STRATEGIC

EVALUATION AND
CONTROL
Nature
◦ The purpose of strategic evaluation is to evaluate the effectiveness of a strategy in
achieving organizational objectives.

◦ Thus, strategic evaluation and control could be defined as the process of determining
the effectiveness of a given strategy in achieving the organizational objectives and
taking corrective action wherever required.

◦ Strategic evaluation performs the crucial task of keeping the organization on the right
track.
◦ Through the process of strategic evaluation and control, two sets of questions are
answered:

◦ (a) Are the premises made during strategy formulation proving to be correct? Is the
strategy guiding the organisation towards its intended objectives? Is there a need to
change and reformulate the strategy?
◦ Strategic Control

◦ (b) How is the organization performing? Are the time schedules being adhered to? Are
the resources being used properly?
◦ Operating Control
Importance of Strategic Evaluation
◦ 1. Need for feedback, appraisal, and reward
◦ 2. Check on the validity of strategic choice
◦ 3. Congruence between decisions and intended strategy
◦ 4. Successful culmination of the Strategic management process
◦ 5. Creating inputs for new strategic planning
Process of Evaluation
1. Setting standards of performance
2. Measurement of performance
3. Analysing variances
4. Taking corrective action
 Setting Measurement
Strategy/ Plan/ Actual
standards of of
Objectives performance
Performance Performance

Check Performance
Check Standards
Reformulate

Analysing
Variance

Feedback
1. Setting standards of Performance
◦ (a) What standards should be set?
◦ (b) In what terms should these standards be expressed?

◦ The key managerial tasks, derived from the strategic requirements, can be analyzed for
finding out the key performance areas. Standards can then be set in each of these key
result areas.
◦ Performance indicators that best express the requirements that will help in success in
the key performance areas could then be decided upon to be used for evaluation.
◦ Example-
◦ If a company decides to adopt market development strategy
◦ The key managerial tasks would be
to improve market presence and enhance market visibility.
◦ Indicators in this case would then be
increase in market share, sales revenue, efficiency of sales force etc.

Quantitative criteria Qualitative criteria

* Standards can be set using benchmarking, industry average, or year on year trend
(past performance) of the company on that indicator.
 Indicators for Quantitative Criteria Indicators for Qualitative Criteria

◦ Net profit ◦ Core Competencies

◦ Stock Price ◦ Risk-bearing capacity
◦ Earnings per share ◦ Strategic Clarity
◦ Return on Capital ◦ Capabilities, etc.
◦ Return on Equity
◦ Market Growth
◦ Growth in Sales
◦ Production cost and efficiency, etc.
2. Measurement of Performance
◦ Operationally, measuring is done through the accounting, reporting and
communication systems.
◦ A variety of evaluation techniques are used for measurement
◦ a) VRIO Framework
◦ b) Value Chain Analysis
◦ c) Management by Objectives

◦ Issues include-
◦ Timing of measurement
◦ End of a definable activity or the conclusion of a task
◦ Periodicity in measurement
◦ Mostly, on an annual basis, quarterly or monthly basis (as required)
◦ a) VRIO Framework
◦ Use to examine capabilities (qualitative criteria)

◦ The basic idea behind the VRIO framework is that sustainable strategic advantage
results through the use of capabilities that are Valuable, Rare, Inimitable and
Organized for usage.

◦ Based on these four criteria an organization can evaluate if its objective of creating
superiority in a certain capability was achieved or not.

◦ b) Value Chain Analysis

◦ This focuses on a set of inter-related activities performed in a sequence, for producing
and marketing a product or service.

◦ The total task of a firm is segregated into identifiable activities which can then be
evaluated for effectiveness.
◦ c) Management by Objectives
◦ System proposed by Peter Drucker, which is based on a regular evaluation of
performance against objectives that are decided upon mutually by the superior and the
subordinate.
◦ Objective setting leads to the establishment of a control system that operates on the
basis of commitment and self-control.
3. Analyzing Variance
◦ The measurement of actual performance and
comparing it with the standard or budgeted
performance leads to an analysis of variances.
◦ Following situations might arise:
◦ A) The actual performance matches the budgeted
performance.
◦ B) The actual performance is better i.e., deviates
positively from the budgeted performance
◦ C) The actual performance is below i.e., deviates
negatively from the budgeted performance
First is ideal but not realistic. A
range of tolerance levels are
often created.
Second is welcome, but if it
happens often a check on
validity of standards must be
done
Third is alarming, as it indicates a
shortfall in achievement. The
areas where performance is
below standard must be
pinpointed, and causes of
deviation must be assessed.
Corrective action is then taken.
4. Taking Corrective Action
◦ Checking of Performance
Reformulation of Strategies
◦ Performance is affected adversely due to a number of • Most radical and infrequent
factors such as distortions in resource allocation, corrective action
inappropriateness of structure and systems and wrong • Will take us back to the process
leadership and motivational styles.
of strategic management
◦ An in-depth analysis and diagnosis of the factors that where a fresh strategic choice
might be responsible for bad-performance is necessary. has to be made

◦ Checking of Standards
◦ If it is felt that there is nothing wrong with the
performance.
◦ May result in lowering of standards