CONCEPT

Strategic evaluation refers to the measurement and testing the efficiency of strategic decisions
and the effective implementation of business strategy to achieve desired business objectives.
According to Pearce and Robinson, strategic control is concerned with tracking a strategy as it is
being implemented, detecting problems or changes in its underlying premises, and making
necessary adjustments.

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.

IMPORTANCE OF STRATEGIC EVALUATION –

 FEEDBACK - The output of strategic evaluation is feedback which provides essential

inputs for the future strategic decisions or plans and polices of the organization.
 REWARD - The strategic evaluation is also related with performance appraisal system
for reward and recognitions which leads the motivation of employees and boosts the
morale of the employees in the organization.
 FUTURE PLANNING - They provide direction. They enable management to make sure
that the organisation is heading in the right direction and that corrective action is taken
where needed.

BARRIERS TO EVALUATION –

 LIMITS TO CONTROL – too much control may result in curbing creativity and
initiative and too little control may result in wastage of resources and no fear of
punishment
 DIFFICULTIES IN MEASUREMENT – measurement techniques should be valid and
reliable without the use of judgment.
  MOTIVATIONAL PROBLEMS – establish direct relationship between performance and
rewards and not associated it with political considerations. Involve outsiders in top
management.

EVALUATION CRITERIA –

QUANTITATIVE FACTORS

Strategists use financial ratios to:

 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

1. ROI = (Gain from investment- cost from investment)/cost of investment

2. ROE = Net income/Shareholder’s Equity

3. ROCE = Net Operating Profit after tax/Capital Employed

4. EVA = NOPAT – Cost of Capital

5. MVA = Company’s market value – Investment Capital

6. Ratio Analysis

QUALITATIVE FACTORS

Rumelt’s 4 Criteria

Consistency - Consistency is required the strategy should be consistent as per the plans and
polices of the management to achieve desired goals

Consonance - analyzing and examining the certain trends of external environment in evaluating
strategies.

Feasibility- strategies should be at par with the available resources and it should not be
overextended
Advantage - Creation or maintenance of competitive advantage and number of opportunities
available in the business environment.

ORGANISATIONAL CONTROL

Depending on time, three types –

1. FEEDBACK/HISTORICAL/POST CONTROL - Feedback involves identifying and

correcting problems in an organization after they occur.  The implication is that the
measured activity has already occurred, and it is impossible to go back and correct
performance to bring it up to standard. Rather, corrections must occur after the act The
basic objective is to help prevent mistakes in the future. hus, testing the validity and its
appropriate standards is helped by post control.
2. CONCURRENT CONTROL - This means that systems are monitored in real-time.
Usually these include quality control standards. This is a focus on ongoing processes, or
things the organization can change in real-time to be sure the objectives can be met.
Corrections and adjustments can be made as and when the need a rises. Such controls
focus on establishing conditions that will make it difficult or impossible for deviations
from norms to occur.
3. FEEDFORWARD CONTROLS - sometimes called preliminary or preventive controls,
attempt to identify and prevent deviations in the standards before they occur.  These
controls are evident in the selection and hiring of new employees. For example, when a
machine is not working properly then the operator will look for some critical components to
check whether the machine is working or not.

DIMENSIONS OF ORGANISATIONAL CONTROL

STRATEGIC CONTROL

Types of Strategic Control There are four types of strategic controls:

1. Premise control - Strategy is built around several assumptions or predictions, which are called
planning premises. Premise control checks systematically and continuously whether the
assumptions on which the strategy is based are still valid. If a vital premise is no longer valid, the
strategy may have to be changed. The premise control is concerned with two types of factors: 1.
Environmental factors 2. Industry factors

Example: A firm may assume massive increase in demand, and embark on an expansion plan. If
suddenly there is recession and demand for the products of the firm fall down, it may have to
change its strategic direction.

2. Strategic surveillance - Strategic surveillance is a broad-based vigilance activity in all daily

operations both inside and outside the organisation. With such vigilance, the events that are
likely to threaten the course of a firm’s strategy can be tracked. Business journals, trade
conferences, conversations, observations etc. are some of the information sources for strategic
surveillance.

3. Special alert control - Sudden, unexpected events can drastically alter the course of the firm’s
strategy. Such events trigger an immediate and intense reconsideration of the firm’s strategy.
Generally, firms develop contingency plans along with crisis teams to respond to such sudden,
unexpected events

Example: The tragic events of September 11, 2001, created havoc in many US companies,
especially the airline and hotel industry.

4. Implementation control - Implementation control is aimed at assessing whether the plans,

programmes and policies are actually guiding the organisation towards the predetermined
objectives or not. Two important methods to achieve implementation control are:

a) Monitoring strategic thrusts - Strategic thrusts are small critical projects that need to be
done if the overall strategy is to be accomplished. They are critical factors in the success
of strategy. One approach is to agree early in the planning process on which thrusts are
critical factors in the success of the strategy.
b) Milestone reviews - These milestones may be fixed on the basis of. (a) Critical events (b)
Major resource allocations (c) Time frames etc. Network controls like PERT/CPM for
project implementation are examples of milestone reviews.

OPERATIONAL CONTROL
Operational control provides post-action evaluation and control over short periods. They involve
systematic evaluation of performance against predetermined objectives

To be effective, operational control systems, involve four steps common to all post-action
controls: 1. Set standards of performance 2. Measure actual performance 3. Identify deviations
from standards set 4. Initiate corrective action

Techniques of Operational Control

 Benchmarking - It is a comparative method where a firm finds the best practices in an

area and then attempts to bring its own performance in that area in line with the best
practice. Best practices are the benchmarks that should be adopted by a firm as the
standards to exercise operational control. n this manner, benchmarking offers firms a
tangible method to evaluate performance.

 Balanced Score Card Technique

 Key Factor Rating - close examination of key factors affecting performance (financial,
marketing, operations and human resource capabilities) and assessing overall
organisational capability based on the collected information.
  SWOT Analysis

 Gap Analysis – gap between firm’s current position and desired position for variety of
aspects like profit and production to marketing, R&D and MIS.

 PEST Analysis

 Value Chain Analysis

 VRIO Framework

 Network techniques: Network techniques such as Programme Evaluation and Review

Technique (PERT), Critical Path Method (CPM), and their variants, are used extensively
for the operational controls of scheduling and resource allocation in projects.

CONTROL PROCESS

1. ESTABLISHMENT OF STANDARDS –
Quantitative - expressed in physical or monetary terms in respect of production,
marketing, finance etc. They may relate to: 1. Time standards 2. Cost standards 3.
Productivity standards 4. Revenue standards
Qualitative – Goodwill, Employee morale, Industrial Relations
2. Measurement of Performance – technique
3. Identifying Deviations - Broadly, the following three situations may arise: 1. The actual
performance matches the standards 2. The actual performance exceeds the standards 3.
The actual performance falls short of the standards
The analysis of variance is generally presented in a format called ‘variance chart’ and
submitted to the top management for their evaluation.
4. Taking Corrective Action - There are three courses for corrective action: 1. Checking
performance 2. Checking standards 3. Reformulating strategies, plans and objectives.

CHARACTERISTICS OF EFFECTIVE CONTROL SYSTEM

1. SIMPLE - not too comprehensive and not too restrictive. Complex systems often confuse
people and accomplish little.
2. SUITABLE - to the needs of the organisation. They must conform to the nature and
needs of the job and area to be controlled.
3. SELECTIVE - should focus on selective criteria like key important factors which are
critical to performance. Insignificant deviations need not be focused.
4. SOUND AND ECONOMICAL - Too many controls can do more harm than good.
5. FLEXIBLE - to take care of changing circumstances.
6. FORWARD LOOKING
7. REASONABLE - Control standards must be attainable.
8. OBJECTIVE - unbiased and impersonal. It should not be subjective and arbitrary.
Otherwise, people may resent them.
9. RESPONSIBILITY FOR FAILURES - must fix responsibility for failure. Detecting
deviations would be meaningless unless one knows where they are occurring and who is
responsible for them.
10. ACCEPTABLE - Controls will not work unless they are acceptable to those who apply
them.