Ch 9-1Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Chapter 9Strategy Review, Evaluation, and Control

Strategic Management: Concepts & Cases

12th Edition

Fred David

Ch 9-2Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

“Organizations are most vulnerable when they are at the peak of their success.”

– R. T. Lenz

Strategy Evaluation

Ch 9-3Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

– Strategies become obsolete

– Internal environments are dynamic

– External environments are dynamic

Strategy Review, Evaluation, and Control

Ch 9-4Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

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

in a timely fashion Erroneous/mistaken strategic decisions can

have severe negative impact on organizations

Strategy Review, Evaluation, and Control

Strategy Evaluation

Ch 9-5Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

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

2. Compare expected to actual results.3. Identify corrective actions to ensure that

performance conforms to plans.

Strategy Review, Evaluation, and Control

Three Basic Activities

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Complex & sensitive undertaking

Overemphasis can be costly & counterproductive

Strategy Review, Evaluation, and Control

Strategy Evaluation

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Strategy Review, Evaluation, and Control

Have assets increased? Increase in profitability? Increase in sales? Increase in productivity? Profit margins, ROI, and EPS ratios

increased?

Appraisal of Strategic Performance

Ch 9-8Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control: Evaluation Criteria

Consonance

Consistency

Feasibility

Advantage

Rumelt’s4 Criteria

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Consistency

• If policy problems/issues continue to be brought to the top for resolution, then strategies may be inconsistent.

• If success for one department means failure for another department, then strategies may be inconsistent.

• If managerial problems continue despite changes in personnel and are issue based, then strategies may be inconsistent.

A strategy should not present inconsistent goals and policies

Ch 9-10Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Consonance

• Difficult in matching key internal and external factors 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 changes occurring within it.

Strategists need to examine sets of trends as well as individual trends in evaluating

strategies.

Ch 9-11Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Feasibility

• Important to examine whether in the past the organization has demonstrated the capabilities, abilities, competencies, skills, and talents to carry out strategy.

• Limitation on strategic choice imposed by individual and organizational capabilities must be considered.

• Can the strategy be attempted within the physical, human and financial resources of the enterprise?

Strategy must neither overtax available resources nor create unsolvable subproblems.

Ch 9-12Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

Creation or maintenance of competitive advantage

Advantage

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Strategy Review, Evaluation, and Control

1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy

3. Increasing number of variables

Difficulties in Strategy Evaluation

Ch 9-14Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

4. Rate of obsolescence of plans

5. Domestic and global events

6. Decreasing time span for planning certainty

Difficulties in Strategy Evaluation

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Strategy Review, Evaluation, and Control

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

alternatives

Strategy Evaluation Should –

Ch 9-16Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

Develop revised EFE Matrix

Develop revised IFE Matrix

Review of Underlying Bases of Strategy –

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Strategy Review, Evaluation, and Control

1. Competitors’ reaction to strategy

2. Competitors’ change in strategy

3. Competitors’ changes in strengths & weaknesses

4. Reasons for competitors’ strategic change

Review Effectiveness of Strategy –

Ch 9-18Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

5. Reasons for competitors’ successful strategies

6. Competitors’ present market positions & profitability

7. Potential for competitor retaliation

8. Potential for cooperation with competitors

Review Effectiveness of Strategy –

Ch 9-19Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

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

Monitor Strengths & Weaknesses; Opportunities & Threats

Ch 9-20Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

Are opportunities still opportunities? Other opportunities develop? Are threats still threats? Other threats emerged? Are we vulnerable to hostile takeover?

Monitor Strengths & Weaknesses; Opportunities & Threats

Ch 9-21Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Ch 9-22Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Ch 9-23Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

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

Measuring Organizational Performance

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Strategy Review, Evaluation, and Control

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

Quantitative Criteria for Strategy Evaluation

Ch 9-25Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

Return on investment (ROI) Return on equity (ROE) Profit margin Market share

Key Financial Ratios

Ch 9-26Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

Internal consistency of strategy Consistency with environment Appropriateness in view of resources

Qualitative Evaluation of Strategy

Ch 9-27Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

Acceptable degree of risk Appropriate time frame Workability of the strategy

Qualitative Evaluation of Strategy

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Strategy Review, Evaluation, and Control

– Evaluate strategies from 4 perspectives:1. Financial performance2. Customer knowledge3. Internal business processes4. Learning & growth

Balanced Scorecard

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Ch 9-30Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Ch 9-31Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

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

Characteristics of Strategy Evaluation

Ch 9-32Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

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?

Ch 9-33Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

Alternative plans that can be put into effect if

certain key events do not occur as expected

Contingency Planning

Ch 9-34Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Strategy Review, Evaluation, and Control

Process is more an “art” than “science” Should strategies be visible or hidden from

stakeholders? Should process be more top-down or

bottom-up?

21st Century Challenges in Strategic Management

Ch 9-35Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review

Why has strategy evaluation become so important in business today?

Answer: Strategy evaluation is critically important today because internal and external factors often change quickly and dramatically. Key factors need to be monitored during strategy-evaluation activities. For example, technology is shortening the product life cycle in nearly all industries. The low value of the dollar is opening up many foreign markets to American exports and is fostering foreign acquisition of U.S. assets and companies.

Ch 9-36Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review

As owner of a local, independent supermarket, explain how you would evaluate the firm’s strategy.

Answer: For small businesses such as a local supermarket, strategy evaluation is less formal than in large organizations. However, both qualitative and quantitative criteria should be used to evaluate the small supermarket’s strategies, because large supermarket stores that offer one-stop shopping for virtually everything are proliferating across the country.

Ch 9-37Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review

Under what conditions are corrective actions not required in the strategy-evaluation process?

Answer: The only time corrective actions would not be required in strategy evaluation is when major changes have not occurred in the firm’s internal or external strategic position and the firm is progressing satisfactorily towards achieving its stated objectives.

Ch 9-38Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall

Review

Identify the types of organizations that may need to evaluate strategy more frequently than others. Justify your choices.

Answer: Organizations that compete in more turbulent industries may need to evaluate strategies more often than others. Several examples of turbulent industries are the computer industry, the communications industry, and the aerospace industry.