Chapter 9 Strategy Review Evaluation and Control Strategic

Chapter 9 Strategy Review, Evaluation, and Control Strategic Management: Concepts & Cases 12 th Edition Fred David Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 1

Strategy Evaluation “Organizations are most vulnerable when they are at the peak of their success. ” – R. T. Lenz Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 2

Strategy Review, Evaluation, and Control – Strategies become obsolete – Internal environments are dynamic – External environments are dynamic Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 3

Strategy Review, Evaluation, and Control Strategy Evaluation n Vital to the organization’s well-being Alert management to potential/actual problems in a timely fashion Erroneous/mistaken strategic decisions can have severe negative impact on organizations Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 4

Strategy Review, Evaluation, and Control Three Basic Activities 1. 2. 3. Examine the underlying bases of a firm’s strategy. Compare expected to actual results. Identify corrective actions to ensure that performance conforms to plans. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 5

Strategy Review, Evaluation, and Control Strategy Evaluation n Complex & sensitive undertaking n Overemphasis can be costly & counterproductive Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 6

Strategy Review, Evaluation, and Control Appraisal of Strategic Performance n n n Have assets increased? Increase in profitability? Increase in sales? Increase in productivity? Profit margins, ROI, and EPS ratios increased? Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 7

Strategy Review, Evaluation, and Control: Evaluation Criteria Consistency Rumelt’s 4 Criteria Consonance Feasibility Advantage Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 8

Consistency A strategy should not present inconsistent goals and policies • If managerial problems continue despite changes in personnel and are issue based, then strategies may be inconsistent. • If success for one department means failure for another department, then strategies may be inconsistent. • If policy problems/issues continue to be brought to the top for resolution, then strategies may be inconsistent. 9

Consonance Strategists need to examine sets of trends as well as individual trends in evaluating strategies. • Strategy must represent an adaptive response to the external environment and critical changes occurring within it. • Most trends are the result of interactions among other trends. • Difficult in matching key internal and external factors in formulation of strategy. 10

Feasibility Strategy must neither overtax available resources nor create unsolvable subproblems. • Can the strategy be attempted within the physical, human and financial resources of the enterprise? • Limitation on strategic choice imposed by individual and organizational capabilities must be considered. • Important to examine whether in the past the organization has demonstrated the capabilities, competencies, skills, and talents to carry out strategy. 11

Strategy Review, Evaluation, and Control Advantage n Creation or maintenance of competitive advantage Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 12

Strategy Review, Evaluation, and Control Difficulties in Strategy Evaluation 1. 2. 3. Increase in environment’s complexity Difficulty predicting future with accuracy Increasing number of variables Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 13

Strategy Review, Evaluation, and Control Difficulties in Strategy Evaluation 4. 5. 6. Rate of obsolescence of plans Domestic and global events Decreasing time span for planning certainty Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 14

Strategy Review, Evaluation, and Control Strategy Evaluation Should – n n n Initiate managerial questioning Trigger review of objectives & values Stimulate creativity in generating alternatives Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 15

Strategy Review, Evaluation, and Control Review of Underlying Bases of Strategy – n Develop revised EFE Matrix n Develop revised IFE Matrix Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 16

Strategy Review, Evaluation, and Control Review Effectiveness of Strategy – 1. 2. 3. 4. Competitors’ reaction to strategy Competitors’ change in strategy Competitors’ changes in strengths & weaknesses Reasons for competitors’ strategic change Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 17

Strategy Review, Evaluation, and Control Review Effectiveness of Strategy – 5. 6. 7. 8. Reasons for competitors’ successful strategies Competitors’ present market positions & profitability Potential for competitor retaliation Potential for cooperation with competitors Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 18

Strategy Review, Evaluation, and Control Monitor Strengths & Weaknesses; Opportunities & Threats n n Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses? Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 19

Strategy Review, Evaluation, and Control Monitor Strengths & Weaknesses; Opportunities & Threats n n n Are opportunities still opportunities? Other opportunities develop? Are threats still threats? Other threats emerged? Are we vulnerable to hostile takeover? Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 20

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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 Progress toward stated objectives Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 23

Strategy Review, Evaluation, and Control Quantitative Criteria for Strategy Evaluation Financial Ratios n q q q Compare performance over different periods Compare performance to competitors’ Compare performance to industry averages Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 24

Strategy Review, Evaluation, and Control Key Financial Ratios n n Return on investment (ROI) Return on equity (ROE) Profit margin Market share Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 25

Strategy Review, Evaluation, and Control Qualitative Evaluation of Strategy n n n Internal consistency of strategy Consistency with environment Appropriateness in view of resources Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 26

Strategy Review, Evaluation, and Control Qualitative Evaluation of Strategy n n n Acceptable degree of risk Appropriate time frame Workability of the strategy Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 27

Strategy Review, Evaluation, and Control Balanced Scorecard – Evaluate strategies from 4 perspectives: 1. 2. 3. 4. Financial performance Customer knowledge Internal business processes Learning & growth Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 28

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Strategy Review, Evaluation, and Control Characteristics of Strategy Evaluation n n Economical Meaningful Generates useful information Timely information Provides accurate picture of events Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 31

Strategy-Evaluation Assessment Matrix Have major changes occurred in the firm’s internal strategic position? Have major changes occurred in the firm’s external strategic position? No No No Corrective actions Yes Yes Corrective actions Yes No Yes Corrective actions Yes No No Corrective actions No Yes No Corrective actions No No Yes Continue course Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Has the firm progressed satisfactorily toward achieving its stated objectives? Result 32

Strategy Review, Evaluation, and Control Contingency Planning Alternative plans that can be put into effect if certain key events do not occur as expected Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 33

Strategy Review, Evaluation, and Control 21 st Century Challenges in Strategic Management n n n Process is more an “art” than “science” Should strategies be visible or hidden from stakeholders? Should process be more top-down or bottom -up? Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 34

Review n n Why has strategy evaluation become so important in business today? Answer: Strategy evaluation is critically important today because internal and external factors often change quickly and dramatically. Key factors need to be monitored during strategy-evaluation activities. For example, technology is shortening the product life cycle in nearly all industries. The low value of the dollar is opening up many foreign markets to American exports and is fostering foreign acquisition of U. S. assets and companies. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 35

Review n n As owner of a local, independent supermarket, explain how you would evaluate the firm’s strategy. Answer: For small businesses such as a local supermarket, strategy evaluation is less formal than in large organizations. However, both qualitative and quantitative criteria should be used to evaluate the small supermarket’s strategies, because large supermarket stores that offer onestop shopping for virtually everything are proliferating across the country. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 36

Review n n Under what conditions are corrective actions not required in the strategyevaluation process? Answer: The only time corrective actions would not be required in strategy evaluation is when major changes have not occurred in the firm’s internal or external strategic position and the firm is progressing satisfactorily towards achieving its stated objectives. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 37

Review n n Identify the types of organizations that may need to evaluate strategy more frequently than others. Justify your choices. Answer: Organizations that compete in more turbulent industries may need to evaluate strategies more often than others. Several examples of turbulent industries are the computer industry, the communications industry, and the aerospace industry. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 38