C HAPTER 11 S TRATEGY E VALUATION & C ONTROL S TRATEGIC M ANAGEMENT AND B USINESS P OLICY 11 th Edition Thomas L. Wheelen J. David Hunger.

CHAPTER 11 STRATEGY EVALUATION & CONTROL

STRATEGIC MANAGEMENT AND BUSINESS POLICY

11th Edition

Thomas L. Wheelen

J. David Hunger

Strategy Evaluation & Control

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 Review, Evaluation & Control

Strategy Evaluation & Control

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

Strategy Evaluation, Review, & Control

Strategy Evaluation

Strategy Evaluation & Control

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

2. Compare expected to actual results3. Identify corrective actions to ensure that

performance conforms to plans

Strategy Evaluation, Review & Control Framework

3 Basic Activities

Strategy Evaluation & Control

Evaluation FrameworkI. Review Underlying Bases

Continue present course

II. Measure Firm Performance

III.Take

Corrective Actions

Differences?

Differences?

Yes

NO

Yes

NO

Complex & sensitive undertaking

Overemphasis can be costly & counterproductive

Strategy Evaluation, Review & Control

Strategy Evaluation

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

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

Appraisal of Strategic Performance

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Consonance

Consistency

Feasibility

Advantage

Rummelt’s4 Criteria

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Strategy should not present inconsistent goals & policies

Consistency

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Consonance

Consistency

Feasibility

Advantage

Rummelt’s4 Criteria

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Need for strategies to examine sets of trends

Consonance

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Consonance

Consistency

Feasibility

Advantage

Rummelt’s4 Criteria

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Neither overtax resources or create unsolvable sub-problems

Feasibility

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Consonance

Consistency

Feasibility

Advantage

Rummelt’s4 Criteria

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Creation or maintenance of competitive advantage

Advantage

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy

3. Increasing number of variables

Difficulties in Strategy Evaluation

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

4. Rate of obsolescence of plans

5. Domestic and global events

6. Decreasing time span for planning certainty

Difficulties in Strategy Evaluation

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

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

alternatives

Strategy Evaluation Should --

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Develop revised EFE Matrix

Develop revised IFE Matrix

Review of underlying bases of strategy --

Strategy Evaluation & Control

Strategy Evaluation, Review & 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 --

Strategy Evaluation & Control

Strategy Evaluation, Review & 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 --

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

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

Monitor Strengths & Weaknesses; Opportunities & Threats

Strategy Evaluation & Control

Strategy Evaluation, Review & 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

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

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

Measuring Organizational Performance

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

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

Quantitative Criteria for Strategy Evaluation

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

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

Key Financial Ratios

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Debt to equity Earnings per share (EPS) Sales growth Asset growth

Key Financial Ratios

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

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

Qualitative Evaluation of Strategy

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Acceptable degree of risk Appropriate time frame Workability of the strategy

Qualitative Evaluation of Strategy

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

-- Evaluate strategies from 4 perspectives:

1. Financial performance

2. Customer knowledge

3. Internal business processes

4. Learning & growth

Balanced Scorecard

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

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

Characteristics of strategy evaluation

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

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

Contingency Planning

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

1. Identify both favorable and unfavorable events that could come up.

2. Specify trigger points, i.e. estimate when contingent events are likely to occur.

3. Assess the –ve/+ve impact of that contingent event, i.e. estimate the harm/benefit from each event.

4. Develop a contingency plan.

5. Assess the –ve/+ve impact of the developed contingent plan, i.e. estimate how much this plan will deal with the contingent event.

6. Determine early warning signals for key contingent events and monitor them.

7. Develop action plans for the implementation of the contingency plan when needed.

Contingency Planning – 7 Steps Process

Strategy Evaluation & Control

Strategy Evaluation, Review & Control

Financial audits determine correspondence between assertions based on strategic plan & established criteria

Environmental audits insure sound and safe practices

Auditing

Strategy Evaluation & Control

Strategy Evaluation, Review & 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

Strategy Evaluation & Control