Strategic Management Concepts: A

Competitive Advantage Approach,

Concepts and Cases
Seventeenth Edition, Global Edition

Chapter 9

Strategy Evaluation, and

Governance

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Learning Objectives
9.1 Discuss the strategy-evaluation process.
9.2 Discuss three activities that comprise strategy
evaluation.
9.3 Describe and develop a Balanced Scorecard.
9.4 Discuss the role of a board of directors (governance) in
strategic planning.
9.5 Identify and discuss four challenges in strategic
management.
9.6 Identify and describe 17 guidelines for effective strategic
management.

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Figure 9.1
The Comprehensive, Integrative Strategic-Management
Model

Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, n o. 1 (February 1989): 91. See
also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance Scorecard of David’s
Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics and
Technology, n o. 4 (October 2010): 20.
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Strategy Evaluation
Three basic activities:
1. Examine the underlying bases of a firm’s strategy.
2. Compare expected results with actual results.
3. Take corrective actions to ensure that performance
conforms to plans.

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Why Strategy Evaluation is More
Difficult Today (1 of 2)
1. Domestic and world economies are today more
interrelated
2. Product life cycles are shorter
3. Technological advancements are faster
4. Change occurs rapidly

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Why Strategy Evaluation is More
Difficult Today (2 of 2)
5. Competitors abound globally
6. Planning cycles are shorter
7. Social media and smartphones have changed everything

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Strategy-Evaluation Activities
• Corrective actions are almost always needed except when
– External and internal factors have not significantly
changed, and
– the firm is progressing satisfactorily toward achieving
stated objectives

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Table 9.1 A Strategy-Evaluation
Assessment Matrix
Have Major Changes Has the Firm
Occurred in the Have Major Changes Progressed
Firm’s Internal Occurred in the Satisfactorily Toward
Strategic Firm’s External Achieving Its Stated
Position? Strategic Position? Objectives? Result
No No No Take corrective actions

Yes Yes Yes Take corrective actions

Yes Yes No Take corrective actions

Yes No Yes Take corrective actions

Yes No No Take corrective actions

No Yes Yes Take corrective actions

No Yes No Take corrective actions

No No Yes Continue present

strategic course

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Figure 9.2
A Strategy-Evaluation Framework

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Reviewing Bases of Strategy (1 of 2)
1. How have competitors reacted to our strategies?
2. How have competitors’ strategies changed?
3. Have major competitors’ strengths and weaknesses
changed?
4. Why are competitors making certain strategic changes?

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Reviewing Bases of Strategy (2 of 2)
5. Why are some competitors’ strategies more successful
than others?
6. How satisfied are our competitors with their present
market positions and profitability?
7. How far can our major competitors be pushed before
retaliating?
8. How could we more effectively cooperate with our
competitors?

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Measuring Organizational
Performance
Strategists use common quantitative criteria to make three
critical comparisons:
1. Comparing the firm’s performance over different time
periods
2. Comparing the firm’s performance to competitors’
3. Comparing the firm’s performance to industry averages

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Table 9.3 Corrective Actions
1. Alter the firm’s structure.
2. Replace one or more key individuals.
3. Divest a division.
4. Alter the firm’s vision or mission.
5. Revise objectives.
6. Alter strategies.
7. Devise new policies.
8. Install new performance incentives.
9. Raise capital with stock or debt.
10. Add or terminate salespersons, employees, or managers.
11. Allocate resources differently.
12. Outsource (or reshore) business functions.
Corrective Actions Possibly Needed to Correct Unfavorable Variances

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The Balanced Scorecard
• The balanced scorecard is a strategy evaluation and
control technique.
• There is a wide variation in how the balanced scorecard is
used.
• The technique is based on the need to “balance” financial
measures with nonfinancial ones.

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Table 9.4 An Example Balanced
Scorecard (1 of 2)
Area of Objectives Measure or Target Time Expectation Primary Responsibility
blank blank blank

Customers
blank blank blank

1.
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2.
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3.
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4.
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Managers/Employees
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1.
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2.
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3.
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4.
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Operations/Processes
blank blank blank

1.
blank blank blank

2.
blank blank blank

3.
blank blank blank

4.

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Table 9.4 An Example Balanced
Scorecard (2 of 2)
Area of Objectives Measure or Target Time Expectation Primary Responsibility
blank blank blank

Community/Social Responsibility
blank blank blank

1.
blank blank blank

2.
blank blank blank

3.
blank blank blank

4.
blank blank blank

Business Ethics/Natural
Environment
blank blank blank

1.
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2.
blank blank blank

3.
blank blank blank

4.
blank blank blank

Financial
blank blank blank

1.
blank blank blank

2.
blank blank blank

3.
blank blank blank

4.

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Board of Directors: Governance
Issues
• A board of directors is a group of individuals at the top of
an organization with oversight and guidance over
management and who look out for shareholders’ interests.
• The act of oversight and direction is referred to as
governance.

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Table 9.5 Board of Director Duties
and Responsibilities (1 of 2)
1. CONTROL AND OVERSIGHT OVER MANAGEMENT
a. Select the Chief Executive Officer (C EO).
b. Sanction the CE O’s team.
c. Provide the CE O with a forum.
d. Ensure managerial completely.
e. Evaluate management’s performance.
f. Set management’s salary levels, including fringe benefits.
g. Guarantee managerial integrity through continuous auditing.
h. Evaluate corporate strategies.
i. Devise and revise policies to be implemented by management.
2. ADHERENCE TO LEGAL PRESCRIPTIONS
a. Keep abreast of new laws.
b. Ensure the entire organization fulfills legal prescriptions.
c. Pass bylaws and related resolutions.
d. Select new directors.
e. Approve capital budgets.
f. Authorize borrowing, new stock issues, bonds, and so on.

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Table 9.5 Board of Director Duties
and Responsibilities (2 of 2)
3. CONSIDERATION OF STAKEHOLDERS’ INTERESTS
a. Monitor product quality.
b. Facilitate upward progression in employee quality of work life.
c. Review labor policies and practices.
d. Improve the customer climate.
e. Keep community relations at the highest level.
f. Use influence to better governmental, professional association, and educational contacts.
g. Maintain good public image.
4. ADVANCEMENT OF STOCKHOLDERS’ RIGHTS
a. Preserve stockholders’ equity.
b. Stimulate corporate growth so that the firm will survive and flourish.
c. Guard against equity dilution.
d. Ensure equitable stockholder representation.
e. Inform stockholders through letters, reports, and meetings.
f. Declare proper dividends.
g. Guarantee corporate survival.
h. Guarantee the film’s financial statements are feasible and accurate.

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Four Challenges Facing Strategists
• Is the process more of an art or a science?
• Should strategies be visible or hidden from stakeholders?
• Contingency planning
• Auditing

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Contingency Planning (1 of 3)
• Contingency plans can be defined as alternative plans
that can be put into effect if certain key events do not occur
as expected.

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Contingency Planning (2 of 3)
• If a major competitor withdraws from particular markets as
intelligence reports indicate, what actions should our firm
take?
• If our sales objectives are not reached, what actions
should our firm take to avoid profit losses?

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Contingency Planning (3 of 3)
• If demand for our new product exceeds plans, what actions
should our firm take to meet the higher demand?
• If certain disasters occur, what actions should our firm
take?
• If a new technological advancement makes our new
product obsolete sooner than expected, what actions
should our firm take?

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Auditing
• Auditing
– “a systematic process of objectively obtaining and
evaluating evidence regarding assertions about
economic actions and events to ascertain the degree of
correspondence between these assertions and
established criteria, and communicating the results to
interested users”

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Guidelines for Effective Strategic
Management
1. Keep the process simple and easily understandable.
2. Eliminate vague planning jargon.
3. Keep the process non routine; vary assignments, team
membership, meeting formats, settings, and even the planning
calendar.
4. Welcome bad news and encourage devil’s advocate thinking.
5. Do not allow technicians to monopolize the planning process.
6. To the extent possible, involve managers from all areas of the
firm.

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Table 9.6 Guidelines for Strategic
Planning to be Effective
1. It should be a people process more than a paper process.
2. It should be a learning process for all managers and employees.
3. It should be words supported by numbers rather than numbers supported by words.
4. It should be simple, non-routine, economical, and provide timely information.
5. It should vary assignments, team memberships, meeting formats, and even the planning calendar.
6. It should challenge the assumptions underlying the current corporate strategy.
7. It should welcome bad news and provide a true picture of what is happening.
8. It should welcome open-mindedness and a spirit of inquiry and learning.
9. It should not be a bureaucratic mechanism.
10. It should not become ritualistic, stilted, or orchestrated.
11. It should not be too formal, predictable, or rigid.
12. It should not contain jargon or arcane planning language.
13. It should not be a formal system for control and should not dominate decisions.
14. It should not disregard qualitative information.
15. It should not be controlled by “technicians.”
16. Do not pursue too many strategies at once.
17. Continually strengthen the “good ethics is good business” policy.
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Figure 9.3
How to Gain and Sustain Competitive Advantages

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