Chapter 9

Strategy Review, Evaluation, and Control

Strategic Management:
Concepts & Cases
13th Edition
Fred David

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Publishing as Prentice Hall

Ch 9 -1

Strategy Evaluation

Organizations are most vulnerable when

they are at the peak of their success.
R. T. Lenz

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Publishing as Prentice Hall

Ch 9 -2

Strategy Review, Evaluation,

and Control

Strategies become obsolete

Internal environments are dynamic
External environments are dynamic

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Publishing as Prentice Hall

Ch 9 -3

Strategy Review, Evaluation,

and Control
Strategy Evaluation

Vital to the organizations well-being

Alert management to potential/actual problems
in a timely fashion
Erroneous strategic decisions can have severe
negative impact on organizations

Copyright 2011 Pearson Education, Inc.

Publishing as Prentice Hall

Ch 9 -4

Strategy Review, Evaluation,

and Control
Three Basic Activities
1.
2.
3.

Examine the underlying bases of a firms

strategy
Compare expected to actual results
Take corrective actions to ensure that
performance conforms to plans

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Publishing as Prentice Hall

Ch 9 -5

Strategy Review, Evaluation,

and Control
Strategy Evaluation

Complex & sensitive undertaking

Overemphasis can be expensive &

counterproductive

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Publishing as Prentice Hall

Ch 9 -6

Strategy Review, Evaluation,

and Control
Appraisal of Strategic Performance

Increase in assets?
Increase in profitability?
Increase in sales?
Increase in productivity?
Increases in profit margins, ROI, and EPS
ratios?
Copyright 2011 Pearson Education, Inc.
Publishing as Prentice Hall

Ch 9 -7

Strategy Review, Evaluation,

and Control
Consistency

Rumelts
4 Criteria

Consonance
Feasibility
Advantage
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Ch 9 -8

Strategy Review, Evaluation,

and Control

Consistency

Strategy should not present inconsistent

goals and policies

Copyright 2011 Pearson Education, Inc.

Publishing as Prentice Hall

Ch 9 -9

Strategy Review, Evaluation,

and Control
Consistency

Rumelts
4 Criteria

Consonance
Feasibility
Advantage
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Ch 9 -10

Strategy Review, Evaluation,

and Control

Consonance

Need for strategists to examine sets of

trends, as well as individual trends

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Ch 9 -11

Strategy Review, Evaluation,

and Control
Consistency

Rumelts
4 Criteria

Consonance
Feasibility
Advantage
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Publishing as Prentice Hall

Ch 9 -12

Strategy Review, Evaluation,

and Control

Feasibility

Neither overtax resources nor create

unsolvable subproblems

Copyright 2011 Pearson Education, Inc.

Publishing as Prentice Hall

Ch 9 -13

Strategy Review, Evaluation,

and Control
Consistency

Rumelts
4 Criteria

Consonance
Feasibility
Advantage
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Publishing as Prentice Hall

Ch 9 -14

Strategy Review, Evaluation,

and Control

Advantage

Creation or maintenance of competitive

advantage

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Ch 9 -15

Strategy Review, Evaluation,

and Control
Difficulties in Strategy Evaluation
1.
2.
3.

Increase in environments complexity

Difficulty predicting future with accuracy
Increasing number of variables

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Ch 9 -16

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 2011 Pearson Education, Inc.

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Ch 9 -17

Strategy Review, Evaluation,

and Control
Strategy Evaluation Should

Initiate managerial questioning of

expectations and assumptions
Trigger a review of objectives & values
Stimulate creativity in generating
alternatives and formulating criteria for
evaluation
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Ch 9 -18

Strategy Review, Evaluation,

and Control
Review of Underlying Bases of Strategy

Develop revised IFE Matrix

Develop revised EFE Matrix

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Ch 9 -19

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
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Ch 9 -20

Strategy Review, Evaluation,

and Control
Review Effectiveness of Strategy
5.

6.

7.
8.

Reasons for competitors successful

strategies
Competitors satisfaction with present
market positions & profitability
Potential for competitor retaliation
Potential for cooperation with competitors
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Ch 9 -21

Strategy Review, Evaluation,

and Control
Monitor Strengths & Weaknesses;
Opportunities & Threats

Are strengths still strengths?

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

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Ch 9 -22

Strategy Review, Evaluation,

and Control
Monitor Strengths & Weaknesses;
Opportunities & Threats

Are opportunities still opportunities?

Other opportunities develop?
Are threats still threats?
Other threats emerged?
Are we vulnerable to hostile takeover?
Copyright 2011 Pearson Education, Inc.
Publishing as Prentice Hall

Ch 9 -23

The BCG Matrix is a concept developed by the

Boston Consulting Group (BCG) that evaluates
SBUs with respect to the dimensions of business
growth rate and market share. Business growth
rate pertains to how rapidly the entire industry is
increasing. Market Share defines whether an
SBU has a larger or smaller share of the market
than its competitors.

The BCG Matrix

Low

HIgh

Anticipated Growth Rate

Low

High

Market Share

Stars

Question
Marks

Cash
Cows

Dogs

The Star has a large share in a rapidly growing industry.

The star may provide additional growth potential and
profits can be plowed back into the business as
investment for future growth and profits. The star is
visible and attractive and will generate profits and a
positive cash flow even as the industry matures and
market growth slows down.
The cash cow exists in a mature, slow-growth industry
but is a dominant business in the industry with a large
market share. Because heavy investments in advertising
and plant expansion are no longer required, the
corporation earns a positive cash flow. It can milk the
cash cow to invest in other, riskier businesses.

The question mark exists in a new, rapidly growing

industry but has only a small market share. The question
mark business is risky; it could become a star or it could
fail. The corporation can invest in question mark
business the cash earned from cash cows with the goal
of nurturing them into future stars.
The dog is a poor performer. It has only a small market
share in a slow-growth industry. The dog provides little
profit for the corporation and may be targeted for
divestment or liquidation if turnaround is not possible or
fails.

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Publishing as Prentice Hall

Ch 9 -28

Copyright 2011 Pearson Education, Inc.

Publishing as Prentice Hall

Ch 9 -29

Strategy Review, Evaluation,

and Control
Measuring Organizational Performance

Compare expected to actual results

Investigate deviations from plan
Evaluate individual performance
Examine progress toward stated objectives

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Ch 9 -30

Strategy Review, Evaluation,

and Control
Quantitative Criteria for Strategy Evaluation

Financial Ratios

Compare performance over different periods

Compare performance to competitors
Compare performance to industry averages

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Ch 9 -31

Strategy Review, Evaluation, and Control

Key Financial Ratios

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

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

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Ch 9 -32

Strategy Review, Evaluation,

and Control
Qualitative Evaluation of Strategy

Human Resource Factors

Marketing
Finance/Accounting
R&D
Management Information Systems
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Ch 9 -33

Copyright 2011 Pearson Education, Inc.

Publishing as Prentice Hall

Ch 9 -34

Strategy Review, Evaluation,

and Control
Balanced Scorecard

Evaluate strategies from 4 perspectives:

1. Financial performance
2. Customer knowledge
3. Internal business processes
4. Learning & growth

Copyright 2011 Pearson Education, Inc.

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Ch 9 -35

Copyright 2011 Pearson Education, Inc.

Publishing as Prentice Hall

Ch 9 -36

Strategy Review, Evaluation,

and Control
Characteristics of an Effective Evaluation System

Economical
Meaningful
Generates useful information
Timely information
Provides accurate picture of events
Copyright 2011 Pearson Education, Inc.
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Ch 9 -37

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 2011 Pearson Education, Inc.

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Ch 9 -38

Strategy Review, Evaluation, and Control

Auditing
A systematic process of objectively
obtaining and evaluating evidence
regarding assertions about economic
actions and events to ascertain the
degree of correspondence between these
assertions and established criteria, and
communicating the results to interested
users
Copyright 2011 Pearson Education, Inc.
Publishing as Prentice Hall

Ch 9 -39

Strategy Review, Evaluation, and Control

21st Century Challenges in
Strategic Management

Should the process be more an art or a

science?
Should strategies be visible or hidden from
stakeholders?
Should process be more top-down or
bottom-up?
Copyright 2011 Pearson Education, Inc.
Publishing as Prentice Hall

Ch 9 -40