Strategy Evaluation
Session 8
19 November 2011
Civil Service College Dhaka
Presentation by
Dr. Muhammad G. Sarwar
Email: [email protected]
Cell: 01821443741
Strategic Management: course outline
Sl. No.
Topic Title
1
Strategic Management: an overview
2
Strategy Formulation
3
Session no.
1
 Designing Vision and Mission Statements
1
• External Assessment
1
• Internal Assessment
1
• Setting Objectives and Strategic Options
1
• Strategy Analysis and Choice
1
Strategy Execution
1
4
Strategy Evaluation
Total
1
8
2
Contents of 8th Session
•
•
•
•
•
•
Defining strategy evaluation
Nature of strategy evaluation
Process of strategy evaluation
Strategy Evaluation Framework
Contingency planning
A critique of strategic management
3
Defining strategy evaluation
• Strategy evaluation is a systematic review of the
formulated strategies at the execution stages to
take corrective actions and to control the
execution process.
• Strategic evaluation is a critical necessity for
timely interventions as the organization’s external
and internal strategic positions change rapidly
• Three basic activities:
1. Examining the underlying basis of strategy,
2. Comparing expected results with actual results, and
3. Taking corrective actions to ensure that
performance conforms to plans.
4
Nature of strategy evaluation
• Strategy evaluation is a complex undertaking.
It must have both a long-term and short-term
focus.
• Richard Rumelt’s four criteria to evaluate
strategy:
1.
2.
3.
4.
Consistency,
Consonance,
Feasibility, and
Advantage.
5
Rumelt’s four criteria to evaluate strategy
1. Consistency: Organizational conflicts and inter-departmental
bickering may be a sign of strategic inconsistency. A strategy
must not present inconsistent goals and policies.
2. Consonance: Consonance refers to examine sets of trends, as
well as individual trends, in evaluating strategies.
3. Feasibility: The final broad test of strategy is its feasibility, that
is, whether the strategy can be attained within the limits of
physical, human and financial resources of the organization.
4. Advantage: In evaluating strategy, organizations may examine
the nature of positional advantages associated with the
strategy. Competitive advantages normally are the result of
superiority in one of the three areas:
I.
II.
III.
Resources,
Skills, and
Position.
6
Process of strategy evaluation
• Like strategy formulation and execution,
strategy evaluation should also involve
managers and employees of all level as much
as possible.
• Strategy evaluation should be performed on a
continuing basis, rather than at the end of
specified period of time or just after problems
occur.
7
Strategy Evaluation Framework
Examining the underlying bases of strategy
Comparing expected results with actual results
Taking corrective actions to ensure that
performance conforms to plans
8
Strategy Evaluation Assessment Matrix
Changes occurred in
internal strategic
position?
Changes occurred in
external strategic
position?
Satisfactory progress
toward attaining
stated goals?
Action to be taken
No
No
No
Take corrective
actions
Yes
Yes
Yes
Take corrective
actions
Yes
Yes
No
Take corrective
actions
Yes
No
Yes
Take corrective
actions
Yes
No
No
Take corrective
actions
No
Yes
Yes
Take corrective
actions
No
Yes
No
Take corrective
actions
No
No
Yes
Continue existing
9
strategy
Reviewing Underlying Bases of Strategy
Reviewing underlying bases of organizational
strategy is approached by:
– Developing revised EFE Matrix; and
– Developing revised IFE Matrix.
 Revised EFE Matrix should focus on how effective the
organization’s strategies to have been in response to
key opportunities and threats.
Revised IFE Matrix should focus on changes in the
organization’s management, marketing, finance,
production operation, R&D and IMS strengths and
weaknesses.
10
Measuring Organizational Performance
• Measuring organizational performance involves
comparing expected results to actual results,
investigating deviations from plans, evaluating
individual performance, and examining progress
being made toward attaining stated objectives.
• Strategy evaluation is based on both quantitative
and qualitative criteria.
• Selecting exact set of criteria for evaluating strategies
depends on particular organization’s size, industry
environment, strategies, and management
philosophy.
11
Measuring Organizational Performance
(cont.)
• Quantitative criteria commonly used to
evaluate strategies are financial ratios that are
used to make three critical comparisons:
1. Comparing organization’s performance over
different time periods;
2. Comparing organization’s performance to
competitors; and
3. Comparing organization’s performance to
industry average.
12
Measuring Organizational Performance
(cont.)
Key financial ratios that are particularly useful as
criteria for strategy evaluation are:
1.
2.
3.
4.
5.
6.
7.
8.
Return on investment
Return on equity
Profit margin
Market share
Debt to equity
Earnings per share
Sales growth
Asset growth.
13
Measuring Organizational Performance
(cont.)
Potential problems associated with quantitative
Criteria for evaluation of strategies are:
• Most quantitative criteria are geared to annual
objectives rather than long-term objectives.
• Different accounting methods can provide different
results on many quantitative criteria
• Intuitive judgments are almost always involved in
deriving quantitative criteria.
14
Measuring Organizational Performance
(cont.)
•
•
•
•
Qualitative criteria are also important in
evaluating strategies. Underlying declining
performance may be due to:
Employee absenteeism
Employee turnover rate
Low employee satisfaction
Low employee productivity.
15
Measuring Organizational Performance
(cont.)
Seymour Tilles’s six qualitative questions that
are useful in evaluating strategies:
1.
2.
3.
4.
5.
6.
Is the strategy internally consistent?
Is the strategy consistent with the industry environment?
Is the strategy appropriate in view of available resources?
Is the strategy workable?
Does the strategy have an appropriate time frame?
Does the strategy formulated on acceptable degree of risk?
16
Taking Corrective Actions
• Corrective actions requires making changes to
reposition a organization competitive path. Examples
of changes are:
– Altering organization’s structure,
– Replacing key individuals,
– revising a business mission,
– Revising organizational objectives,
– Devising new policies,
– Reallocating resources, etc
• Corrective actions should place an organization in a better
position to capitalize upon internal strengths and external
opportunities.
• Continuous strategy evaluation keeps strategies of an
organization on right path towards an effective strategic
management.
17
Contingency Planning
• Regardless of how carefully strategies are
formulated, unforeseen events like natural disasters,
war, inflation, entry of foreign competitors, etc may
upset the strategy.
• To minimize the negative impact of these unforeseen
events, organizations develop contingency plans.
• Contingency plan is defined as alternative plans that
can be put into effect if unexpected events occur
that upset the organizational strategy.
18
Limitation of Strategic Management
• Strategies are fine if used as a sense of direction, otherwise it
can stifle creativity, especially if it is rigidly enforced.
• Strategies can also cause an organization to define too
narrowly, and may lead to marketing myopia.
• Many theories of strategic management are either too
narrow in focus to build a complete corporate strategy or too
general to be applicable for specific situations.
• Strategic theories suggest that the element of strategic
management i) reaching consensus on corporate objectives,
ii) developing a plan to attain those objectives, and iii)
allocating resources to execute the plan, can be approached
sequentially. But in real world these three elements are
interdependent, thus, should occur simultaneously rather
then sequentially.
19
Limitation of Strategic Management (contd.)
• Strategies are built on assumptions that, in the absence of
perfect knowledge, are never perfectly correct. Thus, strategic
management is necessarily a repetitive learning cycle, rather
than a linear progression towards a clearly defined
destination.
• Strategic management will add little value, indeed may harm
as well, if strategies are designed to be used as a detail blue
print for managers.
• Strategic managers require to think simultaneously about
organization’s desired objectives, best approach for attaining
them and resource requirement for the chosen approach. It
requires a frame of mind that admits no boundary between
means and ends.
20
Recapitulation: Strategic Management
• What is Strategic Management?
• Strategic Management is an art and science of
formulating, implementing and evaluating crossfunctional decisions that enable an organization
to achieve its objectives (Fred R. David, 2008).
• Strategic Management is the approaches to grow,
attract and please clients, compete successfully
and achieve targeted levels of organizational
performance (Arther A. Thompson, 2010)
21
Recapitulation: Strategic Management
(contd.)
• In ultimate analysis Strategic Management is
the Quest for Competitive Advantage.
• 4 most frequently used strategic approaches:
– Striving to be the industry’s low-cost provider
– Outperforming rivals based on quality, diversity,
style, technology, value –added services etc
– Focusing on a narrow market niche
– Developing capability that rivals can’t easily
imitate.
22
Recapitulation: Strategic Management
Model
Strategy
Formulation
Strategy
Evaluation
Strategy
Implementation
23
Recapitulation: Strategy as a Blend of
Proactive Initiatives and Reactive Adjustments
Strategy Evolves over Time
Prior
version
of
strategy
New initiatives
+
ongoing strategy
elements
+
Adaptive reactions
to changing
circumstances
Latest
version
of
strategy
24
Strategic Management 8th Session:
references
• Fred R. David (2008), Strategic
Management: Concepts and Cases, 11th
Edition, Prentice Hall (Chapter 9)
• Arthur A. Thompson, Jr. (2010) Crafting and
Executing Strategy: the quest for
comparative, 16th Edition, McGraw Hill (Chapter
11, 12 & 13)
25
Thanks
26