MGMT 3031

BUSINESS STRATEGY & POLICY

LECTURE 8
Strategy Evaluation

Prof. Dwayne Devonish

Learning Objectives of the Course

 To appreciate the nature and relevance of the strategy

review, evaluation and control function and its
supporting activities
 To explain and discuss various tools and techniques
in strategy evaluation activities
 To assess the efficacy of strategies using various
tools and techniques of strategy evaluation

Ch 1 -2

1
 Ch 9 -3

Strategy Evaluation?

Copyright © 2011 Pearson Education, Inc. Ch 9 -4

Publishing as Prentice Hall

2
 Importance of Strategy Evaluation

Copyright © 2011 Pearson Education, Inc. Ch 9 -5

Publishing as Prentice Hall

Strategy Review, Evaluation,

and Control

The best formulated and best implemented strategies

become obsolete as a firm’s external and internal
environments change.

Therefore, it is essential for strategists to systematically

review, evaluate, and control the execution of strategies.

Ch 9 -6

3
 Strategy Review, Evaluation, and
Control
Strategy Evaluation is vital to an organization’s well
being.
Timely evaluations can alert management to potential
or actual problems before a situation becomes
critical.

Strategy Evaluation includes three basic activities:

(1) Examining the underlying bases of a firm’s
strategy.
(2) Comparing expected results to actual results.
(3) Taking corrective actions to ensure that
performance conforms to plans.
Ch 9 -7

Ch 9 -8

4
 Strategy Review, Evaluation, and
Control
Strategy Evaluation
 Adequate and timely feedback is the
cornerstone of effective Strategy Evaluation.
 Strategy Evaluation is important because
organizations face dynamic environments in
which key external and internal factors can
change quickly and dramatically.
 Strategy Evaluation is essential to ensure that
the stated objectives of an organization are
being achieved.
Ch 9 -9

Strategy Review, Evaluation,

and Control
Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage

Ch 9 -10

10

5
 Strategy Review, Evaluation,
and Control

Consistency
 Are the external strategies consistent with
(supported by) the various internal aspects of
the organization?
Business owners must determine whether internal objectives are aligned
with external goals. For example, are the sales and marketing teams
working together to achieve success? Is the marketing team implementing
suggestions from the salespeople, or are they working against each other
because of a lack of communication? Consistency within a company
depends on communication from top to bottom, and from rank-and-file up to
management levels

11

Strategy Review, Evaluation,

and Control

Consonance (or Adaptability)

 Are the strategies in agreement with the
various external trends (and sets of trends) in
the environment?
Businesses must determine how well they are prepared to adapt to changes in
their industry, as well as how well they adapt to their competitors.

Example: A company that sells skateboards may realize that the market has
shifted from young buyers to older buyers who are trying to recapture their
youth. That change will require the company to shift its marketing and
production strategy to target this new market
Ch 9 -12

12

6
 Strategy Review, Evaluation,
and Control

Feasibility
 Is the strategy reasonable in terms of the
organisation's resources?
The final aspect of the evaluation is determining whether the overall
strategy that a company wants to pursue is feasible.

For example, this may require an evaluation of employee skills and

talents, but especially requires the financial resources a company has
at its disposal.

Ch 9 -13

13

Strategy Review, Evaluation,

and Control

Advantage
 Does the strategy create and/or maintain a
competitive advantage?

Rumelt encourages businesses to assess their innovation, technology, and

creativity, in comparison to their competitors. The key question is this: How can we
perform it either better than, or at least instead of our rivals?

Ch 9 -14

14

7
 Strategy Review, Evaluation,
and Control

Strategy Evaluation Should –

 Initiate managerial questioning of expectations and

assumptions
 Trigger a review of objectives & values
 Stimulate creativity in generating alternative strategies
and formulating criteria for evaluation
 Be performed on a continuing basis, rather than at the
end of specified periods of time or just after problems
occur.

Ch 9 -15

15

Strategy Review, Evaluation,

and Control

Review of Underlying Bases of Strategy –

 Develop revised IFE Matrix

 Develop revised EFE Matrix

Ch 9 -16

16

8
 Strategy Review, Evaluation,
and Control
Monitor Strengths & Weaknesses;
Opportunities & Threats

 Are our strengths still strengths?

 Has our organization added additional strengths?
 Are our weaknesses still weaknesses?
 Has our organization developed other
weaknesses?

Ch 9 -17

17

Strategy Review, Evaluation,

and Control
Monitor Strengths & Weaknesses;
Opportunities & Threats
 Are our opportunities still opportunities?
 Have other opportunities developed?
 Are our threats still threats?
 Have other threats emerged?

Copyright © 2011 Pearson Education, Inc. Ch 9 -18

Publishing as Prentice Hall

18

9
 Strategy Evaluation Framework
 Table 9-3 summarizes strategy evaluation
activities in terms of key questions that should
be addressed, alternative answers to those
questions, and appropriate actions for managers
to take.
 Note that corrective actions are needed except
when (1) external and internal factors have not
changed significantly and (2) the firm is making
satisfactory progress toward achieving its
objectives.

Ch 9 -19

19

Ch 9 -20

20

10
 Ch 9 -21

21

Strategy Review, Evaluation,

and Control

Measuring Organizational Performance

 Compare expected to actual results

 Investigate deviations from plan
 Evaluate individual performance
 Examine progress toward stated objectives

Ch 9 -22

22

11
 Criteria for Evaluating Performance

Ch 9 -23

23

Strategy Review, Evaluation,

and Control

Quantitative Criteria for Strategy Evaluation

Strategists use financial ratios to:

 Compare a firm’s performance over different time
periods
 Compare a firm’s performance to competitors’
performance
 Compare a firm’s performance to industry averages

Ch 9 -24

24

12
 Strategy Review, Evaluation, and Control
Some key financial ratios that are useful for evaluating strategies
are:
 Return on  Debt to equity
investment (ROI)  Earnings per share
 Return on equity (EPS)
(ROE)  Sales growth
 Profit margin  Asset growth
 Market share

Ch 9 -25

25

Taking Corrective Action

 Taking corrective action is the final strategy
evaluation activity. It requires making changes to
competitively reposition a firm for the future.
 Examples of changes that may be needed are
altering an organization’s structure, replacing one or
more key employees, selling a division, devising new
policies, issuing stock to raise capital, allocating
resources differently, or revising the firm’s mission.
 Taking corrective action is necessary to keep an
organization on track toward achieving its
objectives.

Ch 9 -26

26

13
 Strategy Review, Evaluation, and
Control
The Balanced Scorecard is a strategy evaluation
tool. It uses both quantitative and qualitative
measures to evaluate strategies.
A Balanced Scorecard analysis requires firms to
answer these questions:
1. How well is the firm continually improving and
creating value along measures such as innovation,
technological leadership, product quality,
operational process efficiencies, etc.?
2. How well is the firm sustaining or improving upon
its core competencies and competitive advantages?
3. How satisfied are the firm’s customers?
4. How well is the firm developing its internal human
resources and satisfying their needs?
Ch 9 -27

27

Balanced Score Card

Ch 9 -28

28

14
 Copyright © 2011 Pearson Education, Inc. Ch 9 -29
Publishing as Prentice Hall

29

Full Evaluation Steps

Ch 9 -30

30

15
 Full Evaluation Steps

Copyright © 2011 Pearson Education, Inc. Ch 9 -31

Publishing as Prentice Hall

31

16