MODULE II

UNIT - 8
 Introduction to Strategy Evaluation and Control
 Strategic Control Vs Operational Control
 Strategic Evaluation – Participants, Barriers, and requirement.
 Techniques of Strategic evaluation and control
 The shared value creation framework
 Relationship between Strategy and Business ethic

The Nature of Strategy Evaluation1

The strategic-management process results in decisions that can have

significant, long lasting consequences.

Erroneous strategic decisions can inflict severe penalties and can be

exceedingly difficult, if not impossible, to reverse.

Most strategists agree, therefore, that strategy evaluation is vital to an

organization’s well-being; timely evaluations can alert management to problems

or potential problems before a situation becomes critical.

Strategy evaluation includes three basic activities:

(1) examining the underlying bases of a firm’s strategy,

(2) comparing expected results with actual results, and

(3) taking corrective actions to ensure that performance conforms to plans.

1 Adopted from Strategic management: concepts and cases by Fred R. David.(13th ed).
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The strategy-evaluation stage of the strategic-management process is
illustrated in below given figure.

A Comprehensive Strategic Management Model

Some Important aspects of Strategy evaluation

 Adequate and timely feedback is the cornerstone of effective strategy
evaluation.
 Strategy evaluation can be no better than the information on which it is
based.
 Strategy evaluation can be a complex and sensitive undertaking.
 In many organizations, strategy evaluation is simply an appraisal of how
well an organization has performed.
o But this type of reasoning can be misleading because strategy
evaluation must have both a long-run and short-run focus. Strategies
often do not affect short-term operating results until it is too late
to make needed changes.
 Strategy evaluation is important because organizations face dynamic
environments in which key external and internal factors often change
quickly and dramatically. Success today is no guarantee of success
tomorrow!
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The Richard Rumelt Model
It is impossible to demonstrate conclusively that a particular strategy is
optimal or even to guarantee that it will work. One can, however, evaluate it for
critical flaws.
Richard Rumelt offered four criteria that could be used to evaluate a strategy:
consistency, consonance, feasibility, and advantage.
 Consonance and advantage are mostly based on a firm’s external
assessment.
 Consistency and feasibility are largely based on an internal assessment.

Consistency
A strategy should not present inconsistent goals and policies. Organizational conflict and
interdepartmental bickering are often symptoms of managerial disorder, but these problems
may also be a sign of strategic inconsistency. Three guidelines help determine if
organizational problems are due to inconsistencies in strategy:
a. If managerial problems continue despite changes in personnel and if they tend to be
issue-based rather than people-based, then strategies may be inconsistent.
b. If success for one organizational department means, or is interpreted to mean,
failure for another department, then strategies may be inconsistent.
c. If policy problems and issues continue to be brought to the top for resolution, then
strategies may be inconsistent.

Consonance
Consonance refers to the need for strategists to examine sets of trends, as well as
individual trends, in evaluating strategies. A strategy must represent an adaptive response to
the external environment and to the critical changes occurring within it. One difficulty in
matching a firm’s key internal and external factors in the formulation of strategy is that
most trends are the result of interactions among other trends.

Feasibility
A strategy must neither overtax available resources nor create unsolvable sub problems.
The final broad test of strategy is its feasibility; that is, can the strategy be attempted
within the physical, human, and financial resources of the enterprise? The financial
resources of a business are the easiest to quantify and are normally the first limitation
against which strategy is evaluated.
A less quantifiable, but actually more rigid, limitation on strategic choice is that imposed by
individual and organizational capabilities. In evaluating a strategy, it is important to examine

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whether an organization has demonstrated in the past that it possesses the abilities,
competencies, skills, and talents needed to carry out a given strategy.

Advantage
A strategy must provide for the creation and/or maintenance of a competitive advantage in
a selected area of activity. Competitive advantages normally are the result of superiority in
one of three areas:
1. resources,
2. skills, or
3. position.
The idea that the positioning of one’s resources can enhance their combined effectiveness is
familiar to military theorists, chess players, and diplomats.
Position can also play a crucial role in an organization’s strategy. Positional advantage tends to
be self-sustaining as long as the key internal and environmental factors that underlie it
remain stable. This is why entrenched firms can be almost impossible to unseat, even if their
raw skill levels are only average. Although not all positional advantages are associated with
size, it is true that larger organizations tend to operate in markets and use procedures that
turn their size into advantage, while smaller firms seek product/market positions that
exploit other types of advantage. The principal characteristic of good position is that it
permits the firm to obtain advantage from policies that would not similarly benefit rivals
without the same position. Therefore, in evaluating strategy, organizations should examine
the nature of positional advantages associated with a given strategy.

Barriers
Strategy evaluation is becoming increasingly difficult with the passage of time, for
many reasons.
• Domestic and world economies were more stable in years past,
• product life cycles were longer,
• product development cycles were longer,
• technological advancement was slower,
• change occurred less frequently,
• there were fewer competitors,
• foreign companies were weak, and
• there were more regulated industries.

Other reasons why strategy evaluation is more difficult today include the following
trends:
1. A dramatic increase in the environment’s complexity
2. The increasing difficulty of predicting the future with accuracy

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 3. The increasing number of variables
4. The rapid rate of obsolescence of even the best plans
5. The increase in the number of both domestic and world events affecting organizations
6. The decreasing time span for which planning can be done with any degree of certainty
A fundamental problem facing managers today is how to control employees effectively
in light of modern organizational demands for greater flexibility, innovation, creativity,
and initiative from employees.

A Strategy-Evaluation Framework
Table given below, summarizes strategy-evaluation activities in terms of key
questions that should be addressed, alternative answers to those
questions, and appropriate actions for an organization to take. Notice that
corrective actions are almost always needed except when
(1) external and internal factors have not significantly changed and
(2) the firm is progressing satisfactorily toward achieving stated
objectives.
Relationships among strategy-evaluation activities are illustrated in the
subsequent Figure.

A Strategy-Evaluation Assessment Matrix

Reviewing Bases of Strategy

As shown in the Figure, reviewing the underlying bases of an organization’s
strategy could be approached by developing a revised EFE Matrix and IFE
Matrix.

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• A revised IFE Matrix should focus on changes in the organization’s
management, marketing, finance/accounting, production/operations, R&D,
and management information systems strengths and weaknesses.
• A revised EFE Matrix should indicate how effective a firm’s strategies
have been in response to key opportunities and threats.

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Strategic control Vs Operational Control
The concept of Control
1. Feedforward Control: In feedforward control, inputs are evaluated and
necessary corrective steps are taken prior to the completion of a
particular sequence of operation.
2. Steering Control: In steering control, action is evaluated and corrective
actions are put in force, while the operation is undertaken. This is also
called concurrent, or real-time control.
3. Feedback control: In feedback control, the results of the action as
assessed and corrective steps are taken after the operation is complete
so that desired results are produced in the future.

Definition of Strategic Control

Strategic Control is a type of organizational control, which ensures that the
organization is functioning in the right direction. It is better known as steering
control. Its objective is to attain the results which are established at the time
of formulation of the strategy. Thus, it helps the top management to analyse
whether the strategic management process is appropriate, compatible, and
performing as desired.
It ascertains whether the opted strategy is proceeding in the intended
direction and bringing out the desired results and taking necessary steps to
avoid deviations whenever required. It evaluates the extent to which the firm
concentrates on the need to implement strategies.

What Strategic Control does?

• Checks performance of strategic decisions
• Ensures optimum implementation of plans and policies
• Identifies problems
• Makes changes in the established standards (if possible and required)

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 • Takes corrective actions if required for the desired objective

Definition of Operational Control

The process of ensuring that there is an effective and efficient performance
of the task is called operational control. It imposes post-action evaluation and
control, for a short period, which encompasses evaluation of performance
against the objectives set by the firm.
Its aim is to ensure optimum allocation and utilization of the organization’s
resources by way of performance evaluation of the organizational units like
divisions, departments, or SBUs in order to ascertain their contribution to the
achievement of organizational objectives.
That is why the evaluation techniques depend on internal analysis and not on
environmental monitoring.

Steps in operational control

• Set performance standards
• Measure actual performance
• Identify deviations (if any)
• Introduce corrective actions

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Differentiating strategic control and operational control
• Strategic Control is all about following the trail or movements of the
strategy as it is implemented in order to identify the areas of issue or
potential areas of the issue so that necessary adjustments can be made.
• Strategic Control focuses on attaining future goals and not past
performance. The main idea behind that is to look for room for
improvements and corrections so as to lead the organization in the
desired direction, rather than pointing out mistakes or errors that took
place in the past.

On the other hand,

• operational control is a subset of management control whose aim is to
regularly monitor and check the routine business operations so as to
confirm the consistency and quality in business activities.
• operational control system is designed in a manner that confirms – the
day-to-day activities of the business are directed towards the
achievement of predetermined goals and objectives.

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Comparison Chart

BASIS FOR
STRATEGIC CONTROL OPERATIONAL CONTROL
COMPARISON

Meaning Strategic Control implies a Operational Control systems

process of controlling the
formulation and
implementation of an
organization's plan and
strategy.
are framed to make certain
that the routine operations
are in line with the company's
plans and objectives.

Based on Feedforward and Steering Feedback Control

Control

Exercised by Top-level executives Functional level executives

Primary Guiding the future direction Action control

concern of the company

Determines Is the company moving in How efficiently the company

the right direction? is performing?

Factors External environment Internal Environment

Affecting

Strives for Effectiveness Efficiency

Time Horizon Long Term Short Term

Focuses on Monitoring and evaluation of Individual tasks and

the strategic management operations
process.

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