David ch9 revised

Chapter 9Strategy Review, Evaluation, & Control

Presented by:

Almond Ray Baldovino

Darryl Agustin

Elizalde M. Herrera

MMT Batch 22

Strategic Management Process Model

Develop Mission and Mission Statements

Chap 2

Measure and Evaluate

PerformanceChap 9

Implement StrategiesManagement Issues

Chap 7

Generate, Evaluate and Select Strageies

Chap 3

Implement StrategiesMarketing, Finance, accounting, R&D,

MIS issuesChap 8

Perfrom External Audit

Chap 3

Establish Long-termObjectives

Chap 4

Perform Internal Audit

Chap 4

-- Strategies become obsolete

-- Internal environments are dynamic

-- External environments are dynamic

Strategy Review, Evaluation & Control

-- It is essential therefore that strategists systematically review, evaluate, and control the execution of strategy

Vital to the organization’s well-being Alert management to potential/actual problems in a

timely fashion Erroneous strategic decisions can have severe

negative impact on organizations Complex and sensitive undertaking Overemphasis can be costly & counterproductive

Too much time spent measuring performance rather than in action and doing

Strategy Evaluation, Review, & Control

Understanding strategy evaluation

1. Examine the underlying bases of a firm’s strategy

2. Compare expected to actual results3. Identify corrective actions to ensure that

performance conforms to plans

Strategy Evaluation, Review & Control

Three Basic Activities


Have the firm’s assets increased? Has there been an increase in profitability? Has there been an increase in sales? Has there been an increase in productivity? Have profit margins, ROI, and EPS ratios

increased?

Strategy evaluation is often an appraisal of performance. Strategists ask questions like:


Increase in environment’s complexity Difficulty predicting future with accuracy Increasing number of variables Rate of obsolescence of plans Domestic and global events Decreasing time span for planning certainty

Difficulties in Strategy Evaluation


Consonance

Feasibility

Advantage

Rummelt’s4 Criteria for

Strategy evaluation

Consistency

Strategy Evaluation, Review & Control Consistency

Strategy should not present inconsistent goals and policies. There is inconsistency when: Persistence of issues-based (not personality-based) conflicts Success for one department means failure for another Policy problems are frequently referred to the top for resolution

ConsonanceNeed for strategies to examine sets of trends rather than a single trend Need a holistic view (internal and external environments)

FeasibilityNeither overtax resources or create unsolvable sub-problems Can it be done with the given or available resources?

AdvantageCreation or maintenance of competitive advantage If it doesn't create a competitive advantage then what’s the point?


Initiate managerial questioning Trigger review of objectives and values Stimulate creativity in generating

alternatives

Strategy Evaluation Should --


Develop a revised EFE Matrix What changed in the external environment?

Develop a revised IFE Matrix What internal changes occurred in the

organization ?

Review of underlying bases of strategy --


1. Competitors’ reaction to strategy2. Competitors’ change in strategy3. Competitors’ changes in strengths & weaknesses4. Reasons for competitors’ strategic change5. Reasons for competitors’ successful strategies6. Competitors’ present market positions & profitability7. Potential for competitor retaliation8. Potential for cooperation with competitors

Review effectiveness of strategy --


Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses?

Monitor Strengths & Weaknesses; Opportunities & Threats


Are opportunities still opportunities? Have other opportunities developed? Are threats still threats? Have other threats emerged? Are we vulnerable to hostile takeover?

Monitor Strengths & Weaknesses; Opportunities & Threats

Evaluation FrameworkReview Underlying Bases

Revised IFE and EFE

Continue present course

Measure Firm PerformanceRatios and stated objectives

Take Corrective Actions

Differences?

Differences?

Yes

NO

Yes

NO


Compare expected to actual results Investigate deviations from plan Evaluate individual performance Progress toward stated objectives

Measuring Organizational Performance


Financial Ratios Compare performance over different periods Compare performance to competitors Compare performance to industry averages

Quantitative Criteria for Strategy Evaluation


Return on investment (ROI) Return on equity (ROE) Profit margin Market Share Debt to equity Earnings per share (EPS) Sales growth Asset growth

Typical financial ratios used in strategy evaluation


Internal consistency of strategy Consistency with environment Appropriateness in view of resources Acceptable degree of risk Appropriate time frame Workability of the strategy

Qualitative Evaluation of Strategy


-- Evaluate strategies from 4 perspectives:

1. Financial performance

2. Customer knowledge

3. Internal business processes

4. Learning & growth

Balanced Scorecard

Balanced Scorecard

Area 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


Economical Meaningful Generates useful information Timely information Provides accurate picture of events

Characteristics of strategy evaluation

Strategy-Evaluation Assessment Matrix

Continue courseYesNoNo

Corrective actionsNoYesNo

Corrective actionsYesYesNo

Corrective actionsNoNoYes

Corrective actionsYesNoYes

Corrective actionsNoYesYes

Corrective actionsYesYesYes

Corrective actionsNoNoNo

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?

Strategy Evaluation, Review & Control Contingency Planning: Alternative plans that

can be put into effect if certain key events do not occur as expected

Some examples of situations requiring contingency planning: If a major competitor withdraws from particular markets as

intelligence reports indicate, what actions should the firm take? If our sales objectives are not reached, what actions should firm

take to avoid losses? If demand for new product exceeds plans, what actions should firm

take to meet higher demand? If a new technological development makes new product obsolete

sooner than expected, what actions should firm take?


Financial audits determine correspondence between assertions based on strategic plan and established criteria

Required for publicly traded companies

Environmental audits insure sound and safe practices

Auditing


Is the process of strategic management more an “art” than “science” or vice versa? (Your text says it is more science than art)

Should strategies be visible or hidden from stakeholders? (Your text says that they should hidden only when secrecy gives some competitive advantage)

Should process be more top-down or bottom up (Current research suggests bottom-up)

21st Century Challenges in Strategic Management