Chapter 8.

Strategy Review, Evaluation & Control

Ch 8-1
Asres Abitie (PhD)
 Chapter Outline

The Nature of Strategy Evaluation

A Strategy-Evaluation Framework

The Balanced Scorecard

The McKinsey 7’s Model

Ch 8-2
Asres Abitie (PhD)
 Chapter Outline
Published Sources of Strategy
Evaluation Information

Characteristics of an Effective
Evaluation System

Contingency Planning

Ch 8-3
Asres Abitie (PhD)
 Chapter Outline

Auditing

21st Century Challenges in

Strategic Management

Ch 8-4
Asres Abitie (PhD)
 Strategy Evaluation

Organizations are most vulnerable when

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

Ch 8-5
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

-- Strategies become obsolete

-- Internal environments are dynamic
-- External environments are dynamic

Ch 8-6
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Strategy Evaluation

 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.

Ch 8-7
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

3 Basic Activities

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

2. Compare expected to actual results
3. Identify corrective actions to ensure that
performance conforms to plans.

Ch 8-8
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Strategy Evaluation

 Complex & sensitive undertaking

 Overemphasis can be costly & counterproductive

Ch 8-9
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Appraisal of Strategic Performance

 Have assets increased

 Increase in profitability
 Increase in sales
 Increase in productivity
 Profit margins, ROI & EPS ratios increased

Ch 8-10
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage

Ch 8-11
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Consistency

 Strategy should not present inconsistent

goals & policies

Ch 8-12
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage

Ch 8-13
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Consonance

 Need for strategies to examine sets of trends

Ch 8-14
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage

Ch 8-15
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Feasibility

 Neither overtax resources or create

unsolvable sub-problems

Ch 8-16
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage

Ch 8-17
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Advantage

 Creation or maintenance of competitive

advantage

Ch 8-18
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Difficulties in Strategy Evaluation

1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy
3. Increasing number of variables

Ch 8-19
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Difficulties in Strategy Evaluation

4. Rate of obsolescence of plans

5. Domestic and global events
6. Decreasing time span for planning certainty

Ch 8-20
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Strategy Evaluation Should --

 Initiate managerial questioning

 Trigger review of objectives & values
 Stimulate creativity in generating
alternatives

Ch 8-21
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Review of Underlying Bases of Strategy --

 Develop revised EFE Matrix

 Develop revised IFE Matrix

Ch 8-22
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Review Effectiveness of Strategy --

1. Competitors’ reaction to strategy

2. Competitors’ change in strategy
3. Competitors’ changes in strengths &
weaknesses
4. Reasons for competitors’ strategic change

Ch 8-23
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Review Effectiveness of Strategy --

5. Reasons for competitors’ successful

strategies
6. Competitors’ present market positions &
profitability
7. Potential for competitor retaliation
8. Potential for cooperation with competitors

Ch 8-24
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Monitor Strengths & Weaknesses;

Opportunities & Threats

 Are strengths still strengths?

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

Ch 8-25
Asres Abitie (PhD)
 Strategy Review, Evaluation & 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?

Ch 8-26
Asres Abitie (PhD)
 Evaluation Framework
I. Review Underlying Bases

Differences? Yes

NO
III.
Take
II. Measure Firm Performance Corrective
Actions
Differences? Yes

NO

Continue Ch 8-27
Asres Abitiepresent
(PhD) course
 Strategy Review, Evaluation & Control

Measuring Organizational Performance

 Compare expected to actual results

 Investigate deviations from plan
 Evaluate individual performance
 Progress toward stated objectives

Ch 8-28
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Quantitative Criteria for Strategy Evaluation

 Financial Ratios
 Compare performance over different periods
 Compare performance to competitors
 Compare performance to industry averages

Ch 8-29
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Key Financial Ratios:

 Return on investment (ROI)

 Return on equity (ROE)
 Profit margin
 Market Share

Ch 8-30
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Key Financial Ratios:

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

Ch 8-31
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Qualitative Evaluation of Strategy

 Internal consistency of strategy

 Consistency with environment
 Appropriateness in view of resources

Ch 8-32
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Qualitative Evaluation of Strategy

 Acceptable degree of risk

 Appropriate time frame
 Workability of the strategy

Ch 8-33
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Balanced Scorecard

-- Evaluate strategies from 4 perspectives:

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

Ch 8-34
Asres Abitie (PhD)
 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

Ch 8-35
Asres Abitie (PhD)
 McKinsey 7’s Model

Ch 8-36
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Characteristics of Strategy Evaluation:

 Economical
 Meaningful
 Generates useful information
 Timely information
 Provides accurate picture of events

Ch 8-37
Asres Abitie (PhD)
 Strategy-Evaluation Assessment Matrix
Have major Have major
changes changes Has the firm
occurred in the occurred in the progressed
firm’s internal firm’s external satisfactorily toward
strategic strategic achieving its stated
position? position? objectives? Result
No No No Corrective actions
Yes Yes Yes Corrective actions
Yes Yes No Corrective actions
Yes No Yes Corrective actions
Yes No No Corrective actions
No Yes Yes Corrective actions
No Yes No Corrective actions
No No Yes Continue course

Asres Abitie (PhD)

Ch 8-38
 Strategy Review, Evaluation & Control

Contingency Planning

Alternative plans that can be put into effect if

certain key events do not occur as expected.

Ch 8-39
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

Auditing

 Financial audits determine correspondence

between assertions based on strategic plan
& established criteria

 Environmental audits insure sound and safe

practices

Ch 8-40
Asres Abitie (PhD)
 Strategy Review, Evaluation & Control

21st Century Challenges in Strategic Management

 Process is more an “art” than “science”

 Should strategies be visible or hidden from
stakeholders
 Should process be more top-down or bottom
up

Ch 8-41
Asres Abitie (PhD)
 For Review (Chapter 8)

Key Terms & Concepts

Advantage Consonance

Auditing Contingency Plans

Balanced Score Card Corporate Agility

Consistency Feasibility

Ch 8-42
Asres Abitie (PhD)
 For Review (Chapter 8)

Key Terms & Concepts

Future Shock Revised EFE Matrix

Management by Wandering Revised IFE Matrix

Around

Measuring
Taking Corrective Action
Organizational Performance

Reviewing Underlying
Bases of Strategy McKinsey 7S’s Model

Ch 8-43
Asres Abitie (PhD)