and formulating criteria for evaluation
Be performed on a continuing basis, rather than at the end of specified periods of time or just after problems occur.
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12. Strategy Review, Evaluation, and Control
Review of Underlying Bases of Strategy –
Develop revised IFE Matrix
Develop revised EFE Matrix
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13. Strategy Review, Evaluation, and Control
Monitor Strengths & Weaknesses; Opportunities & Threats
Are our strengths still strengths?
Has our organization added additional strengths?
Are our weaknesses still weaknesses?
Has our organization developed other weaknesses?
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14. Strategy Review, Evaluation, and Control
Monitor Strengths & Weaknesses; Opportunities & Threats
Are our opportunities still opportunities?
Have other opportunities developed?
Are our threats still threats?
Have other threats emerged?
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15. Strategy Evaluation Framework
Table 9-3 summarizes strategy evaluation activities in terms of key questions that should be addressed, alternative answers to those questions, and appropriate actions for managers to take. Note that 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.
Relationships among strategy evaluation activities are illustrated in Figure 9-2.
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18. Strategy Review, Evaluation, and Control
Measuring Organizational Performance
Compare expected to actual results
Investigate deviations from plan
Evaluate individual performance
Examine progress toward stated objectives
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19. Strategy Review, Evaluation, and Control
Quantitative Criteria for Strategy Evaluation
Strategists use financial ratios to:
Compare a firm’s performance over different time periods
Compare a firm’s performance to competitors’ performance
Compare a firm’s performance to industry averages
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20. Strategy Review, Evaluation, and Control
Some key financial ratios that are useful for evaluating strategies are:
Return on investment (ROI)
Return on equity (ROE)
Profit margin
Market share
Debt to equity
Earnings per share (EPS)
Sales growth
Asset growth
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21. Taking Corrective Action
Taking corrective action is the final strategy evaluation activity. It requires making changes to competitively reposition a firm for the future. Examples of changes that may be needed are altering an organization’s structure, replacing one or more key employees, selling a division, devising new policies, issuing stock to raise capital, allocating resources differently, or revising the firm’s mission.
Taking corrective action is necessary to keep an organization on track toward achieving its objectives.
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22. Strategy Review, Evaluation, and Control
The Balanced Scorecard is a strategy evaluation tool. It uses both quantitative and qualitative measures to evaluate strategies.
A Balanced Scorecard analysis requires firms to answer these questions:
1. How well is the firm continually improving and creating value along measures such as innovation, technological leadership, product quality, operational process efficiencies, etc.?
2. How well is the firm sustaining or improving upon its core competencies and competitive advantages?
3. How satisfied are the firm’s customers?
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23. The Balanced Scorecard
An example of a Balanced Scorecard appears in Table 9-6. Note that in this example the firm examines six key issues in evaluating its strategies: (1) customers, (2) managers/employees, (3) operations/processes, (4) community/social responsibility, (5) business ethics/natural environment, and (6) financial.
The basic form of a Balanced Scorecard may differ for different organizations.
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24. Table 9-6 Copyright © 2011 Pearson Education, Inc.
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