2021

MBA – PT
Unit 5

Strategic control and operational Control, Organizational systems and

Techniques of strategic evaluation.

Compiled By
Abhishek Chakraborty
PhD MBA

Abhishek Chakraborty Compiled for MBA - Part time IVth Sem

Strategic evaluation and control can be defined as the process of determining the
effectiveness of a given strategy in achieving the organizational objectives and taking
corrective action wherever required. Operational control or task control is the process of
assuring that specific tasks are carried out effectively and efficiently. The focus of
operational control is on individual tasks or operations.

Strategic evaluation and control can be defined as the process of determining the
effectiveness of a given strategy in achieving the organizational objectives and taking
corrective action wherever required. Actually, it is a system of monitoring, supervision,
and follow-up. The fundamental strategy evaluation and control activities are: reviewing
internal and external factors that are the bases for current strategies, measuring
performance, and taking corrective actions.

According to Wheelen and Hunger ―Strategic evaluation and control is a process in which
corporate activities and performance results are monitored so that actual performance can
be compared with desired performance‖. In the strategy evaluation and control, process
managers determine whether the chosen strategy is achieving the organization’s
objectives. It is the process of determining the effectiveness of a given strategy in
achieving the organizational objectives and taking corrective actions whenever required.
The purpose of the strategic evaluation is to evaluate the effectiveness of strategy in
achieving organizational objectives.

Strategic Control

Strategic control focuses on the dual questions of whether: (1) the strategy is being
implemented as planned; and (2) the results produced by the strategy are those intended.‖
Strategic control is ―the critical evaluation of plans, activities, and results, thereby
providing information for the future action‖. There are four types of strategic control:
premise control, implementation control, strategic surveillance and special alert control

Planning premises/assumptions are established early on in the strategic planning process

and act as a basis for formulating strategies. Premise control has been designed to check
systematically and continuously whether or not the premises set during the planning and
implementation processes are still valid. It involves the checking of environmental
conditions. Premises are primarily concerned with two types of factors:

Environmental factors (for example, inflation, technology, interest rates, regulation, and
demographic/social changes).

Industry factors (for example, competitors, suppliers, substitutes, and barriers to entry).

Abhishek Chakraborty Compiled for MBA - Part time IVth Sem

All premises may not require the same amount of control. Therefore, managers must
select those premises and variables that (a) are likely to change and (b) would a major
impact on the company and its strategy if the did.

The process of strategy evaluation consists of following steps:

1. Fixing Benchmark of Performance:

While fixing the benchmark, strategists encounter questions such as – what benchmarks to
set, how to set them and how to express them. In order to determine the benchmark
performance to be set, it is essential to discover the special requirements for performing
the main task.

The performance indicator that best identify and express the special requirements might
then be determined to be used for evaluation. The organization can use both quantitative
and qualitative criteria for comprehensive assessment of performance.

A quantitative criterion includes determination of net profit, ROI, earning per share, cost
of production, rate of employee turnover etc. Among the Qualitative factors are subjective
evaluation of factors such as – skills and competencies, risk taking potential, flexibility
etc.

2. Measurement of Performance:
The standard performance is a bench mark with which the actual performance is to be
compared. The reporting and communication system help in measuring the performance.
If appropriate means are available for measuring the performance and if the standards are
set in the right manner, strategy evaluation becomes easier.

But various factors such as managers’ contribution are difficult to measure. Similarly
divisional performance is sometimes difficult to measure as compared to individual
performance. Thus, variable objectives must be created against which measurement of
performance can be done.

The measurement must be done at right time else evaluation will not meet its purpose. For
measuring the performance, financial statements like – balance sheet, profit and loss
account must be prepared on an annual basis.

3. Analyzing Variance:
While measuring the actual performance and comparing it with standard performance
there may be variances which must be analyzed. The strategists must mention the degree
of tolerance limits between which the variance between actual and standard performance
may be accepted.

Abhishek Chakraborty Compiled for MBA - Part time IVth Sem

The positive deviation indicates a better performance but it is quite unusual exceeding the
target always. The negative deviation is an issue of concern because it indicates a shortfall
in performance. Thus in this case the strategists must discover the causes of deviation and
must take corrective action to overcome it.

4. Taking Corrective Action:

Once the deviation in performance is identified, it is essential to plan for a corrective
action. If the performance is consistently less than the desired performance, the strategists
must carry a detailed analysis of the factors responsible for such performance. If the
strategists discover that the organizational potential does not match with the performance
requirements, then the standards must be lowered.
Another rare and drastic corrective action is reformulating the strategy which requires
going back to the process of strategic management, reframing of plans according to new
resource allocation trend and consequent means going to the beginning point of strategic
management process

After developing a number of strategic alternatives, they should be evaluated against the
criteria, in order to select the best strategy. The process of evaluation is discussed below.

The steps in the process of strategic evaluation are:

(i) The first step is a strategic analysis in order to gain a clear understanding of the
circumstances affecting the organisation’s strategic situation.

(ii) The second step is to produce a range of strategic options.

(iii) The third step is to develop a basis of comparison. This may be available from the
strategic analysis or may need to be specially developed.

(iv) It is helpful to establish the underlying rationale for each strategy by explaining why
the strategy might succeed. This is often done in qualitative terms and by using techniques
like scenario building product portfolio analysis and the assessment of synergy.

(v) At this stage, the large number of strategic alternatives may be narrowed down, before
a more detailed analysis is undertaken. Strategic alternatives may be ranked, based on
their relative merits and demerits.

(vi) Suitability of each alternative should be tested. There are a number of techniques for
testing. The specific choice of technique will depend upon the circumstances.

(vii) The next stage is assessing the feasibility and acceptability of strategies which appear
reasonably suitable based on the analysis. The choice of the technique should be based on
the circumstances of the company.

Abhishek Chakraborty Compiled for MBA - Part time IVth Sem

(viii) Finally, the company will need some system for selecting future strategies as a result
of these evaluations.

Operational control systems are designed to ensure that day-to-day actions are consistent
with established plans and objectives. It focuses on events in a recent period. Operational
control systems are derived from the requirements of the management control system.
Corrective action is taken where performance does not meet standards. This action may
involve training, motivation, leadership, discipline, or termination.

Evaluation Techniques for Operational Control:

 Value chain analysis: Firms employ value chain analysis to identify and evaluate the
competitive potential of resources and capabilities. By studying their skills relative to
those associated with primary and support activities, firms are able to understand their
cost structure, and identify their activities through which they can create value.
 Quantitative performance measurements: Most firms prepare formal reports of
quantitative performance measurements (such as sales growth, profit growth, economic
value added, ration analysis etc.) that manager’s review at regular intervals. These
measurements are generally linked to the standards set in the first step of the control
process. For example if sales growth is a target, the firm should have a means of
gathering and exporting sales data. If the firm has identified appropriate
measurements, regular review of these reports helps managers stay aware of whether
the firm is doing what it should do. In addition to there, certain qualitative bases
based on intuition, judgement, opinions, or surveys could be used to judge whether the
firm’s performance is on the right track or not.
 Benchmarking: It is a process of learning how other firms do exceptionally high-
quality things. Some approaches to bench marking are simple and straightforward.
For example Xerox Corporation routinely buys copiers made by other firms and takes
them apart to see how they work. This helps the firms to stay abreast of its
competitors’ improvements and changes.
 Key Factor Rating: It is based on a close examination of key factors affecting
performance (financial, marketing, operations and human resource capabilities) and
assessing overall organisational capability based on the collected information.

Abhishek Chakraborty Compiled for MBA - Part time IVth Sem

 Six Steps Of The Strategic Control Process
Whether your organization is using one or all four of the previous techniques of strategic
evaluation and control, each involves six steps:
 Determine what to control.
What are the organization’s goals? What elements directly relate to your mission and
vision? It’s difficult, but you must prioritize what to control because you cannot monitor
and assess every minute factor that might impact your strategy.
 Set standards.
What will you compare performance against? How can managers evaluate past, present,
and future actions? Setting control standards—which can be quantitative or qualitative—
helps determine how you will measure your goals and evaluate progress.
 Measure performance.
Once standards are set, the next step is to measure your performance. Measurement can
then be addressed in monthly or quarterly review meetings. What is actually happening?
Are the standards being met?
 Compare performance.
When compared to the standards or targets, how do the actuals measure up? Competitive
benchmarking can help you determine if any gaps between targets and actuals are normal
for the industry, or are signs of an internal problem.
 Analyze deviations.
Why was performance below standards? In this step, you’ll focus on uncovering what
caused the deviations. Did you set the right standards? Was there an internal issue, such as
a resource shortage, that could be controlled in the future? Or an external, uncontrollable
factor, like an economic collapse?
 Decide if corrective action is needed.

Abhishek Chakraborty Compiled for MBA - Part time IVth Sem

Once you’ve determined why performance deviated from standards, you’ll decide what to
do about it. What actions will correct performance? Do goals need to be adjusted? Or are
there internal shifts you can make to bring performance up to par? Depending on the cause
of each deviation, you’ll either decide to take action to correct performance, revise the
standard, or take no action.

Abhishek Chakraborty Compiled for MBA - Part time IVth Sem