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MOD 8MOD 8
STRATEGY REVIEWSTRATEGY REVIEW
EVALUATION AND CONTROLEVALUATION AND CONTROL
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Strategy Review
The firms internal and external
environments are dynamic. Therefore,
the best conceived and implemented
strategies become obsolete!
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Strategy Review
Strategy Evaluationthe Basics
Examining the underlying basis of the firmsstrategy
Setting standards of performance
Measurement of performance
Analysing variances
Taking corrective action to address performancegaps
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Strategy Review
Effective Strategy Evaluation
Adequate and timely feedbackThe cornerstone of effective evaluation
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Strategy Review
Strategy Evaluation
Must have bothShort- & long-term focus
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Strategy Review
Four Criteria (Richard Rumelt):
Consistency
Consonance Feasibility
Advantage
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Consistency
If policy problems/issues continue to be broughtto the top for resolution, then strategies may beinconsistent.
If success for one department means failure foranother department, then strategies may beinconsistent.
If managerial problems continue despite changes
in personnel and are issue based, then strategiesmay be inconsistent.
A strategy should not present inconsistentgoals and policies
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Consonance
Difficult in matching key internal and externalfactors in formulation of strategy.
Most trends are the result of interactions among
other trends.
Strategy must represent an adaptive response to
the external environment and critical changesoccurring within it.
Strategists need to examine sets of trendsas well as individual trends in evaluating
strategies.
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Feasibility
Important to examine whether in the past theorganization has demonstrated the capabilities,abilities, competencies, skills, and talents to carry
out strategy.
Limitation on strategic choice imposed byindividual and organizational capabilities must beconsidered.
Can the strategy be attempted within the physical,human and financial resources of the enterprise?
Strategy must neither overtax availableresources nor create unsolvable subproblems.
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ADVANTAGE
A strategy must provide for creation or
maintainence of a competitive advantage
in a selected area of the activity
1. Resources
2. Talent/Skills
3. Position
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Strategy Review
Increase in environmentscomplexity
Difficulty in predicting thefuture with accuracy
Increasing number ofvariables
ontemporaryStrategyEvaluationDifficulties
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Strategy Review
Rate of obsolescence ofeven the best plans
Increase in domestic andworld events
Decreasing time span forwhich planning can bedone with any certainty
ontemporaryStrategyEvaluationDifficulties
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Strategy Review
Process of Evaluating Strategies:
Should initiate managerial questioning of expectationsand assumptions
Should trigger a review of objectives and values
Should stimulate creativity in generating alternatives andcriteria of evaluation
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Evaluation FrameworkI. Review Underlying Bases
Continue present course
II. Measure Firm PerformanceIII.
Take
Corrective
Actions
Differences?
Differences?
Yes
NO
Yes
NO
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I. Review Bases of Strategy
Develop a Revised EFE Matrix:
How have competitors reacted to our strategies?
How have competitors strategies changed?
Have major competitors strengths and
weaknesses changed?
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I. Review Bases of Strategy
Why are competitors making certainstrategic changes?
Why are some competitors strategies moresuccessful than others?
How satisfied are our competitors with theirpresent market positions and profitability?
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I. Review Bases of Strategy
How far can our major competitors be
pushed before retaliating?
How could we more effectively
cooperate with our competitors?
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I. Review Bases of Strategy
Key Questions in Evaluating Strategy:
Are our internal strengths still strengths?
Have we added other internal strengths?
Are our internal weaknesses still weaknesses?
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I. Review Bases of Strategy
Do we now have other internal
weaknesses?
Are our external opportunities still
opportunities?
Are there now external opportunities?
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I. Review Bases of Strategy
Are our external threats still threats?
Are there now other external threats?
Are we vulnerable to a hostile
takeover?
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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: basedon an long term and annual objectives
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II. Measure Performance
Compare the firms performance over differenttime periods.
Compare the firms performance tocompetitors.
Compare the firms performance to industry
averages.
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II. Measure Performance
Quantitative Analysis:
Return on investment
Return on equity Profit margin
Market share
Debt to equity
Earnings per share Sales growth
Asset growth
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II. Measure Performance
Qualitative Analysis:
Is the strategy internally consistent?
Is the strategy consistent with the environment? Is the strategy appropriate in view of available
resources?
Does the strategy involve an acceptable degree
of risk?
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II. Measure Performance
Qualitative Analysis:
Does the strategy have an appropriatetime framework?
Is the strategy workable?
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III. Take Corrective Action
Making changes to reposition a firmcompetitively for the future
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Strategy Evaluation, Review &
Control
-- Evaluate strategies from 4 perspectives:1. Financial performance
2. Customer knowledge
3. Internal business processes4. Learning & growth
Balanced Scorecard
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Balanced ScorecardArea of Objectives Measure or Target Time Expectation Primary Responsibility
Customers
1
2
Managers/Employees
1
2
Operations/Processes
1
2
Community/Social Responsibility
1
2
Business Ethics/Natural Environment
1
2
Financial
1
2
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Strategy-Evaluation Assessment Matrix
Continue courseYesNoNo
Corrective actionsNoYesNo
Corrective actionsYesYesNoCorrective actionsNoNoYes
Corrective actionsYesNoYes
Corrective actionsNoYesYes
Corrective actionsYesYesYesCorrective actionsNoNoNo
Result
Has the firm
progressedsatisfactorily
toward achievingits stated
objectives?
Have majorchanges
occurred inthe firmsexternalstrategicposition?
Have majorchanges
occurred inthe firmsinternalstrategicposition?
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Performance evaluation is the process by whichmanagers at all levels gain information about the
performance of tasks within the firm and judge that
performance against preestablished criteria as set
out in budgets, plans, and goals
Top management, middle management, and operating-
level personnel should be evaluated
Management controlrefers to the evaluation by
upper-level managers of the performance of mid-
level managers
Performance Evaluation and Control
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Operational controlmeans the evaluation of operating-level employees by mid-level managers
Management controlfocuses on higher-level managers
and long-term strategic issues (a broader objective),while operational controlfocuses on detailed short-
term performance
Operational control is a management-by-exceptionapproach while management control is more
consistent with the management-by-objectives
approach
Performance Evaluation
and Control (continued)
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Performance Evaluation and Control
(continued)
Mana
g ement
Co
ntrol
Opera
tional
Control
Financial
Management
Financial
Management
Operations
Management
Operations
ManagementMarketing
Management
Marketing
Management
Plant APlant A Plant BPlant BRegion BRegion BRegion ARegion A
ChiefExecutive
ChiefExecutive
Employee
1
Employee
1Employee
2
Employee
2Employee
3
Employee
3Employee
4
Employee
4
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In a management-by-objectives (MBO) approach, topmanagement assigns a set of responsibilities to eachmid-level manager depending on the functional areainvolved and the scope of authority of the mid-levelmanager
Areas of responsibility are often called strategicbusiness units (SBUs)
An SBU consists of a well-defined set of controllableoperating activities over which the SBU manager isresponsible
Management-by-Objectives
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Motivate managers to exert a high level of effort toachieve the goals set by top management
Provide the right incentive for managers to makedecisions consistent with the goals set by topmanagement (that is, to align managers efforts withthe desired strategic goals)
Determine fairly the rewards earned by managers fortheir efforts and skill and the effectiveness of theirdecision making
Management Control Objectives
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A common mechanism for achieving these multiple
objectives is to develop an employment contract
between the manager and top management
A contract promotes goal congruence: the contract
specifies the managers desired behaviors and the
compensation to be awarded for achieving specific
outcomes by using these behaviors
Contracts can be written or unwritten, explicit or
implied
Achieving Management
Control Objectives
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There are four questions management must askwhen developing a management control system:
Who is interested in evaluating the organizations
performance (owners, directors, creditors, employees,etc.)?
Whatis being evaluated (an individual, team, or SBU)?
When is the performance evaluation to be conducted,
and should it be based on the master budget (resourceinputs ex ante) or the flexible budget (outputs of the
managers effortex post)?
Shouldthe system by formal or informal?
Designing Management
Control Systems
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Types of Management
Control Systems
Informal Systems Formal Systems
Individual
Aspiration Level
Personal Drives
Hiring Practice
Promotion Procedur
Strategic Performan
Measurements
TeamsPeer Norms
Organization Culture
Keiretsu
Shared Responsibilit
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Strategy Review
Characteristics of an effective system
Evaluation activities must be economical.
Evaluation activities must be meaningful.
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Strategy Review
Characteristics of an effective system
Evaluation activities must provide timely information.
Evaluation system should be designed to provide a true picture ofwhat is happening.
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Strategy Review
Characteristics of an effective system
Information derived from evaluation process should facilitate action.
Evaluation process should not dominate decisions.
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Strategy Review
Contingency Planning
Identify both beneficial and unfavorable events that could possiblyderail the strategy or strategies.
Specify trigger points. Calculate about when contingent events arelikely to occur.
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Strategy Review
Contingency Planning
Assess the impact of each contingent event. Estimate the potentialbenefit or harm of each contingent event.
Develop contingency plans. Insure that they are compatible withcurrent strategy and are economically feasible.
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Strategy Review
Contingency Planning
Assess the counter impact of each contingency plan. Thisquantifies the potential value of each plan.
Determine early warning signals for key contingent events. Develop advance action plans to take advantage of available
lead time.
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Strategy Review
Auditing
Financial audits to determine correspondence betweenassertions based on strategic plans and established criteria
Environmental audits to insure sound and safe practices
Recommended