Saint Louis College

Carlatan, City of San Fernando, La Union

College of Commerce, Secretarial, and Accountancy

Members : Nullar, Kristine Joy C.

Borromeo, Alliah Mae D.
Omo, Arianne Mae R.
Oreal, Everett O.
Orpia, Krystele Anne O.
Pabiona, Rachell V.
Virayo, Angeli Mae N.
Course and Year : BS Accountancy 3
Subject, Time : Strategic Management (CBME2), 1:00pm
Document : Presentation for Final Hand out

STRATEGY REVIEW, EVALUATION AND CONTROL

I. NATURE OF STRATEGY EVALUATION

Timely strategy evaluation is vital to an organization's well-being. It can alert

management to potential or actual problems before the situation becomes critical. It
includes three basic activities:

1. Examining the underlying bases of a firm’s strategy.

This could be approached through the development of a revised EFE Matrix and
IFE Matrix. This is to monitor the strengths, weaknesses, opportunities, and threats.

2. Comparing expected results with actual results.

It is an activity that includes comparing expected results to actual results,

investigation of deviations from plans, evaluation of individual performance, and
examination of progress being made toward meeting stated objectives.

3. Taking corrective actions to ensure that performance conforms to plans.

This is the final strategy evaluation activity wherein it requires making changes
to reposition a firm for the future competitively. This is necessary to keep an
organization on track towards achieving its objectives.

The following activities will be thoroughly discussed under the strategy

evaluation matrix section.
Strategy Evaluation Criteria: Rumelt’s 4 Criteria

Named after its creator, Richard Rumelt, the Rumelt evaluation method
attempts to simplify the process using four criteria to assess whether a strategy is
efficient, effective and aligned with a business’s mission and goals[ CITATION Loh19 \l 1033
].

Figure 1. Rumelt’s 4 Criteria

1. Consistency
The first criterion is to review short-term goals, objectives and policies. This is
to make sure each one supports your long-term business strategy.

2. Consonance
Consonance refers to the need for strategists to examine set of trends, as well
as individual trends in evaluating strategies - adaptive response to external
environment.

3. Feasibility
Strategy is reasonable in terms of the organization’s resources: physical
resources, human resources and financial resources.

4. Advantage
The strategy creates or maintains competitive advantage.
II. STRATEGIC EVALUATION FRAMEWORK

Review Underlying Bases of Strategy

As shown from the figure below, first activity in strategy evaluation is the review
of underlying bases of strategy which includes the preparation of revised External
Factor Evaluation (EFE) matrix and Internal Factor Evaluation (IFE) matrix and
compare it with the existing matrices.
Figure 2. Strategy Evaluation Framework

A revised IFE matrix’ focus is on the changes in the organization’s management,

marketing, finance/accounting, production/operations, research and development
and management information systems strengths and weaknesses. The revised matrix
would evaluate whether their strengths are still their strengths and/or the
organization has developed new strengths, likewise with the weaknesses.
 A revised EFE matrix’ focus is on how effective the firm’s strategies in response
to the key opportunities and threats. This evaluates whether the strategies have
addressed the opportunities and threats or has there been new opportunities or
threats that have emerged.
Reviewing the bases of strategy will give the organization an idea whether there
have been significant changes in the external and internal factors that can prevent it
from achieving long-term and short-term objectives.

Measuring Organizational Performance

As shown in Figure 2, this is the second activity which includes the comparison
of expected and actual progress towards meeting objectives stated by the organization.

Strategy evaluation is based on both quantitative and qualitative criteria.

Depending on a particular organization’s size, industry, strategies, and management
philosophy the exact set of criteria for evaluating strategies are selected[ CITATION
Dav11 \l 1033 ].

According to David (2011), quantitative criteria commonly used to evaluate

strategies are financial ratios, which strategists use to make three critical
comparisons:

1. Comparing the firm’s performance over different time periods.

2. Comparing the firm’s performance to competitors.
3. Comparing the firm’s performance to industry averages.

Some key financial ratios that are particularly useful as criteria for strategy
evaluation are as follows:

a. Return of Investment
It is used to evaluate the efficiency of an investment or to compare the
efficiencies of several different investments.

b. Return on Equity
It is an indicator of how effective management is at using equity
financing to fund operations and grow the company.

c. Profit margin
Profit margin gauges the degree to which a company or a business
activity makes money, essentially by dividing income by revenues.

d. Profit margin
Profit margin gauges the degree to which a company or a business
activity makes money, essentially by dividing income by revenues.

e. Market Share
This metric is used to give a general idea of the size of a company in
relation to its market and its competitors.

f. Debt to equity
 This measures how your organization is funding its growth and how
effectively you are using shareholder investments.

Table 1. A Sample Framework for Measuring Organizational Performance

Actual Expected Corrective
Factors Variance
Result Results Action
Revenues
Profits
ROI
Region 1 Revenues
Region 1 Profits
ROI
Product 1 Revenues
Product 1 Profits
Product 1 ROI

However, the use of quantitative criteria carries with it the following potential
problems: geared to annual objectives, different accounting methods can provide
different results and intuitive judgements are involved. For these and other reasons,
the qualitative criteria in evaluating strategies are also important.

Taking Corrective Actions

This is the final strategy evaluation activity which requires making changes to
competitively reposition a firm for the future. This action is taken when there are
significant differences that occurred based from the strategy evaluation activities one
and two that were done.
Alteration of an organization’s structure, replacement of key individuals, selling
divisions or revising mission are some examples of changes that may be needed. Other
changes could be the establishment or revision of objectives, policies or different
allocation of resources. However, corrective actions do not necessarily mean that
existing strategies should be abandoned or even new strategies must be
formulated[ CITATION Dav11 \l 1033 ].

- Corrective actions place an organization in a better position to capitalize upon

internal strengths, to take advantage of key external opportunities, to avoid,
reduce, or mitigate external threats, and to improve internal weaknesses.

- Corrective actions should have a proper time horizon and an appropriate amount
of risk.

- They should be internally consistent and socially responsible.

- Perhaps most important, corrective actions strengthen an organization’s

competitive position in its basic industry.
III. BALANCED SCORECARD

According to Tarver (2020), a balanced scorecard is a strategic performance

management tool used:
 To identify and improve various internal business functions and their
resulting outcomes;
 To measure and provide feedback to organization;
 To reinforce good behavior in an organization by isolating four separate
areas needed to be analyzed (learning and growth, internal business
processes, customers perspectives, and financial performance);
 To attain objectives, measurements, initiatives, and goals that result from
the four primary functions of a business

The Four Primary Functions of a Business

1. Learning and growth
 Can we continue to improve and create value?
 Analyzed through the investigation of the company’s ability to penetrate
new markets and increase shareholder value through launching of
innovative products, creating more value for customers, and improving
operating efficiencies
2. Internal business processes
 What must we excel at?
 Evaluated by identifying and measuring the company’s core competencies
and the operational processes that greatly affect customer satisfaction,
such as factors that affect cycle time, quality, employee skills and
productivity.
3. Customer perspectives
 How do customers see us?
 Collected to gauge customer satisfaction with:
a. Time: lead time measures time required for the company to meet
customers’ needs
b. Quality: measures defect level of incoming products as perceived
and measured by the customer
c. Performance and service: measures how the company’s products or
services contributing to creating value for its customers
d. Cost
4. Financial performance
 How do we look to shareholders?
 Indicates whether the company’s strategy, implementation, and execution
are contributing to bottom-line improvement.
 Financial goals are typically related with profitability, growth, and
shareholder value
 The Balanced Scorecard analysis requires that firms seek answers to the
following questions and utilize that information, in conjunction with financial
measures, to adequately and more effectively evaluate strategies being implemented:

1. How well is the firm continually improving and creating value along measures
such as innovation, technological leadership, product quality, operational
process efficiencies, and so on?
2. How well is the firm sustaining and even improving upon its core competencies
and competitive advantages?
3. How satisfied are the firm’s customers?

Figure 3. Example of a Balanced Scorecard

COMPONENTS

Objectives Measures Targets Initiatives

Learning Monitor for Number of 12 per  Teach junior staff to
and growth new grants websites week search
searched  Develop resource
sheet
PERSPECTIVES

Internal Increase Number of 10 per  Develop proposal

business applications grants year process
processes for grants applied for
Customers Offer more Number of Increase  Perform review of
analysis analyses by 10% staff skill set
services offered
Financial Increase Current Increase  Improve services
performanc revenue budget by  Be more proactive
e P100,000 with grant seeking

Benefits of the Balanced Scorecard to the Business Enterprise

1. It reminds executives the importance to track quality and service in addition to
tracking financial metrics.
2. A clear, concise way to communicate priorities and goals to employees,
customers, suppliers, and other stakeholders is provided in the strategy map.
3. An explicit linkage from enterprise strategy to day-to-day activities is created.
4. A set of clear metrics that is important to rank projects into priority sequence
and enterprise products by importance is provided to facilitate business
planning.
5. It provides a framework that is helpful in monitoring and measurement of
progress towards strategic objectives.
IV. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM

A strategy-evaluation system to be effective and successful must meet specific

requirements. These requirements are the essential characteristics of an effective
evaluation system. We discuss below the important requirements of an ideal strategy-
evaluation system:

1. Economical

The activities related to evaluation of strategy must be economical. If they

are not cost-effective, wastage would creep up. A balance needs to be
maintained in obtaining information –not too much or not too little. Very often,
too much data and too many controls do more harm than good.

2. Meaningful

The strategy-evaluation activities must be meaningful in the sense that

they have to be related specifically to the objectives against which strategy has
been adopted.

3. Providing timely information

The strategy-evaluation system should be established in such a way that

it can provide information to relevant managers on time. Untimely delivery of
information may mean ‘no information’ as because they cannot be used
whenever they were needed.

4. Providing a true picture of events

The strategy-evaluation activities should be able to provide true picture

of what is happening in the organization regarding the implementation of
strategy.

5. Should not dominate decisions.

It should foster mutual understanding, trust and common sense.

6. Simple, not too cumbersome, and not too restrictive.

Complex systems often confuse people and accomplish little.

V. CONTINGENCY PLANNING

A contingency plan can be referred to as "Plan B" or back up that helps the
organization respond effectively to significant unforeseen events that may or may not
happen. It is also be used as an alternative for action if expected results fail to
materialize.
Planning ways to deal with unfavorable and favorable events before they occur
is a basic premise of good strategic management. Regardless of careful strategy
formulation, implementation, and evaluation, unforeseen circumstances can make
strategies obsolete. To minimize potential threats, developing contingency plans are
added as part of the organizations' strategy evaluation process.
However, the insurance of contingency plans is only required for high-priority
areas. Covering all bases by planning for all possible contingencies is not advisable,
but in any case, contingency plans should be kept as simple as possible.

Some contingency plans commonly established by firms include the following:

1. If a major competitor withdraws from particular markets as intelligence reports
indicate, what actions should our firm take?
2. If our sales objectives are not reached, what actions should our firm take to
avoid profit losses?
3. If demand for our new product exceeds plans, what actions should our firm
take to meet the higher demand?
4. If certain disasters occur—such as loss of computer capabilities; a hostile
takeover attempt; loss of patent protection; or destruction of manufacturing
facilities because of earthquakes, tornadoes or hurricanes—what actions should
our firm take?
5. If a new technological advancement makes our new product obsolete sooner
than expected, what actions should our firm take?

An appropriate contingency plan can be executed in a timely way when

strategy-evaluation activities reveal the need for a significant change quickly.
Contingency plans can promote a strategist's ability to respond promptly to key
changes in an organization's current strategy's internal and external bases.

Effective Contingency Planning Involves These Steps:

1. Identify both beneficial (favorable) and unfavorable events that could possibly
derail the strategy or strategies.
2. Specify trigger points. Estimate when contingent events are likely to occur.
3. Assess the impact of each contingent event. Estimate the potential benefit or harm
of each contingent event.
4. Develop contingency plans. Be sure that the contingency plans are compatible with
current strategy and financially feasible.
5. Assess the counter impact of each contingency plan. That is, estimate how much
each contingency plan will capitalize on or cancel out its associated contingent
event.
6. Determine early warning signals for key contingent events. Monitor the early
warning signals.
7. Develop advanced action plans to take advantage of the available lead time.

Figure 4. Example of a Contingency Plan

VI. REFERENCES

Characteristics of Effective Strategy Evaluation System. (2018, March 28). Retrieved

from My Typings: http://mytypings.com/characteristics-of-effective-strategy-
evaluation-system/
David, F. R. (2011). Strategy. In F. R. David, Strategic Management: Concepts and
Cases (pp. 286-300). New Jersey: Prentice hall.
Debt to Equity Ratio. (2001). Retrieved from Klipfolio:
https://www.klipfolio.com/resources/kpi-examples/financial/debt-to-equity-
ratio
Lohrey, J. (2019, April 29). How to Do a Rumelt Evaluation Method. Retrieved from Biz
Fluent: https://bizfluent.com/how-7662636-do-rumelt-evaluation-method.html
Return on Equity (ROE) Ratio. (2020). Retrieved from My Accounting Course:
https://www.myaccountingcourse.com/financial-ratios/return-on-equity
Segal, T. (2020, September 9). Profit Margin. Retrieved from Investopia:
https://www.investopedia.com/terms/p/profitmargin.asp#:~:text=Profit
%20margin%20gauges%20the%20degree,for%20each%20dollar%20of%20sale.
Spacey, J. (28, February 2019). 3 Examples of Contingency Plan. Retrieved from
Simplicable: https://simplicable.com/new/contingency-plan
Tarver, E. (2020, July 5). Balanced Scorecard. Retrieved from Investopia:
https://www.investopedia.com/terms/b/balancedscorecard.asp