Chapter 9 Strategy Review Evaluation and Control Strategic

Chapter 9 Strategy Review, Evaluation, and Control Strategic Management: Concepts & Cases 13 th Edition Fred David Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 1

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Strategy Review, Evaluation, and Control The best formulated and best implemented strategies become obsolete as a firm’s external and internal environments change. Therefore, it is essential for strategists to systematically review, evaluate, and control the execution of strategies. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 3

Strategy Review, Evaluation, and Control Strategy Evaluation is vital to an organization’s well being. Timely evaluations can alert management to potential or actual problems before a situation becomes critical. Strategy Evaluation includes three basic activities: (1) Examining the underlying bases of a firm’s strategy. (2) Comparing expected results to actual results. (3) Taking corrective actions to ensure that performance conforms to plans. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 4

Strategy Review, Evaluation, and Control Strategy Evaluation n Adequate and timely feedback is the cornerstone of effective Strategy Evaluation is important because organizations face dynamic environments in which key external and internal factors can change quickly and dramatically. Strategy Evaluation is essential to ensure that the stated objectives of an organization are being achieved. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 5

Strategy Review, Evaluation, and Control Consistency Rumelt’s 4 Criteria Consonance Feasibility Advantage Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 6

Strategy Review, Evaluation, and Control Consistency n Strategy should not present inconsistent goals and policies Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 7

Strategy Review, Evaluation, and Control Consonance n Need for strategists to examine sets of trends, as well as individual trends Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 8

Strategy Review, Evaluation, and Control Feasibility n Neither overtax resources nor create unsolvable subproblems Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 9

Strategy Review, Evaluation, and Control Advantage n Creation or maintenance of competitive advantage Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 10

Strategy Review, Evaluation, and Control Strategy Evaluation Should – n n Initiate managerial questioning of expectations and assumptions Trigger a review of objectives & values Stimulate creativity in generating alternative strategies and formulating criteria for evaluation Be performed on a continuing basis, rather than at the end of specified periods of time or just after problems occur. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 11

Strategy Review, Evaluation, and Control Review of Underlying Bases of Strategy – n Develop revised IFE Matrix n Develop revised EFE Matrix Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 12

Strategy Review, Evaluation, and Control Monitor Strengths & Weaknesses; Opportunities & Threats n n Are our strengths still strengths? Has our organization added additional strengths? Are our weaknesses still weaknesses? Has our organization developed other weaknesses? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 13

Strategy Review, Evaluation, and Control Monitor Strengths & Weaknesses; Opportunities & Threats n n Are our opportunities still opportunities? Have other opportunities developed? Are our threats still threats? Have other threats emerged? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 14

Strategy Evaluation Framework n n Table 9 -3 summarizes strategy evaluation activities in terms of key questions that should be addressed, alternative answers to those questions, and appropriate actions for managers to take. Note that corrective actions are needed except when (1) external and internal factors have not changed significantly and (2) the firm is making satisfactory progress toward achieving its objectives. Relationships among strategy evaluation activities are illustrated in Figure 9 -2. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 15

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Strategy Review, Evaluation, and Control Measuring Organizational Performance n n Compare expected to actual results Investigate deviations from plan Evaluate individual performance Examine progress toward stated objectives Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 18

Strategy Review, Evaluation, and Control Quantitative Criteria for Strategy Evaluation Strategists use financial ratios to: q q q Compare a firm’s performance over different time periods Compare a firm’s performance to competitors’ performance Compare a firm’s performance to industry averages Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 19

Strategy Review, Evaluation, and Control Some key financial ratios that are useful for evaluating strategies are: n n Return on investment (ROI) Return on equity (ROE) Profit margin Market share n n Debt to equity Earnings per share (EPS) Sales growth Asset growth Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 20

Taking Corrective Action n n Taking corrective action is the final strategy evaluation activity. It requires making changes to competitively reposition a firm for the future. Examples of changes that may be needed are altering an organization’s structure, replacing one or more key employees, selling a division, devising new policies, issuing stock to raise capital, allocating resources differently, or revising the firm’s mission. Taking corrective action is necessary to keep an organization on track toward achieving its objectives. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 21

Strategy Review, Evaluation, and Control The Balanced Scorecard is a strategy evaluation tool. It uses both quantitative and qualitative measures to evaluate strategies. A Balanced Scorecard analysis requires firms to answer these questions: 1. How well is the firm continually improving and creating value along measures such as innovation, technological leadership, product quality, operational process efficiencies, etc. ? 2. How well is the firm sustaining or improving upon its core competencies and competitive advantages? 3. How satisfied are the firm’s customers? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 22

The Balanced Scorecard n n An example of a Balanced Scorecard appears in Table 9 -6. Note that in this example the firm examines six key issues in evaluating its strategies: (1) customers, (2) managers/employees, (3) operations/processes, (4) community/social responsibility, (5) business ethics/natural environment, and (6) financial. The basic form of a Balanced Scorecard may differ for different organizations. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 23

Table 9 -6 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 24