GS Strategy Evaluation and Control

8/2/2019 GS Strategy Evaluation and Control

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GLOBAL STRATEGY:

Evaluation and Control

Group Members:

Ankit Singh (7)

Anuratn Purushottam (9)


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Learning Objectives

Understand the basic, control process

Choose among traditional measures, such as Return onInvestment (ROI) and shareholder value measures such aseconomic value added, to properly assess performance

Use the balanced scorecard approach to develop keyperformance measures

Apply the benchmarking process to a function or an activity

Understand the impact of problem with measuring performance

Develop appropriate control systems to support specificstrategies



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Introduction

Strategy can neither be formulated nor

adjusted to changing circumstances

without a process of strategy evaluation.

Whether performed by an individual or as

part of an organisational review procedure,

strategy evaluation forms an essential step

in the process of guiding an enterprise.

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Evaluation is vital to the organizations well-

being because:

It compares performance with desired results

and gives feedback for management toevaluate and take corrective

It alerts management to potential/actualproblems in a timely fashion.



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Have the firms 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 EPSratios increased?

Strategy evaluation is often an appraisal of

performance. Strategists ask questions like:



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BOARD

OF DIRECTORS

OPERATING CO.

CAMEROONYAOUNDE

OPERATING CO.GABON OPERATING CO.C. A. R.

GENERAL

MANAGER

R&D CORPORATE STAFF

PRODUCT.CHOCO. SPREAD

PRODUCTCHOCO.BARS

OPERATING CO.

CAMEROON-DOUALA

OPERATING CO.D. R. C

PRODUCTCHOCO TOFFEES

PRODUCTCHOCO DRINK



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What is Strategic Evaluation

Glueck and Jauch have defined strategic

evaluation as follows: Evaluation of

strategy is that phase of the strategicmanagement process in which the top

managers determine whether their

strategic choice as implemented is

meeting the objectives of the enterprise.

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There are two aspects in this phase of

strategic management:

Evaluation which emphasizes

measurement of results of a strategicaction and

Control which emphasizes on taking

necessary actions in the light of gap thatexists between intended results and actual

results in the strategic action.

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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


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Evaluation and Control Process

This process ensures that the companyachieves what it was set out to achieve. It

compares actual with desired performance

and provides feedback necessary formanagement to evaluate results and take

corrective action where necessary.

This process can be viewed in five steps

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Determine what to measure -this involvesclarification of the aims to be achieved, i.e.

the aims and objectives must be stated in

clear terms that should include specific

deadlines

Establish standard of performance

requires realistic measurement by whichthe degree and quality of goal

achievement can be determined.

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Measure actual performance this should

be an ongoing repetitive process, actual

frequency of measurement being

dependent on the type of activity

Comparing actual performance againststandards this involves comparing

measured results with established targets

or standards previously set. Take corrective action if actual results fall

outside the desired tolerance rang, action

must be taken to rectify the deviation12



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Basic steps in the control process, adapted and modified from Mullins, L.J.,

Management and organizational behaviour, 4th edition, London, Pitman

Publishing, p. 595 14

Objectives andtargets

Rectify by taking

corrective action

Comparing forany deviations

Actualperformance

Standard ofperformance



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Strategic and Operational Control: A Comparison

Strategic control is the process of taking into accounts thechanging assumptions both external and internal to the

organisation on which a strategy is based, continually

evaluating the strategy as it is being implemented and taking

corrective actions to adjust strategy according to changingconditions or taking necessary actions to realign strategy

implementation

Are the premises made during the strategy formulation

process proving to be correct?

Is the strategy being implemented properly?

Is there any need for change in the strategy? If yes, what is

the type of change required to ensure strategic

effectiveness?15



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Operational control focuses on the results

of strategic action and is aimed atevaluating the performance of the

organisation as a whole, different SBUs

and other units.

How is the organisation performing?

Are the organisational resources being

utilised properly?

What are the actions required to ensure

the proper utilization of resources in order

to meet organisational objectives?16



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Types of Organizational Controls

Depending on the stages at which controlis exercised, it may be of three types:

Control of inputs that are required in an

action, known as feed forward control; Control at different stages of action

process, known as concurrent, real-time,

or steering control; and

Post action control based on feedback

from the completed action, known as

feedback control.17



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Feed-forwardControl

Output

Feedback Control

ProcessingInput

Concurrent Control


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Feed-forward controls,sometimes called preliminary or

preventive controls, attempt to

identify and prevent deviations inthe standards before they occur.

Feed-forward controls focus on

human, material, and financialresources within the organization.

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Concurrent controls monitorongoing employee activity to ensure

consistency with quality standards.

These controls rely on performancestandards, rules, and regulations for

guiding employee tasks and

behaviours. Their purpose is toensure that work activities produce

the desired results.

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Feedback controls involve reviewing

information to determine whetherperformance meets established standards.

For example, suppose that an organization

establishes a goal of increasing its profit

by 12 percent next year. To ensure that

this goal is reached, the organization must

monitor its profit on a monthly basis. After

three months, if profit has increased by 3percent, management might assume that

plans are going according to schedule.

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Some Control Techniques

Activity-Based Costing (ABC) is a

method used for the allocation of indirectand fixed cost to individual product lines

based on the value-added activities going

into that product. This method is useful in

doing a value chain analysis of a firmsactivities for making outsourcing decisions.

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Enterprise Risk Management (ERM) is

an integrated process for managing theuncertainties that could negatively or

positively influence the achievement of a

corporations objectives. The process of

rating risk involves the following

Identify the risk using scenario analysis or

brainstorming

Rank the risk using some scale of impact andlikelihood

Measure the risk using some agreed upon

standard23



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Primary Measures of Corporate

Performance

The days when simple financial measuressuch as ROI or EPS were used alone to

assess the overall corporate performance

are coming to an end. Analysts nowrecommend a broad range of methods to

evaluate the success or failure of a

strategy. Some of these methods are

stakeholder measures, shareholder valueand the balance scorecard approach.

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Traditional financial methods - these

methods were used to measure corporateperformance in terms of profit.

ROI EPS

ROE

Operating Cash flow Free cash flow

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Stakeholder Measures topmanagement should establish

one or more simple stakeholder

measures for each stakeholdercategory according to its own set

of criteria

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Shareholder value This can be defined as

the present value of anticipated future streamof cash flows from the business plus the

value of the company, if liquidated. The New

York consulting firm Stern Stewart &

Company devised and popularised twoshareholder value measures known as the

Economic value Added (EVA) and the Market

Value Added (MVA). The basic concepts of

these are that businesses should not invest in

projects unless they can generate profit

above the cost of capital.27



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Economic value added (EVA) is a

performance measure developed by Stern

Stewart & Co that attempts to measure the

true economic profit produced by a

company. It is frequently also referred toas "economic profit", and provides a

measurement of a company's economic

success (or failure) over a period of time.

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Market value added (MVA), on the other

hand, is simply the difference between thecurrent total market value of a company

and the capital contributed by investors

(including both shareholders andbondholders). MVA is not a performance

metric like EVA, but instead is a wealth

metric; measuring the level of value a

company has accumulated over time. As a

company performs well over time, it will

retain earnings29



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Balanced ScorecardB

alanced ScorecardEvaluate strategies from 4 perspectives:

1. Financial performance: how do we appear toshareholders?

2. Customer knowledge: how do customers view us?

3. Internal business processes: what must excel us?

4. Learning & growth: Can we continue to improveand create value?

Besides, performance of people and performanceaccording to stakeholders can be added.



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Balanced Scorecard

Area of Objectives Measure or Target Time Expectation Primary Responsibility

Customers Sales Growth In 2 years

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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Balanced scorecard(Chococam)

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Evaluating Top Management &B

oD Chairman-CEO Feedback Instrumentusing the 17-item questionnaire developedby Ram Charan.

It focuses on Company performance

Leadership of the organization

Team building and management succession

Leadership of external constituencies


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Management Audit is used to evaluate

how management handle the various

corporate activities such as

Corporate social responsibilities

Functional areas of the organization

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Strategic Audit provides a checklist of

questions, by area or issue, that enables a

systematic analysis of various corporate

functions and activities to be made.

It is useful as a diagnostic tool to pinpoint

corporate-wide problems

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Divisional & Functional Performance

Responsibility Centers are used toisolate a unit so that it can be evaluated

separately from the rest of the corporation

Standard cost centers

Revenue centers

Expense centers Profit centers

Investment centers


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Using Benchmarking

Continual process of measuring products,service, and practices against thetoughest competitors or those companiesrecognized as industry leaders


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International MeasurementIssues

International transfer pricing

Repatriation of profit

piracy


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StrategicInformation Systems

Enterprise Resource Planning (ERP)

Divisional and functionalISsupport


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Problems in Measuring Performance

Short-term orientation Goal displacement

Behavior substitution

Suboptimization


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Guidelines for Proper Control

Minimum amount of information

necessary Meaningful activities and results

Timely

Long and short-term

Pinpointing exceptions Meeting/exceeding standards

C


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StrategicIncentive Management

Weighted-factor method

Long-term evaluation method

Strategic funds method

E l ti d C t l


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Conclusion

The final step in the strategic managementprocess is evaluating results. Managers

must evaluate the results to determine how

effective their strategies have been and whatcorrections are necessary. All strategies are

subject to future modification because

internal and external factors are constantly

changing

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E l ti d C t l


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THANK YOU FOR LISTENING TO US. ALL

CONSTRUCTIVE SUGGESTIONS AND

CONTRIBUTIONS ARE WELCOME.

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Documents

GS Strategy Evaluation and Control