Strategic Control and Outsourcing

7/30/2019 Strategic Control and Outsourcing

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123. What is strategic evaluation and control?

Ans: Strategic evaluation and control constitutes the final phase of strategic management.

The purpose of strategic evaluation is to evaluate the effectiveness of strategy in achieving

organizational objectives.

Definition-

“Strategic evaluation and control could be defined as the process of determining the

effectiveness of a given strategy in achieving the organizational objectives and taking

corrective

action wherever required.”

124. What is outsourcing? What are the advantages of outsourcing strategies?

Ans: Outsourcing is an effective cost-saving strategy used by companies.

A practice used by different companies to reduce costs by transferring portions of work to

outside firms rather than completing it internally. It is done through entering into contract

between two parties.

Advantages of outsourcing

1. Any activity can be performed cheaply by outside specialists.

Many PC makers, for example have shifted from assembling from assembling units

in-house to using contract assemblers because of the sizeable scale economies associated

with purchasing PC components in large volumes and assembling PCs.

2. It reduces company’s risk to changing technology.

It puts the burden on outsider suppliers of components to keep pace with advancing

technology as it effects their business components .And the parent companies doesn’t

carry the burden of technological obsolescence.

3. Enhances firm’s strategic flexibility.

It helps in seeking out new suppliers with the needed capabilities already in place is

frequently quicker, easier, less risky, and cheaper. It helps firm to have that cushion

where in they can alter strategy without much effect on current business.

4. Strengthening & leveraging core competencies.

Ideally, outsourcing allows a company to focus on distinctive competence in some

competitively important activity that results in sustainable competitive advantage overrivals.



5. Encourages innovation.

It helps in improving the company’s ability to innovate by allying with “best in

world” suppliers who have considerable intellectual capital and innovative

capabilities of their own.

6. Allows to concentrate on core activities.

It allows the firm to concentrate primarily on those activities internally that it can

perform better than outsiders that it needs to have direct control.

125. Explain the steps involved in strategic control?

Ans: Strategic control can be defined as as the process of determining the effectiveness of a

given strategy in achieving the organizational objectives and taking corrective action

wherever required.

The steps involved in strategic control are as follows:

1. Determine What to Control:



The first step in the control process is determining the major areas to control. Managers

usually base their major controls on the organizational mission, goals and objectives

developed during the planning process. Managers must make choices because it is

expensive and virtually impossible to control every aspect of the organization’s

2. Set Control Standards:

The second step in the control process is establishing standards. A control standard is a

target against which subsequent performance will be compared. Standards are the criteria

that enable managers to evaluate future, current, or past actions. They are measured in a

variety of ways, including physical, quantitative, and qualitative terms. Five aspects of

the performance can be managed and controlled: quantity, quality, time cost, and

behaviour.

Standards reflect specific activities or

behaviours that are necessary to achieve organizational goals. Goals are translated into

performance standards by making them measurable. An organizational goal to increase

market share, for example, may be translated into a top-management performance standard to

increase market share by 10 percent within a twelve-month period. Helpful measures of

strategic performance include: sales (total, and by division, product category, and region),

sales growth, net profits, return on sales, assets, equity, and investment cost of sales, cash

flow, market share, product quality, valued added, and employees productivity.

Quantification of the objective standard is sometimes difficult. For example, consider the

goal of product leadership. An organization compares its product with those of competitorsand determines the extent to which it pioneers in the introduction of basis product and

product improvements. Such standards may exist even though they are not formally and

explicitly stated.

Setting the timing associated with the standards is also a problem for many organizations. It

is not unusual for short-term objectives to be met at the expense of long-term objectives.

Management must develop standards in all performance areas touched on by established

organizational goals. The various forms standards are depend on what is being measured and

on the managerial level responsible for taking corrective action.

3. Measure Performance:

Once standards are determined, the next step is measuring performance. The actual

performance must be compared to the standards. Many types of measurements taken for

control purposes are based on some form of historical standard. These standards can be

based on data derived from the PIMS (profit impact of market strategy) program,

published information that is publicly available, ratings of product / service quality,

innovation rates, and relative market shares standings.

Strategic control standards are based on the practice of competitive

benchmarking - the process of measuring a firm’s performance against that of the topperformance in its industry. The proliferation of computers tied into networks has made it



possible for managers to obtain up-to-minute status reports on a variety of quantitative

performance measures. Managers should be careful to observe and measure in accurately

before taking corrective action

.

4. Compare Performance to Standards:

The comparing step determines the degree of variation between actual performance and

standard. If the first two phases have been done well, the third phase of the controlling

process – comparing performance with standards – should be straightforward. However,

sometimes it is difficult to make the required comparisons (e.g., behavioural standards).

Some deviations from the standard may be justified because of changes in environmental

conditions, or other reasons.

5. Determine the Reasons for the Deviations:

The fifth step of the control process involves finding out: “why performance

has deviated from the standards?” Causes of deviation can range from selected achieve

organizational objectives. Particularly, the organization needs to ask if the deviations are due

to internal shortcomings or external changes beyond the control of the organization. A

general checklist such as following can be helpful:

Are the standards appropriate for the stated objective and strategies?

Are the objectives and corresponding still appropriate in light of the current environmental

situation?

Are the strategies for achieving the objectives still appropriate in light of the current

environmental situation?

Are the firm’s organizational structur e, systems (e.g., information), and resource support

adequate for successfully implementing the strategies and therefore achieving the

objectives?

Are the activities being executed appropriate for achieving standard?

6. Take Corrective Action:

The final step in the control process is determining the need for corrective action.

Managers can choose among three courses of action:

(1) They can do nothing

(2) They can correct the actual performance

(3) They can revise the standard.

When standards are not met, managers must carefully assess the reasons why and take

corrective action. Moreover, the need to check standards periodically to ensure that the

standards and the associated performance measures are still relevant for the future.



The final phase of controlling process occurs when managers must decide action to take to

correct performance when deviations occur. Corrective action depends on the discovery of

deviations and the ability to take necessary action. Often the real cause of deviation must be

found before corrective action can be taken. Causes of deviations can range from unrealistic

objectives to the wrong strategy being selected achieve organizational objectives. Each cause

requires a different corrective action. Not all deviations from external environmental threats

or opportunities have progressed to the point a particular outcome is likely, corrective action

may be necessary.

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Strategic Control and Outsourcing