Chapter 9 Strategy Review Evaluation Control Strategic Management

Chapter Outline The Nature of Strategy Evaluation A Strategy-Evaluation Framework The Balanced Scorecard Copyright

Chapter Outline Published Sources of Strategy Evaluation Information Characteristics of an Effective Evaluation System

Chapter Outline (cont’d) Auditing 21 st Century Challenges in Strategic Management Copyright 2007 Prentice

Strategy Evaluation Organizations are most vulnerable when they are at the peak of their

Strategy Review, Evaluation, & Control -- Strategies become obsolete -- Internal environments are dynamic

Strategy Review, Evaluation, & Control Strategy Evaluation n Vital to the organization’s well-being Alert

Strategy Review, Evaluation, & Control 3 Basic Activities 1. 2. 3. Examine the underlying

Strategy Review, Evaluation, & Control Strategy Evaluation n Complex & sensitive undertaking n Overemphasis

Strategy Review, Evaluation, & Control Appraisal of Strategic Performance n n n Have assets

Strategy Review, Evaluation, & Control Consistency Rumelt’s 4 Criteria Consonance Feasibility Advantage Copyright 2007

Strategy Review, Evaluation, & Control Consistency n Strategy should not present inconsistent goals &

Strategy Review, Evaluation, & Control Consonance n Need for strategies to examine sets of

Strategy Review, Evaluation, & Control Feasibility n Neither overtax resources or create unsolvable sub-problems

Strategy Review, Evaluation, & Control Advantage n Creation or maintenance of competitive advantage Copyright

Strategy Review, Evaluation, & Control Difficulties in Strategy Evaluation 1. 2. 3. Increase in

Strategy Review, Evaluation, & Control Difficulties in Strategy Evaluation 4. 5. 6. Rate of

Strategy Review, Evaluation, & Control Strategy Evaluation Should -n n n Initiate managerial questioning

Strategy Review, Evaluation, & Control Review of Underlying Bases of Strategy -n Develop revised

Strategy Review, Evaluation, & Control Review Effectiveness of Strategy -1. 2. 3. 4. Competitors’

Strategy Review, Evaluation, & Control Review Effectiveness of Strategy -5. 6. 7. 8. Reasons

Strategy Review, Evaluation, & Control Monitor Strengths & Weaknesses; Opportunities & Threats n n

Evaluation Framework I. Review Underlying Bases Differences? Yes NO II. Measure Firm Performance Differences?

Strategy Review, Evaluation, & Control Measuring Organizational Performance n n Compare expected to actual

Strategy Review, Evaluation, & Control Quantitative Criteria for Strategy Evaluation Financial Ratios n q

Strategy Review, Evaluation, & Control Key Financial Ratios n n Return on investment (ROI)

Strategy Review, Evaluation, & Control Key Financial Ratios n n Debt to equity Earnings

Strategy Review, Evaluation, & Control Qualitative Evaluation of Strategy n n n Internal consistency

Strategy Review, Evaluation, & Control Qualitative Evaluation of Strategy n n n Acceptable degree

Strategy Review, Evaluation, & Control Balanced Scorecard -- Evaluate strategies from 4 perspectives: 1.

Balanced Scorecard Area of Objectives Measure or Target Time Expectation Primary Responsibility Customers 1

Strategy Review, Evaluation, & Control Characteristics of Strategy Evaluation n n Economical Meaningful Generates

Strategy-Evaluation Assessment Matrix Have major changes occurred in the firm’s internal strategic position? Have

Strategy Review, Evaluation, & Control Contingency Planning Alternative plans that can be put into

Strategy Review, Evaluation, & Control Auditing n Financial audits determine correspondence between assertions based

Strategy Review, Evaluation, & Control 21 st Century Challenges in Strategic Management n n

For Review (Chapter 9) Key Terms & Concepts Advantage Consonance Auditing Contingency Plans Balanced

For Review (Chapter 9) Key Terms & Concepts Future Shock Revised EFE Matrix Management

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Strategy Review, Evaluation, & Control Strategy Evaluation n 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 Copyright 2007 Prentice Hall 7

Strategy Review, Evaluation, & Control 3 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 2007 Prentice Hall 8

Strategy Review, Evaluation, & Control Appraisal of Strategic Performance n n n Have assets increased Increase in profitability Increase in sales Increase in productivity Profit margins, ROI, & EPS ratios increased Copyright 2007 Prentice Hall 10

Strategy Review, Evaluation, & Control Difficulties in Strategy Evaluation 1. 2. 3. Increase in environment’s complexity Difficulty predicting future with accuracy Increasing number of variables Copyright 2007 Prentice Hall 19

Strategy Review, Evaluation, & Control Difficulties in Strategy Evaluation 4. 5. 6. Rate of obsolescence of plans Domestic and global events Decreasing time span for planning certainty Copyright 2007 Prentice Hall 20

Strategy Review, Evaluation, & Control Strategy Evaluation Should -n n n Initiate managerial questioning Trigger review of objectives & values Stimulate creativity in generating alternatives Copyright 2007 Prentice Hall 21

Strategy Review, Evaluation, & 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 2007 Prentice Hall 23

Strategy Review, Evaluation, & 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 2007 Prentice Hall 24

Strategy Review, Evaluation, & 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 2007 Prentice Hall 25

Strategy Review, Evaluation, & 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 2007 Prentice Hall 26

Evaluation Framework I. Review Underlying Bases Differences? Yes NO II. Measure Firm Performance Differences? III. Take Corrective Actions Yes NO Continue present course Copyright 2007 Prentice Hall 28

Strategy Review, Evaluation, & Control Measuring Organizational Performance n n Compare expected to actual results Investigate deviations from plan Evaluate individual performance Progress toward stated objectives Copyright 2007 Prentice Hall 29

Strategy Review, Evaluation, & 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 2007 Prentice Hall 30

Strategy Review, Evaluation, & Control Qualitative Evaluation of Strategy n n n Internal consistency of strategy Consistency with environment Appropriateness in view of resources Copyright 2007 Prentice Hall 33

Strategy Review, Evaluation, & Control Balanced Scorecard -- Evaluate strategies from 4 perspectives: 1. Financial performance 2. Customer knowledge 3. Internal business processes 4. Learning & growth Copyright 2007 Prentice Hall 35

Balanced Scorecard Area of Objectives Measure or Target Time Expectation Primary Responsibility Customers 1 2 Managers/Employees 1 2 Operations/Processes 1 2 Community/Social Responsibility 1 2 Business Ethics/Natural Environment 1 2 Financial 1 2 Copyright 2007 Prentice Hall 36

Strategy Review, Evaluation, & Control Characteristics of Strategy Evaluation n n Economical Meaningful Generates useful information Timely information Provides accurate picture of events Copyright 2007 Prentice Hall 38

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 2007 Prentice Hall Has the firm progressed satisfactorily toward achieving its stated objectives? Result 39

Strategy Review, Evaluation, & Control Auditing n Financial audits determine correspondence between assertions based on strategic plan & established criteria n Environmental audits insure sound and safe practices Copyright 2007 Prentice Hall 41

Strategy Review, Evaluation, & 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 2007 Prentice Hall 42

For Review (Chapter 9) Key Terms & Concepts Future Shock Revised EFE Matrix Management by Wandering Around Revised IFE Matrix Measuring Organizational Performance Taking Corrective Action Reviewing Underlying Bases of Strategy Copyright 2007 Prentice Hall 44