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Business Policy and Strategy

Lecture-30

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RecapIMPLEMENTING STRATEGIES: MANAGEMENT AND OPERATIONS ISSUES

Management Perspectives1. ANNUAL OBJECTIVES2. POLICIES3. RESOURCE ALLOCATION4. MANAGING CONFLICT5. MATCHING STRATEGY WITH STRUCTURE6. RESTRUCTURING, REENGINEERING, AND E-ENGINEERING7. LINKING PERFORMANCE AND PAY TO STRATEGIES8. MANAGING RESISTANCE TO CHANGE9. MANAGING THE NATURAL ENVIRONMENT10. CREATING A STRATEGY-SUPPORTIVE CULTURE11. PRODUCTION/OPERATIONS CONCERNS 12. HUMAN RESOURCE CONCERNS

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Today’s LectureSTRATEGY REVIEW, EVALUATION, AND CONTROL

– The Nature of Strategy Evaluation– A Strategy-Evaluation Framework– The Balanced Scorecard– Published Sources of Strategy-Evaluation Information– Characteristics of an Effective Evaluation System– Contingency Planning– Auditing– 21st Century Challenges in Strategic Management

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CHAPTER OBJECTIVES

After studying this chapter, you should be able to do the following:

1. Describe a practical framework for evaluating strategies.2. Explain why strategy evaluation is complex, sensitive, and yet

essential for organizational success.3. Discuss the importance of contingency planning in strategy

evaluation.4. Discuss the role of auditing in strategy evaluation.5. Explain how computers can aid in evaluating strategies.6. Discuss the Balanced Scorecard.7. Discuss three 21st century challenges in strategic management.

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Importance of Strategy Evaluation

Organizations are most vulnerable, when they are at the peak of their success --R.T. Lenz

Strategy Review

-- Strategies become obsolete-- Internal environments are dynamic-- External environments are dynamic

Strategy Evaluation

• 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

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Importance of Strategy Evaluation

• It is impossible to demonstrate conclusively that a particular strategy is optimal, but it can be evaluated for critical flaws. There are four criteria to use in evaluating a strategy:a. consistencyb. consonancec. feasibilityd. Advantage

• These trends make strategy evaluation difficult:

a. dramatic increase in environmental complexity b. difficult in predicting futurec. increasing number of variablesd. rapid rate of obsolescencee. increase in the number of world events affecting the organizationf. decreasing time spans for planning

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The Process of Evaluating Strategies

1. Strategy evaluation is necessary for all sizes and kinds of organizations. Strategy evaluation should initiate managerial questioning of expectations and assumptions, trigger a review of objectives and values, and stimulate creativity in generating alternatives and formulating criteria of evaluation.

2. Evaluating strategies on a continuous rather than a periodic basis allows benchmarks of progress to be established and more effectively monitored.

3. Managers and employees of the firm should continually be aware of progress being made toward achieving the firm's objectives. As critical success factors change, organizational members should be involved in determining appropriate corrective actions.

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Strategy Evaluation, Review & Control

Consonance

Consistency

Feasibility

Advantage

Rummelt’s4 Criteria

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• Consistency: Strategy should not present inconsistent goals & policies

• Consonance: Need for strategies to examine sets of trends

• Feasibility: Neither overtax resources or create unsolvable sub-problems

• Advantage: Creation or maintenance of competitive advantage

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Difficulties in Strategy Evaluation

1. Increase in environment’s complexity2. Difficulty predicting future with accuracy3. Increasing number of variables4. Rate of obsolescence of plans5. Domestic and global events6. Decreasing time span for planning certainty

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STRATEGY-EVALUATION FRAMEWORK

• Review of underlying bases of strategy

Develop revised EFE Matrix Develop revised IFE Matrix

• Review effectiveness of strategy

Competitors’ reaction to strategy Competitors’ change in strategy Competitors’ changes in strengths & weaknesses Reasons for competitors’ strategic change Reasons for competitors’ successful strategies Competitors’ present market positions & profitability Potential for competitor retaliation Potential for cooperation with competitors

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Monitor Strengths & Weaknesses; Opportunities & Threats

Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses? Are opportunities still opportunities? Other opportunities develop? Are threats still threats Other threats emerged? Are we vulnerable to hostile takeover?

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Evaluation FrameworkI. Review Underlying Bases

Continue present course

II. Measure Firm Performance

III.Take

Corrective Actions

Differences?

Differences?

Yes

NO

Yes

NO

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Measuring Organizational Performance

Measuring Organizational Performance

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

Quantitative Criteria for Strategy Evaluation

– Compare performance over different periods– Compare performance to competitors– Compare performance to industry averages

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Key Financial Ratios

– 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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Qualitative Evaluation of Strategy

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

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Balanced Scorecard

Evaluate strategies from 4 perspectives:

– Financial performance– Customer knowledge– Internal business processes– Learning & growth

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      

Ch 9-18

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Strategy-Evaluation Assessment Matrix

Continue courseYesNoNo

Corrective actions

NoYesNo

Corrective actions

YesYesNo

Corrective actions

NoNoYes

Corrective actions

YesNoYes

Corrective actions

NoYesYes

Corrective actions

YesYesYes

Corrective actions

NoNoNo

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?

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• Contingency Planning: Alternative plans that can be put into effect if certain key events do not occur as expected

21st Century Challenges in Strategic Management

• Process is more an “art” than “science”• Should strategies be visible or hidden from stakeholders• Should process be more top-down or bottom up

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Summary

– The Nature of Strategy Evaluation– A Strategy-Evaluation Framework– The Balanced Scorecard– Published Sources of Strategy-Evaluation

Information– Characteristics of an Effective Evaluation System– Contingency Planning– Auditing– 21st Century Challenges in Strategic Management

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Next Chapter

• Revision from lecture 1-17