1. Today: Evaluation and Control
Current Events
Company Profile Presentations
Evaluation and Control
Airborne Express Case
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2. Company Profile Presentations
Team presentation:
20 minutes of prepared content
10 minutes Q & A
Submit written profile at beginning of class
Strategic analysis of industry and company
Eight page write-up (plus exhibits)

3. Presentations -- March 7th
Hollywood Video
Team 3
Herman Miller
Team 5

4. Presentations -- March 14th
Krispy Kreme
Team 2
Vivendi/Universal
Team 4
Nike
Team 1

5. Stages in Strategic Development
Understanding Strategy
Environmental Scanning / Industry Analysis
Internal Scanning / Organizational Analysis
Strategy Formulation
Strategy Implementation
Evaluation and Control

6. Evaluation and Control Process
Determine what to measure
Establish standards
Measure performance 3 2 1
Does
performance
match stand-
ards?
Take corrective action NO 4 5
YES
STOP !

7. Behavior vs. Output Controls
Behavior Controls
Policies
Rules
SOPs (standard operating procedures)
Directives
Output controls
Objectives
Performance targets
Milestones

8. Non-financial Measures
Should the company include non-financial measures to determine overall performance?
Market-based: market share, brand identity, etc.
Society-based: environmental policies and reporting, human resource policies
How important are these factors to the company’s long term viability?

9. Financial Measures (p.175)
Margin Ratios
Gross margin = gross profit/sales x 100%
Operating margin = operating income/sales x 100%
Profit margin = net income/sales x 100%
NOTE: Changes can be early warning of serious problems (down 1-2% can be the difference between healthy profits or a loss in many industries)

10. Financial Measures Return on Investment Ratios
Return on Assets = Net Income/Total Assets
NOTE: Good for evaluating divisional managers (how well did they utilize the assets entrusted to them) but not so good for evaluating overall firm performance
Return on Equity = Net Income/Stockholders’ Equity
NOTE: Good for evaluating overall firm performance (how well did the firm’s top management use the resources provided by owners) but not for evaluating divisional managers

11. Financial Measures Efficiency Ratios Inventory costs
= cost of goods sold/average inventory balance
Inventory turns= 365/inventory turnover
NOTE: High inventory incurs excessive interest, warehousing, property tax and spoilage costs. Low inventory risks lost sales or production line stoppage due to stock outs of finished goods or raw materials, respectively

12. Financial Measures Liquidity Ratios
Current ratio = current assets/current liabilities
NOTE: Varies by industry -- airline industry (receivables & inventory are low), manufacturing industry (receivables & inventory fairly high)

13. Financial Measures ROI = net income* / total assets
Corporate Performance
ROI = net income* / total assets
ROE = net income* / total equity
EPS = net earnings / total outstanding stock
Shareholder Value
EVA = after-tax ops profit / cost of capital
MVA = NPV of past and expected projects
* before interest and taxes

14. Responsibility Centers
Standard Cost Centers: primarily manufacturing; efficiency – costs per unit produced; compare expected and actual production costs
Revenue Centers: generally sales; effectiveness – sales generated; compare previous year’s/projected to actual sales.
Expense Centers: generally administration, service & research; indirect contribution to revenues.
Profit Centers: SBU or division controls expenses and revenues, perhaps based on product line.
Investment Centers: generally facility-based; return on investment; revenue generated compared to value of facility

15. Benchmarking Identify process Determine behavioral and output measures
Select accessible set of competitors
Calculate differences
Develop tactics to close performance gaps
Implement and compare results

16. Guidelines for Control
Involve minimum amount of information
Monitor only meaningful activities
Timeliness
Included long-term and short-term
Pinpoint exceptions
Reward meeting and exceeding standards, not punish

17. *** SEE AIRBORNE HANDOUT ***
Airborne Express
How and why has the express mail industry structure evolved?
How has Airborne survived, and recently prospered, in its industry?
Quantify Airborne’s sources of advantage. (see hints on next slide)
What must Robert Brazier, Airborne’s President and COO, do in order to strengthen the company’s position?
*** SEE AIRBORNE HANDOUT ***

18. Hints on Quantitative Analysis
It is often useful to analyze a company’s cost position relative to is rivals and to examine the willingness of customers to pay for the company’s products relative to competitors’. Compare the costs of an overnight letter shipped by Airborne Express to one shipped by Federal Express. Also, use qualitative analysis to compare customers’ willingness to pay.
To examine relative costs, start with the cost structure of a Federal Express overnight letter, given Ex. 3. Using information in the case and your understanding of what influences each cost item, estimate each of the items for Airborne Express.

19. Next Time: Company Profiles
Company Profile Presentations
Guest Speaker
Steffen Nelson, COO
Objective Medical Assessments Corp
Discuss Final Exam
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