Fred R. David

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Chapter 9Strategy Review, Evaluation and Control

• Strategic Management
• Concepts and Cases. 9th edition
• Fred R. David
• PowerPoint Slides by
• Anthony F. Chelte
• Western New England College

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Chapter Outline

• The Nature of Strategy Evaluation
• A Strategy-Evaluation Framework
• Published Sources of Strategy-Evaluation
  Information

3
Chapter Outline

• Characteristics of an Effective Evaluation System
• Contingency Planning
• Auditing

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Chapter Outline

• Using Computers to Evaluate Strategy
• Guidelines for Effective Strategic Management

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Implementing Strategies

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

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Strategy Review, Evaluation Control

• Systematic Review, Evaluation Control
• Strategies become obsolete
• Internal environments are dynamic
• External environments are dynamic

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Strategy Evaluation

• Strategy evaluation is vital to the
  organizations well-being
• Alert management to potential or actual problems
  in a timely fashion
• Erroneous strategic decisions can have severe
  negative impact on organizations

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Strategy Evaluation

• 3 Basic Activities
• Examining the underlying bases of a firms
  strategy
• Comparing expected to actual results
• Corrective actions to ensure performance conforms
  to plans

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Strategy Evaluation

• Strategy evaluation
• Complex and sensitive undertaking
• Overemphasis can be costly and counterproductive

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Strategy Evaluation

• In many organizations, evaluation is an appraisal
  of performance
• Have assets increased?
• Increase in profitability?
• Increase in sales?
• Increase in productivity?
• Profit margins, ROI and EPS ratios increased?

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Strategy Evaluation

• Four Criteria (Richard Rummelt)
• Consistency
• Consonance
• Feasibility
• Advantage

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Rummelts Criteria

• Consistency
• Strategy should not present inconsistent goals
  and policies.
• Conflict and interdepartmental bickering
  symptomatic of managerial disorder and strategic
  inconsistency

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Rummelts Criteria

• Consonance
• Need for strategies to examine sets of trends
• Adaptive response to external environment
• Trends are results of interactions among other
  trends

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Rummelts Criteria

• Feasibility
• Neither overtax resources or create unsolvable
  subproblems
• Organizations must demonstrate the abilities,
  competencies, skills and talents to carry out a
  given strategy

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Rummelts Criteria

• Advantage
• Creation or maintenance of competitive advantage
• Superiority in resources, skills, or position

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Strategy Evaluation

• Difficulty in strategy evaluation
• Increase in environments complexity
• Difficulty predicting future with accuracy
• Increasing number of variables

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Strategy Evaluation

• Difficulty in strategy evaluation
• Rate of obsolescence of plans
• Domestic and global events
• Decreasing time span for planning certainty

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Process of Strategy Evaluation

• Strategy evaluation should
• Initiative managerial questioning
• Trigger review of objectives and values
• Stimulate creativity in generating alternatives

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Reviewing Bases of Strategy

• Review of underlying bases of strategy
• Develop revised EFE Matrix
• Develop revised IFE Matrix

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Reviewing Bases of Strategy

• Review effectiveness of strategy
• Competitors reaction to strategy
• Competitors change in strategy
• Competitors changes in strengths and weaknesses
• 4. Reasons for competitors strategic change

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Reviewing Bases of Strategy

• Review effectiveness of strategy
• Reasons for competitors successful strategies
• Competitors present market positions and
  profitability
• Potential for competitor retaliation
• Potential for cooperation with competitors

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Reviewing Bases of Strategy

• Monitor Threats and Opportunities and Weaknesses
  and Strengths
• Are our internal strengths still strengths?
• Have we added additional strengths?
• Are our weaknesses still weaknesses?
• Have we other internal weaknesses?

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Reviewing Bases of Strategy

• Monitor Threats and Opportunities and Weaknesses
  and Strengths
• Are opportunities still opportunities?
• Other external opportunities?
• Are threats still threats?
• Are there other threats?
• Are we vulnerable to a hostile takeover?

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Evaluation Framework
Yes
Differences?
NO
Yes
Differences?
NO
Continue present course
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Measuring Organizational Performance

• Comparing expected to actual results
• Investigating deviations from plan
• Evaluating individual performance
• Progress toward stated objectives

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Measuring Organizational Performance

• Quantitative criteria for strategy evaluation
• Financial Ratios
• Compare performance over different periods
• Compare performance to competitors
• Compare performance to industry averages

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Measuring Organizational Performance

• Key Financial Ratios
• Return on investment
• Return on equity
• Profit margin
• Market share

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Measuring Organizational Performance

• Key Financial Ratios
• Debt to equity
• Earnings per share
• Sales growth
• Asset growth

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Measuring Organizational Performance

• Qualitative evaluation of strategy -
• Internal consistency of strategy
• Consistency of strategy with environment
• Strategy appropriate in view of resources
• Acceptable degree of risk
• Appropriate time frame
• Workability of the strategy

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Characteristics of Evaluation

• Basic requirements for effective strategy
  evaluation
• Economical
• Meaningful
• Generate useful information
• Timely information
• Provide a true picture of what is happening

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Strategy-Evaluation Assessment Matrix
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Contingency Planning

• Premise of sound strategic management
• Planning to deal with unfavorable and favorable
  events before they occur.

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Contingency Planning

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

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Auditing

• Financial audits to determine correspondence
  between assertions based on strategic plans and
  established criteria
• Environmental audits to insure sound and safe
  practices

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Key Terms

• Advantage
• Auditing
• Consistency
• Consonance
• Contingency Plans
• Corporate Agility
• Feasibility

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Key Terms

• Future Shock
• Management by Wandering Around
• Measuring Organizational Performance
• Planning Process Audit (PPA)
• Reviewing the Underlying Bases of an
  Organizations Strategy

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Key Terms

• Revised EFE Matrix
• Revised IFE Matrix
• Taking Corrective Actions