Preview Case

APOLLO HOSPITALS TAKES specialities Apollo Hospitals Enterprise Ltd. concen-

HOWAPC trates on cardiology, oncology, neurology, critical care,
EVALUATION
OF STRATEGIC
CARE OF RE orthopaedics, and transplants. Several business mod-
A N D C O N T R O L ? "

els are used simultaneously in line with whatever op-

Apollo HHospitals nterprise I.td. (AHEL) has the portunity for

arises establishing strategic alliances with
into Tier
nction of being the first and the largest c o r prospective partners. For instance, expansion
the
d i s t i n c t i o n

hospital
etwork in India modelled on the II and Tier IIl cities in India is envisaged through
rate
REACH network of 12 hospitals expected
to come up
hospital Corporation of America-the world's larg-
hrivate
healthcare providers. Pioneered by Dr. by 2018.
est
it was foundcd in 1979 and in- control appears to be centralised
Reddy,
athap C. Re The strategic
team led by Dr. Red-
public limited company in 1983. Its'
las a in the executive management
tactical actions of AHEL reported
orporated

is Rs. 4,584 crore and net profit

is
2013-14 turnover dy. From the that the growth
crore. There
are 50 hospitals, 1,632 pharma- frequently in the media it emerged
R 317
charted in the initial years
was based more
care and diagnostic clinics,
cies, over T00 primary trajectory
10 countries within the and business opportunism
units across on entrepreneurial teats
15telemedicine A plethora of busi-
network in 2015. It also offers rather than conscious planning
Apollo hospitals of
used eclectically created a hazy picrure
Vast
to hcalth insurance, global project ness models
services related seemed to
and academics and research institu the AHELs strategic intent. Lately things
Consultancy, clearer Vision and mission and
with
in global clinical trials, epidemiological
a
ions engaged have improved
rescarch. focus defined range of activities.
studies, stem cell and genetic on
with a tume ho-
Ltd. is basically a
Long-term sustainability
measures

Apollo Hospitals Enterprise with are set in terms of revenue growth,

and tamily-managed organisation rizon of 15 years
fanily-owned and arnor-
his four
Dr. Reddy as the founder chairman and earnings before interest, tax, depreciation,
shareholder
who are holding the positions of execu tisation (EBITDA), profitability, gearing,
daughters and pharmacy growth. Short-
and joint managing returns, and hospital
vice-chairpersons, managing
time horizon of 5
tIve
with
is a visionary medical
a
directors (MDs). Dr. Reddy
term operating parameters
the drivng force
behind the
years are set in terms of volume growth (in-patient
doctor-entrepreneur and
beds and occu-
network. Professionals manage
the
admissions), bed utilisation (operating
Apollo hospitals turnaround and utilisation (aver-
individual hospitals. pancy rates), patient

ne corpOrate strategy
is ot expansion through age length of stay in days), realisation per bed (average
and SAP, and marure stores
well as inorganic routes to growth through revenue per occupied bed)
OTganic as
diversification and
international-
EBITDA marg1ns.
Vertucalntcgtaion, Ltd. has risk man-

Saton through acquisiúon. joint

ventures and strategiC Apollo Hospitals Enterprise a

of risk identification,
is of differentiation agement model consisting
allances. The business strategy
and treatment, and reporting, A risk
healthcare at a premum price.
neasurement
DASCd on high-quaiity committee headed by managing director
medical tour- management
Pocus is reated ugh niches such as
to the board
tor tor- risk management and reports
healthcare faciliues oversees
Offerung specialised the cxecutive management team
(NRIs) particularly of directors through
Sets and non-resident Indians are: compet1tive intensity
education Typical events monitored
m the US and global nursing staffing by to the market, pace of obsolescence
tocus on medica and new entrants
and training ot nurses. In terms of
 netwwwh, Ar AI
Ot
technology and methols, intlationar Halpart o f a hospital
treatment epaments are coistatly viewed to wleily van
pressures and other factors affecting demand tor n
es that impact aelverely on patient cate
products, increasing contsof materials, trarspot feedhuctty
in theclinical delivery through patient
storage; labour shortages and attrition of key ntaff cal audit and review,
afdd trackingof iniealo
ileomea
including medical professionals; and inereAseed cen
A Apart of the anmual clinlcal performance.eview
pliance and regulatory challenges
The Apollo ospitala lnterprlse I4d partnered
performance evaluation nodel at
A Wrledwile t neaure CUstener alele
Called the Apollo clinical cxcellenee mel, te allu lerye
NCE@25 is a balanecd seorccard tocusinpg N elinie al
ustomes,
excellence that inchudes evidence based quality care, cstiong for mprovements, kets,
And nenior colleagues' fecdback constiute arn npor
safe patient environnnent, and functional cflicicncy
tant component of petformance appraisal, doneeves
is implemented acro8s the ncrwork. An overmiglht
6 monthn. Standard osperating, proCedures for heat
committee reviews the monthly summary ad actkn
UCh AN emetgency, laboratory, toutie
a r e proceNNCN
plans are drawn for improving, scores n kW r g
are establinhed, Rewa
parameters. Quartcrly, six monthly and anmal trcnd alninions, atmd regstratiots
omonctlHry iiceniVes, recogi
are identificd for csuring co1sisteney in perlorni nystem conusttng
and counsellirng areavailable
ance. The key perfornance arcas iulentificd are elinica tion, staff support,
Concern for coninous imrovement is reflect
professionals, support personnel,cquipmcnt, aticnt, cd in allocation of rCources, scttiny up of systems,
and environment of care. The rating of the quality
formal daily mectingN with managers and open door
and standards of hospitals within the Apollo net
Paticnt natislaction surveys,
work are done taking into consideration paramcters policy of comnunicatio.
such as quality indicators related to clinic:al processcs, well- designed brochurcs, an
interactive
websitc,griev
ance handling, and conplaint boxes are used to gather
outcomes and infection control, analysis of sentinel
fecdback. Mortality and morbidity data analysin aong
events and root cause analysis, assessment of the qual
with medical records, department records, and sum
ityof human resource (HR), collaborativegovernancc maintaincd properly.
mary of results
cffective are
through nultidisciplinary committees, and The Apollo network has certain advantages such
utilisatuon of through mplcmentation of
resources

clinical pathways. The metrics uscd in the arca of rev

as the first mover advantage, large sizc, in- depth ex

discharges in nmumber, revenuc perience, brand cquity, and widespread geographical

enue generation are:
But recent years have secn tough compe
per patient, average length of stay in days, out patients presence.
in number, and revenue per bed day.
tition emcrging, mainly from lortis Hospitals caus

As Dr. Prathap Reddy, the founder of

International and national accreditations by Joint ing concern.

Commission International of US and National

Ac- AHEL commented in a 2011 magazine interview:
"Since 1984, we have been growing at the speed of a
Hospitals & Healthcare Provid-
creditation Board for
ers make AHELaglobally
and nationally benchmarked petrol-driven TVS 50 moped. Now, we want to grow
Clinical governance is an inte- at the speed of an aviation fuel-driven rocket."
hospital organisation.

service
hospitals in India depicts at places in vivid details how
a

of one of the finest corporate

The preview case
with qualny
and operational performance while adopting growth strategies
organisation evaluates its strategic
demonstrates how a service organisation puts into effect the process ofstrale
based differentiation. The case
to how it controls and evaluates its long-term and operational performanee
management particularly related CC.

Note the way Hospitals Enterprise Ltd. sets its objectives, devises metrics for mcasuring pertorman
Apollo
I benchmarks itself against global and national standards. this
final phase of strategic management and we take up
it
Strategic evaluation and control constitutes the onal

at two levels: strategic and oper

last chapter of the book. As we will see, strategic evaluation operates l! the

At the strategic level, we are concerned more with the consistency of strategy with the environment
 the effort is directed at assessing how well the organisat is pursuing a given strategy The

ntrol and so the techniques

rategie control is ot relatively recent origin as compared to operational
d e ao fs t r a t

state.
developing
in a variances, and
taking
e
ational control consists of setting standards, measuring performance, analys1
Ope available to exer-

action. This is a process that you are already familiar with. Several techniques
are
se
and review the major techniques
ategic control and operational control and you will have an ortunity to
in this chapter.

LO 1
AN OVERVIEW OF STRATEGIC EVALUATION AND CONTROL
sections
evaluation and control. The
aims
ction aims
section
at
a laying down the framework of the of
topic strategic description
This start with a
will
thattollow wi elaborate and discuss further the issues that are highlight here. We involved
participants
various
nature of evaluation as
of eval applied in strategic evaluation and point out the kinds of barriers
Taced
ofthe explanation of the different
the evaluation
process. Ihe section concludes with an

strategic
luation and how they could be avoided.
1

Evaluation and Control

Nature of Strategic organisational
effectiveness of strategy in achieving
of strategic evaluation is to evaluate the the effec-
The purpose defined as the process of determining
strategie evaluation and control could be
bjectives. Thus, wherever
and taking corrective action
given strategy in achieving the organisational objectives
veness of
a

the
required. control process is to test
definition, we could infer that the nature of strategic evaluation and
From this effective. During the two
as well as to take corrective
action to keep it continually
effectiveness of strategy achieve a set of
the strategists formulate the strategy to
of strategic management process,
preceding phases there has to be a way offinding
out whether the strategy
and then implement the strategy. Now evaluation and
objectives towards its intended objectives. Strategic
the organisation
being implemented guiding
is In the absence of
the crucial task of keeping the organisation on the right track.
control. therefore, performs to find out whether or not
the strategy is produc-
there would be no means for strategists
such a mechanism, of strategic evaluation and control,
the strategists
In this manner, through the process
effect.
ing the desired such as these
two sets of questions
attempt to answer formulation proving to be correct?
Is the strategy guiding the
a) Are the premises
made during strategy which
intended objectives?' Are the organisation and its managers doing things
organisation towards its reformulate the strategy?
there a need to change and
ought to be done? Is Are the time schedules being
adhered to? Are the resources being
b) How is the organisation performing? done to ensure that resources are utilised properly and objectives
be
utilised properly? What needs
to

are met?
the more generalised overarching
and issues ofevaluation and are dealt
The first set of questions relates to second set relates to issues that concern the performance
control. The of questions
h by the use of strategic control. We will shortly
discuss these two types of evaluation
Ct tasks and are considered in operational evaluation.
be convinced of the importance of
stems. But first we need to

Importance of Strategic Evaluation down the objectives of the organisation

and
requires that strategists lay
process of strategic management starts with the identifica-
e them. The process of implementation of strategy
achieve of
Cn formulate strategies to of organisational structure and design
which form the basis for the creation
key managerial tasks reiterated that the segre-
11.1. Here, it should be
On Of

that were discussed in Section a small

ems. These are the issues leads to a situation where individual managers are required to perform
5aulOn tasks
of key managerial
 portion of the overall tasks required to implement a strategy. The fact that individually a manager performs a
set of functions which are
interrelated to the other tasks-that managers elsewhere in the organisation are doing
makes it clear that the tasks have to be coordinated. The importance of strategic evaluation lies in its ability
to coordinate the tasks performed by individual managers and also groups, division, or strategic business units
(SBUs) through control ofperformance. In the absence ofcoordinating and controlling mechanisms, individual
managers may pursue goals which are inconsistent with the overall objectives of the department, division, SBU,
or the whole organisation.
Besides the basic reason of coordinating tasks there could be several other motives for strategic evaluation
as described next.
Check on the validity of strategic choice: Strategic evaluation helps to keep a check on the validity of strategic
choice. An ongoing process of evaluation would, in fact, provide feedback on the continued relevance of the
strategic choice made during the formulation phase. This is due to the efficacy of strategic evaluation to deter
mine the effectiveness of strategy.
Congruence between decisions andintendedstrategy: During the course of strategy implementation, managers
are required to take scores ofdecisions. Strategic evaluation can help to assess whether the decisions match the
intended strategy requirenments. This is due to the inhberent nature of any administrative systenm which leaves
some amount of discretion in the hands of managers. In the absence of such evaluation, managers would not
explicitly know how to exercise such as discretion.
Need for feedback, appraisal and reward: There is a need within an organisation to receive feedback on the
current performance so that an appraisal can be done and good performance be rewarded. This is essential for
the motivation of employees.
Successful culmination ofthe strategic management process: Strategic evaluation, through its process of con-
trol, feedback, rewards, and review helps in a successful culmination of the strategic management process.
Creatinginputs for mew strategic planning: Lastly, the process of strategic evaluation provides a considerable
amount of information and experience to strategists that can be useful for new strategic planning.
In addition to the obvious reasons, described previously, there are certain other, and not-so-obvious, reasons
why managers use strategic evaluation and control. These are: using control systems to overcome resistance
to change, communicating new strategic agendas, ensuring continuing attention to new strategic initiatives,
formalising beliefs, setting boundaries on acceptable strategic behaviour, and motivating discussion, and debate
about strategic uncertainties.

Participants in Strategic Evaluation

It is important to know who the participants are and what role they play in strategic evaluation and control. This
will answer the question: who evaluates the strategy and how do they do it? Going beyond the role of evalu-
ators, we are also interested in knowing who are ones appraised and how do they help in strategic evaluation.
Theoretically all internal and external stakeholders are participants in strategic evaluation and control but
the major ones have a more direct interest and stake. We describe next the role of major participants in strategic
evaluation and control.
Every organisation is ultimately responsible to its shareholders: owners, lenders and the public in the case
ofprivate companies, and the government in the public sector companies. The role of shareholders, in practice
however, is limited. This is especially true of the general publie where the individual holding is too small to
be of any effective value in strategic evaluation. Lenders such as financial institutions and banks which have
equity stake are typically concerned about the security and returns on their shareholding rather than long-term
assessment of strategie success. The government, through its different agencies, does play a significant roie
in strategic evaluation and control of public sector companies. In the next section, we will present an exhibit
showing how performance evaluation is done in public enterprises.
 The ard of Directors enact a formal role of
reviewing and screening executive decisions
ther
envirironmental. business, and organisational implications ne ug of n

of strategic evaluation in more In this way, the Board is required to perTOm

generalised terms. But there is lot of variation among indian u
finctuons o f s

nthe way through which the Board may

nies n the
a
compar
perform its control functions.
ctions. In
In some
some companies, the Board may
he real authority to oversee
strategic evaluation while in others, its authority companes,
may be usurped Dy ou s
the
Iike
chief executive or a
higher de facto authority such as the council, in the of family-owned
panies, the headquarters in the case of multinational company family
case

inthe
in the case of public sector
case (MNC) subsidiaries, orthe controlling min
try companies. For example, Murugappa Corporate Board at the Murugappa group
mpanies asSumed responsibilities
ofcom of governance, strateuic advice. and mentoring in 1999 when realisatiO
aN ned that it Was no longer possible for 4
1avu
family members to retain operational control of the group compa
hief executives are ultimately responsible for all the administrative aspects of strategic evaluauon
ral, ldeally. a chiet executive should not sit in judgement over the performance of the
au
r
organisation under
nis
er control. Rather,
the chief executive
her should be evaluated on the basis of organisation's performance and ne
long-term value crealed. This leads to the question of who should evaluate the chief executive. Normally, tnec
evaluatio uation of a person should be done by an individual or a group to whom he reports. In most cases the chief
executive oftfhcer (CEO) wOuld be evaluated by the board of directors as it is also responsibie for the selection,
compensation, and termination of the CEO. This is the reason why it is so important to have an independent
board. In cases where the chief executive is accountable to no one in particular (as this is possible in the case or

an entrepreneurial organisation), it is ditlicult to allocate the responsibility apart from relying on self-evaluation.
the determine who should evaluate the chief executive. Thus, the
But in other cases, ownership pattern can
family couneil in family-owned companies and majority shareholders in other cases could evaluate a chiel ex
ecutive's performance.' It is also interesting to observe how outsiders view CEO performance. Frost & Sullivan
CEO of the Year Award used to be given each year to the CEO who had demonstrated leadership excellence
and were
within his/her industry. Parameters such as gains in market share, decisions that improved earnings
in the industry were
responsible for growth the company as well as leadership that affected observable changes
the common CEO performance measurement eriteria Frost & Sullivan utilised in the selection process."
their levels and may facilitate
The SBU or profit centre heads may be involved in performance evaluation
at

evaluation by corporate-level executives.

and internal uditors form the group of persons
Financial controllers, company secretaries, and external
responsible for operational control based on
financial analysis, budgeting, and reporting.
who are primarily
the Board or the chiefexecutive may be charged with the responsi-
Audit and executive committees set up by
Enhanced measures under the Clause 49 ofthe listing agreement
bility ofcontinuous screening of performance.
of the Securities and Exchange Board of
India (SEB) for publicly-held companies in India for effective cor-
better strategic and operational
transparency in company operations enabling
porate governance aid in greater
controls.
may also be involved in a supporting role for strategic evalu-
The corporate planning staff or department
ation. evaluation and control as providers of information and
participate in strategie
fiddle-level managers may take corrective actions.
directions from above to
Teedback, as well as recipients of in the process of strategic evaluation and
there are several participants
In the manner described previously, the major barriers in the evaluation process.
Next, We iearn adout
them play a different role.
Control and each of

Barriers to Evaluation and caution to serve a useful purpose.

hanaled w l n due care
exercise. It has to be
Any evaluation is a sensitive in evaluaton
and also suggest the means to deal with them next:
We could point out five major types of barTiers
mechanism presents the dilemma of too much versus too less
Limits of controls: By its very nature, any control
ninEs or control. Too much control may impair the
to deCide tne
Control. It is never an casy task for strategists
 that helr
that help in creat1ng features that help the organisation stand out in the marketplace. For instance
tics

evalualion
activ should bei
be focused on Non-financial incentives
i should quality control ifquality is the differentiating feature.
more
eftectively evaluate performance that is aimed at creating intangibles like creativity and innovation.
awe observe here, the basie issue in all evaluation needs to be that control should be dictated bystrategy
As
exercised over
1
necds
to be vertical fit between the strategy requirements and the evaluation and control
ance. The following guidelines are suggested in order to make controls effective.
ertormance.

Control ould
shou involve only the minimum much information tends to
as too
amount of information of
control system and creates confusion. There should be balanced emphasis on the level
elutter up the
make
ot the process of strategic evaluation itself. Too complex a system of evaluation may
Complexity
it difficult to implement while a simplistic system may be inadequate.
difficult to per-
shoula monifor only managerial activities and results even if the evaluation is
Control
form.
Timeliness is important in tne
, Controls should be timely so that corrective action can be taken quickly. or
sense that
evaluation must be done at the time when it is required. Performing evaluation to0 early
t0o late may be mistimed.
can be
and shor1-lerm controls should be used that a balanced approach to evaluation
so
Long-term results may not
adopted. Strategies by their very nature have a long-term effect. Evaluating short-term
truly retlect the actual performance of an organisation. in effective evaluation. The
does not result
Controls should aim atpinpointing exceptions as nit picking needs to be
where 20 cent of the activities result in 80 per cent of achievement,
80:20 principle' per makes
count for achievement
emphasised. Getting bogged down with the activities that do not really
the evaluation ineffective.
so that managers are
motivated to
Reward of meeting orexceeding standards should be emphasised
the managers to accentuate etticiency
perform. Excessive emphasis on penalties tends to pressurise
rather than etfectiveness.
effective measurement
for
systems that could be used
an
next two sections describe
the evaluation
The
ofstrategic and operational performance.
LO 2
14.2 STRATEGIC CONTROL
basis of several assump-
management makes it clear strategy is formulated on the
that a
The process of strategic and eventful. There is a
the environmental and organisational factors that are dynamie
tions. These relate to
The process of imple-
a strategy is
formulated and when it is implemented.
considerable gap between the time
a possibility that the assumptions
During this intervening period, there is
mentation is itself time-consuming. controls
at least, are no longer so relevant. Strategic
strategy do not remain valid or,
made while formulating strategy,
a determine continually evaluate the strategy as it is
that
take into account the changing assumptions this manner
the necessary steps to adjust the strategy to the new requirements. In
take
being implemented, and and difer trom post-action
controls that evaluate only after the
controls are early warning systems continuous evaluation
strategic control as analogous to the
You could think of stralegiC
mplementation is completed. it trom the end-of-the term examination system
used
institute and distinguish
system used in your management
in traditional universities. 0

of strategic
controls are
The four basic types
I. Premise control
Implementation control
. Strategic surveillance
4. Special alert
contro these four strategic controls.
sub-sections address each of
he following
 Premise Control
organisaonal lactors.
Some
SHegy is based on certain about environmental and
assumptions

ctOrS are highly signiticant and any change in them can affect the stralegy to d large extent.
Premmise
hem so as
iS necessary to identify the key assumptions and keep track ol any change
n
to asse
Sess
C n p a c t on strategy and its implementation. For instance, a conpany may Dase lus Stacgy on importan

related to environmental factors (e.g. favourable government policies), Industrial lactors (es
Ons
*Cnanging nature of competition), and organisational lactors (c.g. expected breaktnrougn in research and

the assumptions to find

ucvelopment (R&D). Premise control serves the purpose of continually testing out
whether they are still valid or not. This enables the strategists to take corrective action at the right time rather

The responsibility lor premise control

Conunuing
dDe assigned with a strategy based on erroneous assumptions. can

to the eorporate planning staff that can identify key assumptions and keep a regular check on

their validity.

Implementation Control
The implementation of a strategy results in a series of plans, programmes, and projects. Resource alloca
tion is done for implementing these. Implementation control is aimed at evaluating whether the plans. pro-
grammes, and projects are actually guiding the organisation towards its predetermined objectives or not. If
at any time, it is felt that the commitment of resources to a plan, programme, or project Would not benefit
the organisation as envisaged, they have to be revised. In this manner, implementation control may lead to

strategic rethinking.
Implementation control may be put into practice through identification and monitoring of strategic thrusts
Such as an assessment of the marketing success of a new product after pre-lesting or checking the feasibility
collaboration. In the first
of a diversification programme, atter initial attempts at seeking technological case,
the company may evaluate whether the new produet launch will really be advantageous or it should be aban-
doned in favour of another programme. In the second case, implementation control can help to determine
whether a diversification move will actually suceeed or not.
Another method of implementation control is milestone reviews, through which eritical points in strategy

implementation are identitied in terms of events, substantial resources allocation, or significant end-time.
This is similar to identification -albeit at a smaller scale-of events and activities in Programme Evalua-
tion Review Technique (PERT)/Critical Path Method (CPM) networks. After identification of milestones,
review of implementation is made to reassess its continued relevance to achievement of
a comprehensive
objectives.
Strategic Surveillance
surveillance. on the
The premise and implementation types ofstrategic controls are specifie inn nature. Strategic
of events
other hand, is aimed at a more generalised and overarehing control 'designed to monitor a broad range
surveillance
inside and outside the company that are likely to threaten the course ofa firm's strategy'" Strategic to uncover
on the basis of selected information sources
can be done through a broad-based, general monitoring

events that are likely to attect the course of strategy of an organisation. Aaker has suggested a
formal yet simple
and preserve
strategic information scanning system (that) can enhance the etfectiveness of the scanning effort
manage
much of the information now lost within the organisation."" Organisational learning and knowledge
ment systems can help capture much of the information that is otherwise lost in organisation. This intomao
can be used for strategic surveillance.

Special Alert Control

for
The last of the strategie control systems is the special alert control, which is based on a triggermecthanib cial
events. >pe
rapid response and immediate reassessnment of strategy in the light of sudden and unexpected
 .ntrol
c o n t r o l can bbe
can exercIsed
through the formulation of contingency strategies and assigning the responsibil
alert
of handing untoreseen events to criss management teams. xamples of such events can be the sudden fall
ay ernment at the centrai or state level, instant change in a competitor's posture. an unfontunate industrial
f 3 gO
e t , a breach in intormation security, or a natural catastrophe
disaster

Csesare crticalsituations that occur unexpectedly and threaten the course ofa strategy Organisations that
pe for the bestand prepare for the worst are n a vantage porsition to handle any erisis Cnsis managernent
hope
alows certain steps such as signal detection. preparation prevention. containment damage imitation, and
foll
ecovery leading to organisational learning The first step of signal detection can be performed by the special
alert control systems.
From the description ofthe four strategic controls, it might seen that strategie evaluation is a complex pro-
ess and requires the use ot sophisticated and systematic techniques. While this may be true for large and com-
olex organisations facing a turbulent environment, it is not of great concern for smaller and structuraily simpler
plex
ganisations that face relatively
orga
a stable environment. Many of the tasks required for strategic control may be
nerformed informally in a simple way. For instance, in an entrepreneurial organisation. the owner-manager may
per
nerform strategic control through a general awareness ofenvironmental and industry-related factors and initiate
changes whenever required. This may be done through a regular scanning of business new spapers, magazines
and trade journals; through attendance at seminars and conferences: social networking and general observa-
tions. In short. whatever sources are used for environmental appraisal may also be useful for strategic contro.
MNCs. on the other hand, would have to plan for elaborate systems in order to perform strategic control over

their geographicaliy-dispersed and intricately-connected subsidiaries.

The basic theme of strategic control is to continually assess the changing environment to uncover events that
may significantly affect the course of an organisation's strategy. As compared to strategic control. operational
control has a different purpose. The next section deals with operational control

14.3 OPERATIONAL CONTROL LO 3

Exhibit 14.1 indicates the difference between strategic and operational control. It can be seen thatoperational
control is aimed at allocation and use of organisational resources through evaluation of the performance of
Organisational units such as divisions or SBUs to assess their contribution to the achievement of organisa-
tional objectives. Operational control is concerned with action or pertormance and this is probably the reason
why it is so extensively used in organ1sations. In this section we see how the process of evaluation is applied
for exercising operational control.

Control Differ?
Exhibit 14.1 How do Strategic Control and Operational
Strategir control Operational control
Attribute
'Are we moving in the right direction How are we performing?
1. Basic question
Proactive, continuous questioning of Allocation and use of organisational
2. Aim
the basic direction of strategy resources

the organisation's future Action control

3. Main concermn Steering
direction
External environment Internal organisation
4. Focus
5. Time horizon Long-term Short-term
. Exercise of control Exclusively by top management, may be Mainiy by executive or middle-level

through lower-level support management on the direction of the top

management
Environmental scanning, information Budgets, schedules, and MBO
7. Main techniques

gathering, questioning and review

J.A. Pearce III and R.B. Robinson, Jr., Strategic
Management: Strategy Formulation and Implementa-
Source: Based on
Irwin. 1988): 404-19.
07, rd ed. (Homewood, Ill: Richard D.
504 Strategic Management
Process of Evaluation
I he
process of evaluation
1. basically deals with four
steps
Setting standards of
2.
Measurement of performance
3. Analysing variances performance
4.
Taking corrective action
These four elements of
the evaluation process, and how they relate to each other, are depicte
I4.. Ihe
strategies, plans, and objectivesp result in a set of icted in Exhibit
valuation through measurement of performance. The performance standards which form the
basis f
Othe analysis of variances. Feedback from this comparison of actual and standard performance lead
on of analysis results in either a check on performance,
standards,
or
reformulation of strategy. plans or objectives. Due to the inherent nature of reval
Ontrol, corrective action is aimed mainly at performance and adjustment of standards rather than
operation
mulation strategy. The reformulation
of
task is
the refor
performed usually on the basis ot strategic control,
amplementation control. especiall
Exhibit 14.2 The Evaluation Process for
Operational Control

Strategy Setting Measurement

plan/ standards of Actual
objectives performance performance
performance

Analysing
variance

Feedback

Setting Standard
Strategists encounter the following three questions while dealing with standard setting
(a) What standards to set?
(b) How to set these standards? and
(c) In what terms do we express these standards?
A three-pronged basic
approach to standard-setting could be used to settle these issues.
1. The key managerial tasks, derived from the
strategic requirements, can be analysed for finding out tne
key areas of performance. Standards can then be set in each of these
2. The special requirements for the performance of the key result areas.
to set.
key tasks can help to determine the
type of standar
3. Performance indicators that best express the special requirements could then be decided upon to Deused
for evaluation.
 urateg

is
Applying this
approach to the case of a
a that one of the key managerial tasks iscompany
said t h a t o n e
which
to expand adopts
market a market development strategy, it can be
presence and enhance market visibility. The
nccial requirement is tO raise the overall
market share and two that could satisfy the requirements
d be: increase in sales revenue and efficiency of sales force.indicators
This company an use these two indicators
neasure its operational pertormance in marketing.
Another example could be of an organisation using a cost leadership business strategy. Ihe
rial task in this case is cost reduction. The special requirement
rial task is to monitor and reduce costs.Key
Theiaie
perfor-
mance indicator that could help this organisation could be reduction in production cost and reduetlon
m
inventory COst over a given period of time. Exhibit 14.3 provides some illustrative performance indicatOTS

in five functional areas across the three

corporate-level strategies of stability, expansion, and retrencnmen

Exhibit 14.3 Some Illustrative Performance Indicators in Functional Areas Across Different Corporate
Level Strategies

Corporate-level strategies
Functional area
Stability Expansion Retrenchment
Focus of evaluation Efficiency-oriented Growth-oriented Cost reduction-oriented
Financial area Profhtability and activity ra- Leverage ratios; credit rat- Liquidity and activity ratios
tios; dividend and earnings ings; break-even point
per share
Marketing area Sales revenues and quotas; Sales growth (current sales Marketing costs divided by
sales force productivity; ac to base year's sale); new ac- sales; marketing costs divid
counts receivable divided counts opened per year; ed by orders; sales expenses
by sales; number of custom- new product's sales divided divided by total number of
er complaints by total sales sales calls
Operations area Productivity (e.g. man Growth in assets; produc- Production costs divided by
hours per production unit); tion contribution divided sales: inventory as percent
capacity utilisation; invest- by production assets age of sales or production;
ment in R & D as compared Scrap, reject, or waste per
to revenue; average lead centage
time for purchase
Personnel area Number of man days lost Training costs divided by Personnel costs divided by
divided by number of man average number of em- average number of emplov
days worked; productiv- ployees; recruitment costs ees; separation costs versus
ity rate of company versus divided by average number total costs; retraining costs
industry average; employ- of recruits; Overtime costs divided by average number
ees' suggestions received, versus total labour costs; of employees
bonus
percentage accepted, and payments versus to-

implemented tal labour costs

Intormation man- Utilisation of systems re- Growth in hardware/ IT costs per employee; main-
agement area sources per unit time; data software assets; index of tenance costs divided by to

error frequency end-user satisfaction; total tal IT investment

demand for application
programmes per unit time
 u ot operational etiectiveness wec identificd in Section 13,8 cOuld also tbe used as areas in w
whieh
slandards are
set.
For this to take place, one has to he as to how
contribute to the strategy being plemented. Pertormance indicators
clear productivity. processcs. people,
1n order to capture the
and pa
pace
reality
of ac.
to de set on the basis of quantitative (or objective) as well as qualitative (or subjective) crit
e teria.
Operational control can be efectively exercised through a combination ofquantitative and qualitativeerileria
a
Quantitativer erieria: Performance evaluation on the basis of quantitative eritera canbe dome in two ways
an
ana t can als0
gnisalon how it has pertormed as compared
can assess past to its achievements i
compateits
performance with the industry average or that ofmajorcompetitors. There are severalcritera nany financial
in nature
a t can be used. Companies can evaluate their performance on an annual basis tor the last 10 Vear
ears
O So on the basIS of eriteria like net profit, stock price, dividend rates, carningsS per snare, reurn on capital

ICurn on equity, market share, growth in sales, davs lost per employee as a result of strikes, production coste
and elieieney. distribution costs and efticieney, and employee turnover, absenteeism, and satistaction indexes 4
Companes can also evaluate performance on the basis of industry averages provided in industry reports pub.
sned in icading business newspapers such as and magazines. Exhibit 14.4 provides the model that two businese
magazines in lndia use in ranking the top companies. The method indicated in the exhibit could well be used hv
COmpanies to cvaluate pertormance on quantitative criteria on individual bas1s as well as on an industry level

in India
Exhibit 14.4 Parameters for Ranking the Top Companies
out with annual rank
global publishing industy
come
Ranking is big business globally. Most big uames in the
several and websites and
and Several business magaZines
ing ot companies, universities, business sehools,
s o on.

consultancy organisations rank top companies in lndia too.

The bases used for ranking vary depending on the
on the basis of objective
data such as published figures of
n a u r e of business magazine or website. When done
are per
a true of the standing of companies while survey-based rankings
picture
revenue, the rankings present
of the participants of the suIvey.
ceptual n nature and present a subjective view
the basis of total annual revenue. Indian
Oil Corporation (IOC), Reliance
Fortune ranks global companies on
Ltd. (BPCL.) are the top three ranks in 2014 among the
Industries Lid. (RIlL). and Bharat Petroleum Corporation
most powerful public companies
annual list of the world's 2000 largest and
eight companies from India. Forbes' India (SBI), and Oil and Natural
them RIL, State Bank of
had 54 lndian companies in its 2014 listing among
three. The magazine does ranking o n the basis of
four netrics sales, of
Gas Corporation (ONGC) being the top
value.
profit, assets, and market 1OC, RIL,
based o n total annual income or r e v e n u e . The 2014 ranking places
Econonic Times-500 ranking is the
in India to determine
BPCL the first three ranks. Business Today ranks most valuable private companies
and at
Services (TCS), RIL, and Indian Tobacco
of BT 500 the basis of market capitalisation. Tata Consultancy
list o n

ranked the top three in 2013.

Company (ITC) were
tastest growing companies in lndia on the
basis of the average of the last 4 years
Business World ranks the net
The magazine creates categories such as super heavyweight companies
oft
year-on-vear growth in net sales. Rs. 5,000
from Rs. 10,000 through 49,999 crore, middleweight from
sales over Rs. 50,000 crore, heavyweight to
Rs. 100 crore
tron1 Rs. 1,000 to 4,999 crore, and the fcatherweight from
welterweigh1
through 9,999 crore,
in each of these categories.
999 crore. It then ranks the fastest growing companies
of
based on published data, the media also ranks companies
on the bas1s stu
Besides the objective ranking
such as being perceved employer o r as the most marketing savvy company. >u
as the best
jective assessment
where the compan
of a sector or industry such as airlines o r hotels
rankings present an interesting picture in the ran
themselves to their peers. On the part of companies, if they appear
those industries may compare basis of their hign ta
and they can make claims of superior performance o n the
it gives them a talking point ngs
businesses' and ther raui
that s o m e media organisations are in the 'business of ranking also
ings. Critics allege analyses. There a
o r could even be challenged on the basis of statistical
do not carry much signiticance
 s o m e s e r ' i o u s
s allegations that rankings are based on the whether or not companies buy advertisement space o
t h ea g / i n e s
or webs
,
that publish those rankings.
into the the
For
F or the pturpose ot Strategic evaluation and control, rankings offer some insights parameters
arines use to rank companies that the company thenselves could use to benchmark their pertormance
magaz

ariilst peers in the country, sector, or industry,

Most Powertul
Global 500 2014' at http://fortune.com/global500/; "India Home to 54 of World's Largest,
Sounr

Pblic Companies: Forbes Magarine, The Times ofIndia (8 May, 2014) at http://timesofindia.indiatimes.com/brusiness/
india-business/India-home-to-54-0f-uworlds-largest-most-powerful-public-companies-Forbes-magazine/articleshow/34824059.

September, 2014) at htlp:77

ET 500: Methodology of Arriving at the Ranking,' 7he Eronomic Times (16

eonomictimes.tndiatimes,com/markels/stocks/news/et-500-methodology-ofarrivingat-the-ranking/articleshow/42537441 Fast
ems 'BT
Cms;
500: India's Most Valuable Companies,'at htp://businesstoday, intoday.in/bl500/summary-ranking 1sp;
athtp://wuru.brusinesswonld.in/news/bnusiness/cortporate/rank
est (Growing Companies, Business World (30 July, 2014) around the
ingy/1456839/pug-1.html#sthash.vgoysnr.dpuf INSEAD provides a number ofcompany ranking listings the allega
rankings For criticism of see, for instance,
world at htp://wwrw.insead.edu/tibary/rankings/conpanies.cfm;
htp://www.kcrw.com/news-culture/shous/press-play-with-madeleine
tion that the website Yelp manipulates rankings
at
December 27, 2014.
brand/emembernug-joan-rivers-and-breaking-up-wilh-footbal; All websites retrieved
cannot
objectivity and sophistication,
with all their characteristic
Onualitative criteria: The quantitative criteria, criteria for a subjective
for an overall assessment of performance. There has to be a set ofqualitative
be sufticient business agility, strategicC
core competencies, risk-bearing capacity,
assessment of factors such as capabilities, control for evaluating strat-
flexibility, and workability. Qualitative eriteria play a major role in strategic
elarity, Jauch suggest three sets of
before implementation but can be used in operational control too. Glueck and
egy tests strategy with respect
to
criteria: consistency, appropriateness, and workability. Consistency
qualitative from the the strategy
and internal conditions. Appropriateness assesses
objectives, environnmental assumptions, with
resources capabilities, risk preference,
and time horizon. Lastly, workability checks strategy
viewpoint of
stimulation.
regard to its feasibility and to measure performance as the next step
towards
Having set the standards of performance, strategists proceed
evaluation.

Measuring Performance
at the pertformance level as action
takes place. Exhibit 14.2 shows how this
The evaluation process operates of the evalu-
a dotted boundary as it not a part
Note that actual performance is depicted within
happens. benchmark against which the actual performance is to
ation process.Standards of performance act as the
measurement of performance can take place.
It is important, however, to understand how the
be compared. is done
is the key element in any measurement exercise. Operationally, measuring
The infornmation system (described
and
evaluation
communication systems. A variety of techniques
through accounting, reporting, measurement. Apart from the method of measuring
performance. the other
in the section) are used for
next
in measuring.
relate to the difficulties, timing, and periodicity
important aspects of measurement available for measuring
are appropriately set, and if means are
in measurement: If standards
Difficulties
task. But there are several activities for which it is difficult
to
evaluation is a fairly easy
performance,
For instance, it is relatively easier to measure the
contribution
set standards and measure performance.
individual effort
difficult to measure
managers. Likewise, it is not
so
of workers as compared to that of verifiable objectives, stated
as it is to assess departmental
pertormance. Ihe solution lies in developing
can be measured.
terms, against which performance
in quantitative and qualitative which evaluation has to take place. In
relates to the point of time at
Timing ofmeasurement: Timing the purpose of evaluation itself. On the
that delay in measurement can defeat
general, it could be said either. It is better to measure at critical
before iming cannot serve the purpose
other hand, measuring
 508 Strategic Management

points in a task schedule. Generally, the critical points would be at the end of a definable activity or 1
Conclusion of the task. For instance, in a project implementation schedule, there could be several o
alpointS at which measurement can take place. This is called milestorne review done at the end afa
phase of a project.
Periodicity in measurement: A related issue to timing is periodicity, which deals With the issue
how often to measure'. Normally, financial statements like budgets, balancesheets,and profit and lo
ccounts are prepared every year so the periodicity is on an annual basis. But there might be sevem
to be done for shorter du
ncions Iike production and marketing where measurement will have
possibly on a monthly or a weekly basis.
There are many family-owned and other types of private sector companies which have separate manageme
Doards or executive committees to review the performance of departments or profit centres. The diticulty aris
when there is no clear cut authority for performance evaluation. Usually, the real authority for evaluationm
rest in external groups. Thus, family business have their family councils, multinational subsidiaries have revie-
committees constituted by parent company officials, while professionally managed companies may evol
varying mechanisms for the evaluation purpose. For example, sometime in 1998, the healthcare and person
care company Dabur handed over the management of its flagship company to an outsider (CEO. This follow
the realisation that it was no longer possible to continue being a family-managed organisation if it was to ade
growth strategies successfully. As a consequence, the family members assumed an active governance role an
created a fanmily council that provided strategic direction to the company and acted as a communication linka;
between the family and managers.
Next, we take up the step of analysis of variances that result from the measurement of performance

Analysing Variances
The measurement of actual performance and comparing it with the standard or budgeted performance leac
to an analysis of variances. Broadly, the following three situations may arise:
1. The actual performance matches the budgeted performance.
2. The actual performance is better, i.e. deviates positively over the budgeted performance.
3. The actual performance is below, i.e. deviates negatively from the budgeted performance.
The first situation is ideal but not realistic. In practice, the actual perfomance rarely matches the budgete
performance. Here, the strategists would have to specify a range of tolerance limits between which the r=

sults may be accepted satisfactorily. So, actual performance which deviates from the budgeted perfoman:
within the tolerance limits established can be acceptable and the variance is considered as not significant.
The second situation is welcome as it an indication of superior performance. But exceeding the arg
continually should be considered as unusual and a check needs to be done for testing the validity of standar
and the efficacy of the measurement system. Exhibit 14.2 takes care of this situation by having a feedbac
from the variance analysis to standards.
need t
The third type of situation is alarming as it indicates a shortfall in achievement. The strategists
Corrective a
pinpoint the areas where performance is below standard and go into the causes of deviation.
tion is taken on the basis of the analysis of the causes of deviation.
form
Evaluation by the top management can be facilitated if analysis of variance is presented in the
ntro-
a simple device that could be termed as the variance chart. The same principle is applied inmaking
charts for statistical quality control. Exhibit 14.5 shows a sample variance chart that illustrates the naturc
deviations and the areas in which they occur.
 14.5 Sample variance chart for performance evaluation

Standard Actual Deviation

h Performance induator

Financ 1al alea

over
sales ( 12 10 2
Profit
Dividend (E) 10 10

Marketin8 area
- 2
revenue (Rs. in millions) 25 23
Sales +0.2
of custonmers
complaints ("00) 1.5 1.3
Number
Operalions 4rea

.Capacitt tiisation ( ) 85 90
3.5 0.5
tunit
Man
heiils jpet
Perottiel.aiea

15 5
Osts over aretage numher of enplovees (000) 20
Tanng 10
60 50
suggestiois impleniented over number received (%)
Emplres
I n t o m . t i o t n 1n.a1agenient a e a

90 70 20
Uulisation of ststenm tesour es ( ) 5
15 20
Mnehalice
costs as
pei (ent ot T investments ()

can
tume for finding the causes of deviations. The following questions
the deV iations, it Is now
After noting
be helpful 1n determining the causes
I s the cause of deviations internal orexternal?
random or was it expected?
b Is the cause
or pernanent
Is the devration temporary
valid?
(and plans, objectives) still
d Are the strategies needed?
have the capacity to respond to the change
eDoes the organisation that we discuss next.
tor corective action
of variances leads to a plan
Analy sis

Taking Corrective Action

of standards
tor corrective action: checking of performance, checking
three courses
Exhibit 1-42 suggests
plans, and objectives.
and mulating sirategies. process: it involves a variety
retor
insignifnCant part
not an the evaluation ot
For instance, checking of
action Is
Initiating c o r r e c t i v e strategy implementation.
whieh are pertormed during
behavioural
f managerial functions structure and systems, as well as
the details of organisational
into
erform.ae requires going factors such as distortions in resource
adversely due to a number ot
and motivational styles. Ifthe
Is altected
mplementation Per formance
structure and systems,
and Wrong leadership
of
the strategists would have to
2llocaton, inappropriateness
is consistentiy lowerthan expected,
shows that pertormance bad performance
Cvaluation process of the tactors that might be respons1ble for
and diagnosis day-to-day activi-
undertake an in-depth analysis theretore, a significant part of the
pertormance 1s.
c o r r e c t i v e action
for checking
aking
es of managers. but it will have to be done as soon as it is
than a pertormance
check bu
less trequent lowering of
Standards check may result in a
is
Chec
hecking of
stamdards
signiticantiy wrong witn periormance. it
nothing match the performance requirements
elt that there is
capabilities donot
that organisational
concluded to take place.
tandards ift is
standards
improved for better performance
1i c o n a i t i o n s have
ot
ay also load to an
elevation
and upgraded skills are sure to
make existing standards
imprOved system,
fnr t n s t a n e n better equupment,
ce,
 partly irrelevant. Productivity frontiers too keep moving farther and competitive pressures compel com
nies to continually strive to improve their operational effectiveness. In such a situation, standards ompa
ch
ck
would become necessary.
Amore radical and infrequent corrective action is to reformulate strategies, plans, and objectives. Stra.
rate
gic, rather than operational, control will lead to the conclusion that strategies call for reformulation, or nla.
need to be remodelled, or objectives have to be redefined. Reformulation of strategy will take us back to t.
process of strategic management where a fresh strategic choice has to be made. Remodelling of plans wi
entail a new resource allocation pattern and subsequent changes in strategy implementation. Redefinition oe
objectives, however, takes us full circle to the start of the strategic management process.
Further, in this chapter, we will discuss the techniques of strategic evaluation and control, and the role of

organisational systems in evaluation.

14.4 TECHNIQUES OF STRATEGIC EVALUATION AND CONTROL LO4

It is necessary for strategists to have an idea about the techniques of strategic evaluation and control in order
to make a choice from among the many available and to use them. Several of the techniques ofevaluation are
traditional and have been in usage for long while there are some other techniques that are of recent origin.
This section describes briefly the techniques for strategic control and operational control. First we take up
the techniques for evaluation in strategic control and then for operational control.

Evaluation Techniques for Strategic Control

assess the changing environ-
As said earlier in this chapter, the essence of strategic control is to continually
we

ment to observe events that may significantly affect the course

of an organisation's strategy. Techniques for
basis of the type ofenvironment faced by the organi-
strategic control could be classitfied into two groups on the
environment may use strategic momentum control
sations. The organisations that operate in a relatively stable
while those which face a turbulent environment may find strategic leap control more appropriate."
relatively
momentum control These types of evaluation techniques are aimed at assuring that the
Strategic what needs to be done in order
assumptions on the basis of which strategies were formulated are still valid and
to maintain its existing strategic momentum.
For achieving these aims there are
to organisation
allow the
three techniques which could be used: responsibility
control centres, underlying success factors, and generic
9
strategies
1. Responsibiliy control centres form the core
ofmanagement control systems and are of four types: revenue,
measurement
centres is designed on the basis of the
expense, profit, and investment centres. Each of these
of responsibility centres is done in the discipline of
of inputs and outputs." The study and application
management control systems.
to focus on the critical success factors (see Section 2.6
2. The underlying successfactors enable organisations on the
that contribute to the success of strategies. By managing
for an explanation) to examine the factors whether
can continually evaluate the strategies to assess
basis of the critical success factors, the strategists
to achieve its objectives.
or not these are helping the organisation
that the strategies adopted o
3. Generic strategiesapproach to strategic control is based on the assumption and now
fims similar to another firm comparable. Based on such a comparison, a firm can study why
are

other firms are implementing particular strategies and assess

whether or not its own strategy is following
is
a similar path. In this context. the concept
of strategic group (see Section 9.2 for an explanation) aims
relevant. A strategic group is a group of firms that adopt similar strategies with similar resources. r
in other industries too-tend to du
Within a strategic group, often within the same industry-sometimes
similar strategies.
 leap control Organisations are required to make strategic leaps in order to make significant
Strategic
rdhen the environment is relatively unstable. Strateegic leap control can assist such organisations by
anodefine the new strategic requirements andto cope with emerging environmental realities." There are
our
pniques of evaluation used for exercising strategic leap control: strategic issue management, strategie
h e l p h

technique

hi
a ln systems modelling, and scenarios:
d alys,
ysis,
rategic isstue management is aimed at identifying one or more strategic issues and assessing ther impact
Stra

n theorganisation. A strategic issue is 'a forthcoming development, either inside or outside oftheorgans
on t
, which is likely to have an important impact on the ability of the enterprise to meet its oDjecve
sation,
the cnv
Byronmental
managing on
basis ofstrategic issues, the strategists avoid being
can
overtaken by surprising
changes and design contingency plans to shift strategies whenever required.
, Strategicfield analysis is a way of examining the nature and extent of synergies that exist or are lacking
can assess the abilny
between the components of an organisation. Whenever synergies exist the strategists
the firm's ability to generate
of the firm to reap the advantages. Alternatively, the strategists can evaluate
synergies where they do not exist.
features of the organi-
aSystems'modelling is based on computer-based models that simulate the essential
sation and s environment. Through systems modelling, organisations may exercise pre-action contro
the adoption of a particular
by assessing the impact of the environment on the organisation through
strategy.
are perceptions about the likely environment a firm would face in future.
In Section 4.3, on
4. Scenarios
environmental scanning, scenario-writing was discussed as a technique for analysing environment. Its
to focus strategies on the basis of forth-
usecould be extended to evaluation by enabling organisations
coming developments in the environment.
for strategic control except with the possible excep-
For several of the techniques described previously
scenarios-not much evidence is available of their applications.
The fact
tion of responsibility centres and
these techniques are proposed is an evidence
of the expanding body of knowledge in strategic management
of the techniques of strategic control
available for application by organisations. As the use and application
would start using such techniques. Operational control,
gains approval, it is quite likely that organisations
which have traditionally been used by strategists. In the next part
however, uses more familiar techniques
control.
ofthis section, we look at techniques operational
for

Control
Evaluation Techniques for Operational
of Section 14.3, is aimed at allocation and use of organi-
Operational control, as we said in the beginning
for operational control, therefore, are. based on organisational
sational resources. Evaluation techniques
as is the case with strategic control. But before you read
appraisal rather than environmental monitoring 5.4 where we described in detail the
if you review Section techniques used for
further, be
it would helpful
used for operational control as well. To help you recall let us
organisational appraisal. These techniques
are

in three parts of internal analysis, comparative analysis,

Teiterate the classification of evaluation techniques
out the posSible usage of each of them for the purpose of exer-
and comprehensive analysis and then point
CISing operational control.

The internal analysis which

consists of the VRIO framework, value chain analysis.
Internal analvsis
quantitative (financial and non-financial) analysis,
and qualitative analysis deals with the identification of
absolute terms.
Strengths and weaknesses of a firm in

I. VRIO framework:: The basic idea behind the VRIO framework is that sustainable strategic advantage
of capabinues tnat are vauable, rare, inimitable and organised for usage. The
results through the use
 performance evaluation for operational control can make use of this framework to focus on eval
tne capabilities so as to examine whether these are present. For example, in case the orga
ganisatio ating
interested in creating differentiation based on superior R&D capability then it can evaluate whethe et its
R&D capability is valuable, rare, inimitable, and organised for usage. If the R&D capability iisassec
as being ssessed
of high quality in terms of R&D equipment, is rare in terms of the availability of highly qualis.
researchers, the«organisation has an inimitable skill in integrating the R&D resources, and the sta itied
ture
and systems of the organisation are well-suited to the development of RxD capability then the VP
framework serves a useful purpose in operational control. RIO
2.Value chain analysis focuses on a set activities performed in a sequence for produgne
ofinterrelated cing
and
marketing a product or service. The utility of value chain analysIs for the purpose of operaticna
evaluation lies in its ability to segregate the total task of a firm into identihable activities which can then
be evaluated for effectiveness.
3. Quantitative analysis takes up the financial parameters and the non-financial quantitative parameten
Such as physical units or time in order to assess performance. Ihe obvious
enent or using quani:
tive factors-either financial or physical parameters-is the ease of evaluation and the verifiability of
the assessment done. These are probably the most used methods for evaluation tor operational control
Among the scores of financial techniques, described in all standard texts in the area of înance, are tradi
tional techniques such as the ratio analysis or the techniques such as economic value-added (EVA 2nd
its variations, and activity-based costing (ABC). These methods are proven so far as their eticacy for
evaluating operational effectiveness is concerned. Apart from the financial quantitative techniques. there
are several non-financial quantitative techniques such as computation of absenteeism, market ranking
rate of advertising recall, total cycle time ofproduction, service call rate, or number of patents regisieed
per period available for evaluation for operational control. Many more can be evolved by frms to suit
their specific requirement.
4. Qualitative analysis supplements the quantitative analysis by including those aspects which are nat
feasible to measure on the basis of figures and numbers. The methods that could be used for qualita
tive analysis are based on intuition, judgement, and informed opinion. Techniques such as surveys and
experimentation can be used for evaluation of performance for exercising operational control.
Comparative analysis Comparative analysis which consists of historical analysis. industry noms. ad
benchmarking compares performance of a firm with its past performance or with other firms
own

1. Historical analysis is a frequently used method for comparing performance ofa fim over a given penad
tasen
of time. This method has the added benefit of enabling a firm to note how the performance has
the fim bear
place over a period of time and to analyse the trend or pattem. Such an analysis can offer
perception of its performance as compared to an absolute assessment.
of masng
2. Industry norm is a comparative method for analysing performance that brings the advantage
a firm competitive in compar1son to its rivals in the same industry. Being a comparative assessme
to the2et
evaluation on the basis of industry norms enables a firm to bring its performance at least up
of other firms and then attempt to surpass it.
3. Benchmarking is a comparative method where a firm finds the best practices in an area and nch
the
tempts to bring its own performance in that area in line with the best practice. The best practices d
benchmarks that could be adopted as the standards by the firm to exercise operational contro1. 1ar

this method. performance can be evaluated continually till it reaches the best practice level. in
ble
to excel, a firm shall have to exceed the benchmarks. In this manner, benchmarking otters 3 i

method to firms to evaluate performance.

 Tunetion or department. eh
opiS a total approach rather
factor rating IS a
method that takes into
thun focussinp
aluate pertormanee on the basis
eva account the key
factors in several areas
the performance areas n of these. This is quite a and then
comprehensive sets out to
an
,Businss ntelngeCe sVstems Is one organisation. method as it takes a
holistie view
ternal and external data ot the coneepts used for
By itselt, business repositories available to an
discovering knowledge lrom varnus im-
intelligence systems are not meantorganisation
to
support ellective decision
the potential to act as
valuable inputs of
for
exercising operational control but
making
one ot the
primary applications of information that can be used for they have
management. îhis can be business intelligence operational control. In fact,
systems is in the area of corporate
accomplished by accessing data warehouses,
creating analytical reports that performance
can help in using data mining tools, an
Balanced scorecard method is based on theperformance evaluation.
perspective, internal business perspective, identification of four key performance measures of
tive. The method is a
balanced approach to
innovation and learning
perspective, and the financial customer
perspec-
taken into account for performance measurement
evaluation. The balanced scorecard, as there are a
range of
offers a way to measure an coupled with business intelligenceparamelerS
systems
organisation's performance against its strategic
building capabilities to achieve these objectives. The balanced objectives while focusing on
customerS, internal processes, human seorecard examines performance related to
resources and finance. It can be used
for deciding the key drivers ol
performance and focusing attention on the goals and targets thus
performance evaluation. helping to create a balanced system of
Besides the several techniques referred to
other previously, we will ereate two other categories to describe some
techniques
used. These are not a
part of the organisational appraisal. The first category is of specal
purpose techniques and the other is auditing.

Special purpose techniques Asyou will observe, the special-purpose techniques are used in
situations by some organisations to assess particular
performance and exercise operational control. These are the
network techniques. management by objectives, the parta system, memorandum of
and evaluation studies in non-governmental organisations
understanding (MOU).
(NGOs).
I. Nenwork techniques such as PERT, CPM, and their variants, are
extensively used for operational control
of scheduling and resource allocation in projects. These are tried and tested techniques with proven ef-
fectiveness and have been in use since 1956 when they were first proposed. When network techniques are
modified for use as a cost accounting system, they become highly effective operational controls for project
24
costs and performance
Management by Objectives (MBO) is the system. proposed by Peter Drucker, based on regular evaluation
of performance against objectives that are decided upon mutually by the superior and the subordinate. By
the process of consultation, objective-setting leads to the establishment of a control system that operates
on the basis of commitment and self-control. I hus, the scope of MBO to be used as an operational control

Is
quite classic technique being in existence since 1954 when it was first pronosed
extensive. lt is a
Marwari firms to keep track of daily cash
The parta system is an indigenous system adoptca Usuainy by
budget or the net cash inflows from operations before tax and
generation. Parta is the pre-determined
between the tamily group and company head and actual per-
dividend' 25 The parta is decided in advance on a
daily dasis, thus making parta an effective operational
formance is compared to this budgeted parta
control device. to objectives between individuals and orouns
like MBO IS a commiment
Memorandum of understanding d pubiic enterprise and the government,
deiwcen repre.
an agreemetnt
a MOU Is
within an organisation,
 acdministrative inistry in whieh beolh parties clearly spccily
lheir
Conntnentsand
c a y theHaving
Sibilities" done thal, the catervrineu atc evaluated on the bau o e M T g h an Mj
s 1UC Can be extened
OUght ol as a lechnique used olely in the context ol publc cntetprise,
y
ny Situalon where an external apeney is required to evaluate a fin perlorAe, Thus, the MN
SCt an MOUwith its subsidiary and a lamily bINinCss C o C l C a n C an " " 9 (t

COmpanCs. With grcater professionalisation ofl vivate firms, cupeCally in he Tatnily Disiiess s
, Jiblic and iyahe
e ol MOUs can be helplul. MOUN can also be set up between yovennenl an
tifufions. n 1aC1, M s are heC
Seetororganisations, and commercial organisations and cial
lorm ol inter-organisational relationship among all 1ypCs o parlCrng
rginisatiton, Su
"COOn
aditionally in India the usage ol MOUis a popular mcthod for the evalu1li n 9 pCTO1AtiC n puble
Cheprise, we will take this opportunity to providean cxhibit which describe Ihe ontext ) which M
are used. Fxhibit 14.6 describes how operational control is done in central pihlic enteIpriCn in lInda
Kesul1Jruework aheunwnt (RED) is an arrangement specially deigncd lor poveInenl m i t sad
epartments of inistries in the Indian government, Initiatcd in 2011, it ha perlornance mo
and evaluation system' aimed at goal sctting and performanve evalation as a part ol lhe MO, The P
provides a summary of the important results thal a ministry or deparlncnt cxpccts lo achicve n a finaal
ycar. It has an agroed upon set of objectives, policies, programmes and projcct Incldiny the succes, Inre

The system of RFC18nanaged by the abitct

Cators and targcts to measure progress in implementation.
Secretarial, Ciovernment of India.
clting or tie purp
.valuation studies in NGOs: Non-governmental organisations offer unquc f
a

strategic evaluation and control. Thc NGOs are organisations thal arc not in businC to make profit,s
perlormance goals unique to their activities, and sct strategies to achcve gals and compcte with otlier
NGOs for scarce resources. NGOs in India as clsewhere are typically ol snall size, unorganed, run
unprofesSIonally, and attempt to achieve a wide varicty of cconomic, politIcal, and soCal objcctive: In
such a milieu it is difficult for the NGOs to adopt formal standards and mcasures of perlormante (ften,
evaluation ol performancc is done by simple means such as observation, visual inspection, informal drun
SIOns, interviews with projcct stalf, beneficiaries, and knowledycablc mformants who arc local people,
in evaluation. Ifcvaluation can deontrate
and from project records. A high level of subjectivily is prescnt
good achievement, NGOs can attract more funding, criticisms can be cou1tered, suCCCss Can be replcated,
and lacunac in formulation and implenentation rcmovcd. Yet, evaluation is not widely practiced by NO%
has ended and
If done, it is a onc-time affair done usually when one phase of project being implemented
of evaluation studies are periodic project
funding for the next phase requires justification. Common forms
nccd to devclop workable methodologies and criteria for
reports and financial audits. There is an obvious
evaluating NGO performance especally in the contemporary situation where there is an increasiny trend
with the corporate sector.""
ofNGO partnersBhips

Exhibit 14.6 Operational Control of Central Public Enterprises in India

The Governnent of India is the owner of 245 central publiC sector enterprises (CPSEs). Banir ally, t (P'SFs a
aceountable to the Parliament, and through audit and annual reports. Aduinistrative n entrolling uinntr
committees on Public Undertakings, Bureau of Public Enterprises (BPE), aned the Colnpiroller and Audl
Ceneral of India (CAC) are the main agencies concerned with the performanee evaluaticm of (P'Sk
of ta
In 1987-88, the Government of India introduced the system of MOUs for performanee evaluatien
MOU is a freely negotiated agreement between the public enterprise and the administrative ministry, h l r r in

beginning of thr ear

agreement the enteprises undertake to achieve the targets set in the agreement at the
MOU covers both finan ial pertormance as well as non finaneial prrfor mane e, linrder ths system peito
of the conpany is orgarised into five categories namely: excellent, very gont, gond, fair, atned eo
 MOU system are to:
bjectives of the
the performance
of pub enterprises by increasing autonomy and accounta of the manage-
Improv

m e n t .

lhe fuzziness in the goals and objectives the enterprise is to pursue through clearly laid down perfor
Remove.

at the beginning
of the year in an MOU entered into between Chief Executive and Secretary
targets
mance

Administrative Ministry.
of the mechanism to
the.evaluation of manageria performance through objective criteria and provide a
Enable
incentives to stimulate improved performance.
reward good performance through performance
October/November ach year, the formulation of MOU takes place through
on
timeline that starts in
Based participants on the side of the enterprises between all the
process of consultations and negotialions the
targets on a five-point scale as proposed by
laborate
MOUs indicate the performa
ane
l a

Government. The draft

andthe like production, sales, profits, etc. Additionally, the
ensuing financiai vear for all crucial parameters
DSE for the
of signifhcance for strengthening the
future potential of
to include dynamic parameters
CPSEs are also expected R&D, human
r e s o u r c e development (HRD), etc.
Appropriate
such as project implementation,
the enterprise,
weights are assigned
to each of these parameters. devised through the balanced scorecard approach
on standards
of performance is based each. The non-
The measurement weights of 50 per cent

financial and non-financial parameters having equal

and includes both dynamic parameters
(30 per cent), enterprise-specific
parameters
further divided into
financial parameters are
(10 per cent).
(10 per cent), and sector-specific parameters have been mixed with a
bias towards its increasing
MOUs an evaluation system
Several experts including CPSE
as
Overall, the results of using autonomy.
higher operational
CPSEs have benefited by having CPSEs does not
acceptability. The that devolution of authority
from the government to
critical of the system and
feel
managers are
expected. http://dpe.nic.in/; MOU
Guide
match the accountability Government of India at

of the Department of Public Enterprises, Both websites retrieved 8

Sources: Website h t t p : / / w r w w . d p e m o u . n i c . i n / M O U F i l e s / M o U 2 0 1 4 - 1 5 . p d f .

2014-2015 available at
lines for
November, 2014.

to evaluate the
watchdog function in
an organisation used
Auditing is basically a
indirect role in
Auditing techniques such as the accounting system.
Auditing can play an
correction of
soundness of organisational systems in the organisational systems
the
lacunae
control as it helps in finding
exercising operational There are many different types
of audit used by organisations
improvement. make a special
which can aid in performance audit. Under auditing we will
audit, or information system
such as financial audit, operational activities is not limited to the
The impact of organisational
environmental audits. the
mention of social and evaluation and control needs to
take account the impact of
itself. Strategic
confines of the organisation and the physical
environment.

activities on the society but

organisational sector since the 1950s
prevalent in the voluntary been
Social audit has in
. Corporate social auditing: 1ore during the 1970s. We
referred to corporate social audit
come to the
corporate social
audit has only social audit is 'a commitment to systematic
social responsibility. Corporate
Section 3.4 while discussing dennable domain of the company's
activities that have
on some meaningrul,
assessment of and reporting as 'a method for organisations to plan, manage and measure non-

understood
of the organisation's social
29
Social imnact It is also ànd external consequences
internal
monitor both the
financial activities and to an organisation to assess the impact of its operational
Social audit can help better
and commercial operations." contribute to a
community as
well as larger sOCiety. This could
performance on the contiguous
and responsibility.
understanding of
its social role n e environmental and sustainability agenda has been
sustainabilityreporng
Environmental auditing and
environmental
taken Serious notice during the 1990s. An
has only
1970s but business
alive globally since
516 Strategic Management
audit is a method used to obtain accurate, comprehensive, and meaningful intormauon on ne environmental

mpact ofa company from which management decisions can be based." In India, environmental cleatance
IS required to be obtained by industries whenever a new plant is set up or for an extension of an existing
plant. Every financial year, the companies have to submit an environmental statement to the respective
state pollution control boards in which their production units are situated. Environmental audit in India is
done as a part of the compliance and performance audit done by the Supreme Audit nstituton under the
Comptroller and Auditor General of India.32 Organisations including companies in the public and private
sector bring out their sustainability reports to account for their performance in the area ot Sustanability

management.
All the techniques discussed in this section have their respective merits and demerits. Strategists have
to exercise a judicious choice from among the techniques to be used for strategic evaluation and control
based on the requirements of the strategy that they are implementing. It is also clear that both strategic and

operational controls have to be used in tandem to have an effective evaluation system.

14.5 ROLE OF ORGANISATIONAL SYSTEMS IN EVALUATION LO 5

he process of strategic evaluation and control does not operate in isolation; it workS on the basis of different
organisational systems that are used to implement strategies. We briefly review the role that organisational
systems play in evaluation.

Role of Information Systemn

The use of computerised information system in organisations has opened up myriad possibilities for using them
for pertormance monitoring and reporting. In the control process, as we have seen earlier, evaluation is done
be on the basis
by comparing actual performance with standards. The measurement of
performance can done
of reports generated through the information system. In fact one of the purposes of information management
system is to enable managers to keep track of performance through control reports. Several of the techniques
described in the previous section, whether for strategic surveillance or financial analysis, are based on the use
of information system to provide relevant and timely data to managers to evaluate performance and strategy
and initiate corrective action.
There are some essential conditions to be satistied before information systems can play an effective role in

strategicevaluation. First, all stakeholders of the organisation must agree on the objectives and strategies to
achieve them. Indicators must be defined for measuring performance and data sources have to be identified

clearlyfor those indicators. Collection of data must then take place systematically and collated and aggregated
to be reported in user-friendly formats. Finally, the data must be used by managers to assess and improve per
formance.
With the increasing sophist1cation of the information management systems and the use of IT, it is possible
to devise elaborate methods for evaluation.
One big benetit of using computerised information systems is the
of this is significant as
facility of real-time information availability to managers. For the purpose evaluation
access to real-time information can enable managers to take timely corrective action
rather than wait to find
such
out the variance of actual from standard performance at the end of the evaluation process. Techniques
as data warehousing and data mining enable organisations
to delve deep into their internal systems and come
software is
with information that can be useful for evaluation and control purposes. Business intelligence
up
of
becoming a popular IT application in helping organisations accessing data for the purpose performanc
evaluation. Scorecards, dashboards, and key performance indicators are increasingly being used. The balanceu
management. A corporate executive dashboard.
scorecard technique is quite a popular tool for performance or

which is an IT tool to pull relevant data from the management information system and present in an iniere
 er [ace format, 1s trequently used to access real-time information in organisations. Thus, for instance, a
manager may have instant access to sales and distribution data from the field offices or a financial
maráeung
a n he alerted in time if cost estimates are excecded. In such situations, it is casier for managers to
ttatecorTectiveac quickly to deal with performance deviation. Key performance indicators
action
performance to be achieved.
or metrics are
Mcasures ofp
ions either buy a ready-to-use licensed software package or get a customised software system
organisatio

c d according to their needs and requirements from a vendor of their choice. Many organisations design
ld their own sotware packages that could be a better option in many cases. Information technology-

stems such as strategic

enterprise management (SEM) helpto can realise the full potential of informa-
stem
stemm
in
in strategic evaluation. The SEM approach seeks to effectively link performance measurement
non sy is focused on
ontrol to strategie objectives, in an attempt to ensure that operational decision-making fully
(ERP) systems
d e

ing strategic objectives" While the more popular enterprise-wide resource planning
l i v e r .

attempt
to blish a horizontal linkage between the value chain activities in an organisation, SEM systems
functions such as
strategie management by setting up a vertical linkage between strategic management
atnport
Supp Irom available
instance SAP Business Suite are
ategic evaluation and control. Comprehensive systems, for cycle
provide customer relationship management, ERP, product life
strate
such as SAP AG that elaim to
IT vendors 4
on a single platform
management. supply chain management, and supplier relationship management

Role of Control System standards, measuring

the heart of any evaluation process for setting
of course, is at
The control system, the control system in
variances, and taking corrective action. The central role of
oerformance, analysing
this chapter
evaluation is evident trom our discussion in it is to be planned for.
evaluation and control is a part of strategic management process
Since strategie the information gener-
these to be dealt with: Who will perform evaluation? How will
Questions such
are
as
exercised so that it is
resources will be required? To
what extent will control be
How much
ated be used' to support the evaluation system?
Further, the
What administrative systems will be required
cost-etfective?
the reformulation of strategies, plans,
feedback to the planning system for
evaluation process also provides on a continual basis.
closely interacts with the evaluation process
and objectives. Thus, the planning system and operation-
the managers for performing strategic
in an organisation prepares
The development system
the most important is to
match a person with the job to be
aims of development,
al tasks. Among the several standards. This matching can be done
is matching actual performance with
words, skills
performed. This, in other what is deficient in terms of knowledge,
what a manager is required to do, and
prov ided it is known we term as corrective action
out through the appraisal system. What
is found
and attitude. Such a deficiency of steps that would lead to the development of
individuals so
in reality. the taking
in the evaluation process is, in evaluation is, therefore, to help
system
The role of development
as required.
systems used
asto enable them perform to
corective action. Employee performance management
strategists to initiate and
implement control in organisations.
role n development system for exercising
helpful
Tnrough applications ofIT play
a

Role of Reward System on the basis of appraisal of performance of indi-

the
their reward systems
of
Organisations design and operate critical role ol evaluating managerial performance in the light
VIduals. The appraisal system
performs the evaluates pertormance and so is a part of the wider
system actuaily
The appraisal
organisational obiectives. however, is to be acknowledged.
role in evaluation, the organisational obiectives
Ontrol system. Its significant iIs their contribution to
is appraisea, it
of managers of
performance of
When the performance 1s difficult
it is
differentiate
to d strictly between the performance
i l i e r e n t i a t e strictly

measured. In practice. ancu o to. Ihus, the achievement of a department or a

that isis sou
sought to be units they Delong
that ofthe
organisational
tndividuals and
 profit centre is the sum total-or even more, synergistically-of the individual pertormance of managers
and employees in that evaluation process, through the appraisal system,
department or profit centre. The
measures the actual performance and provides the basis for the control system to work.
The relevance of reward systems to strategy implementation can be seen from the fact they are to be
linked to control system at one end and motivation at the other. The central role of the motivation system is
to induce strategically desirable behaviour so that managers are encouraged to work towards the achievement
of organisational objectives. Now, if we look at the way that the evaluation process works, we will observe
that its efficacy depends on the extent to which it is able to bring actual performance to the level of standards.
In other words, the lesser is the deviation of actual performance from standards, the higher is the efficacy
of the evaluation process. The motivation systems play a significant role in ensuring that deviations do not
occur, or if they do, then they are corrected by the means of the rewards and penalties. Incentives systems
are directly related to the amount of deviation. Performance checks, which are a feedback in the evaluation
process (see Exhibit 14.2), are done through the motivation system.
During the process of strategic evaluation and control managers take one of three steps as shown in
Exhibit 14.2: exercise a check on performance, put into effect a check on standards or reformulate plans,
strategies, or objectives.
With the reformulation of objectives, we have reached the end of our intellectual journey or, may be,
the beginning of a new one. The process is cyclical and recommences to traverse the path we have charted
in the course of our study of strategic management. We hope that you enjoyed this intellectual journey as
much as we did.