DEVENDRA KUMAR GUPTA

KMBN 301
Strategic Management
Unit-5
STRATEGIC EVALUATION

Strategic Evaluation is defined as the process of determining the effectiveness of a given strategy in
achieving the organizational objectives and taking corrective action wherever required Strategy
evaluation is the final step of strategy management process. The key strategy evaluation activities
are: appraising internal and external factors that are the root of present strategies, measuring
performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational
strategy as well as it’s implementation meets the organizational objectives.

Nature of Strategic Evaluation

• Nature of the strategic evaluation and control process is to test the effectiveness of strategy.

• During the strategic management process, the strategists formulate the strategy to achieve a
set of objectives and then implement the strategy.

• There has to be a way of finding out whether the strategy being implemented will guide the
organisation towards its intended objectives. Strategic evaluation and control, therefore,
performs the crucial task of keeping the organisation on the right track.

• In the absence of such a mechanism, there would be no means for strategists to find out
whether or not the strategy is producing the desired effect.

Importance of Strategic Evaluation

• Strategic evaluation can help to assess whether the decisions match the intended strategy
requirements.

• Strategic evaluation, through its process of control, feedback, rewards and review, helps in a
successful culmination of the strategic management process.

• The process of strategic evaluation provides a considerable amount of information and experience
to strategists that can be useful in new strategic planning.

The process of Strategy Evaluation consists of following steps-

1. Fixing benchmark of performance - While fixing the benchmark, strategists encounter

questions such as - what benchmarks to set, how to set them and how to express them. In
order to determine the benchmark performance to be set, it is essential to discover the special
requirements for performing the main task. The performance indicator that best identify and
express the special requirements might then be determined to be used for evaluation. The
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organization can use both quantitative and qualitative criteria for comprehensive assessment
of performance. Quantitative criteria includes determination of net profit, ROI, earning per
share, cost of production, rate of employee turnover etc. Among the Qualitative factors are
subjective evaluation of factors such as - skills and competencies, risk taking potential,
flexibility etc.

2. Measurement of performance - The standard performance is a bench mark with which the
actual performance is to be compared. The reporting and communication system help in
measuring the performance. If appropriate means are available for measuring the performance
and if the standards are set in the right manner, strategy evaluation becomes easier. But
various factors such as managers contribution are difficult to measure. Similarly divisional
performance is sometimes difficult to measure as compared to individual performance. Thus,
variable objectives must be created against which measurement of performance can be done.
The measurement must be done at right time else evaluation will not meet its purpose. For
measuring the performance, financial statements like - balance sheet, profit and loss account
must be prepared on an annual basis.

3. Analyzing Variance - While measuring the actual performance and comparing it with
standard performance there may be variances which must be analyzed. The strategists must
mention the degree of tolerance limits between which the variance between actual and
standard performance may be accepted. The positive deviation indicates a better performance
but it is quite unusual exceeding the target always. The negative deviation is an issue of
concern because it indicates a shortfall in performance. Thus in this case the strategists must
discover the causes of deviation and must take corrective action to overcome it.

4. Taking Corrective Action - Once the deviation in performance is identified, it is essential to

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

Techniques of Strategic Evaluation

1)Gap Analysis

• The gap analysis is one strategic evaluation technique used to measure the gap between
the organization’s current position and its desired position.

• The gap analysis is used to evaluate a variety of aspects of business, from profit and
production to marketing, research and development and management information
systems.
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• Typically, a variety of financial data is analyzed and compared to other businesses within
the same industry to evaluate the gap between the organization and its strongest
competitors.

2) SWOT Analysis

• The SWOT analysis is another common strategic evaluation technique used as a part of
the strategic management process. The SWOT analysis evaluates the organization’s
strengths, weaknesses, opportunities and threats.

• Strengths and weaknesses are internal factors, while opportunities and threats are external
factors.

• This identification is essential in determining how best to focus resources to take

advantage of strengths and opportunities and combat weaknesses and threats.

3) PEST Analysis

 Another common strategic evaluation technique is the PEST analysis, which identifies the
political, economic, social and technological factors that may impact the organization’s ability to
achieve its objectives.

 Political factors might include such aspects as impending legislation regarding wages and benefits,
financial regulations, etc

 Economic factors include all shifts in the economy, while social factors may include demographics
and changing attitudes. Technological pressures are also inevitable as technology becomes more
advanced each day.

 These are all external factors, which are outside of the organization’s control but which must be
considered throughout the decision making process.
4)Benchmarking

 Benchmarking is a strategic evaluation technique that’s often used to evaluate how close the
organization has come to its final objectives, as well as how far it has left to go.

 Organizations may benchmark themselves against other organizations within the same industry, or
they may benchmark themselves against their own prior situation.

 A variety of performance measures, as well as policies and procedures, may be evaluated regularly
to identify where adjustments are necessary to maintain the sustainable competitive advantage.
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STRATEGIC CONTROL
Strategic control is a way to manage the execution of your strategic plan. As a management process,
it’s unique in that it’s built to handle unknowns and ambiguity as it tracks a strategy’s
implementation and subsequent results. It is primarily concerned with finding and helping you adapt
to internal or external factors that affect your strategy, whether they were initially included in your
strategic planning or not.

The various components of the strategic control process generate answers to these two questions:

1. Has the strategy been implemented as planned?

2. Based on the observed results, does the strategy need to be changed or adjusted?

In many senses, strategic control is an evaluation exercise focused on ensuring the achievement of
your goals. The process bridges gaps and allows you to adapt your strategy as needed during
implementation.

Characteristics of strategic control

o it is a continuous process

o it is a management process

o it is embedded in each level of organizational hierarchy

o it is forward looking

o it is closely linked with planning

o it is a tool for achieving organizational activities

o it is an end process

Six Steps Of The Strategic Control Process

Whether your organization is using one or all four of the previous techniques of strategic evaluation
and control, each involves six steps:

1. Determine what to control.

What are the organization’s goals? What elements directly relate to your mission and vision? It’s
difficult, but you must prioritize what to control because you cannot monitor and assess every minute
factor that might impact your strategy.

2. Set standards.

What will you compare performance against? How can managers evaluate past, present, and future
actions? Setting control standards—which can be quantitative or qualitative—helps determine how
you will measure your goals and evaluate progress.
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3. Measure performance.

Once standards are set, the next step is to measure your performance. Measurement can then be
addressed in monthly or quarterly review meetings. What is actually happening? Are the standards
being met?

4. Compare performance.

When compared to the standards or targets, how do the actuals measure up? Competitive
benchmarking can help you determine if any gaps between targets and actuals are normal for the
industry, or are signs of an internal problem.

5. Analyze deviations.

Why was performance below standards? In this step, you’ll focus on uncovering what caused the
deviations. Did you set the right standards? Was there an internal issue, such as a resource shortage,
that could be controlled in the future? Or an external, uncontrollable factor, like an economic
collapse?

6. Decide if corrective action is needed.

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

Strategic Control Types/Techniques

There are four primary types of strategic control:

1)Premise Control

Every organization creates a strategy based on certain assumptions, or premises. As such, premise
control is designed to continually and systematically verify whether those assumptions, which are
foundational to your strategy, are still true. These are typically environmental (e.g. economic or
political shifts) or industry-specific (e.g. new competitors) variables.

The sooner you discover a false premise, the sooner you can adjust the aspects of your strategy that it
affects. In reality, you can’t review every single strategic premise, so focus on those most likely to
change or have a major impact on your strategy.

2)Implementation Control

This type of control is a step-by-step assessment of implementation activities. It focuses on the

incremental actions and phases of strategic implementation, and monitors events and results as they
unfold. Is each action or project happening as planned? Are the proper resources and funds being
allocated for each step? This process continually questions the basic direction of your strategy to
ensure it’s the right one.
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There are two subcategories of implementation control:

• Monitoring Strategic Thrusts Or Projects

This is the assessment of specific projects or thrusts that have been created to drive the larger
strategy. This early feedback will help you decide whether to continue onward with the strategy as is
or pause to make adjustments.

You can pre-determine which thrusts are critical to the achievement of your goals and continually
assess them. Or, you can decide which measurements are most meaningful for your thrusts
or projects (such as timeframes, costs, etc.) and use that data as an indicator of whether a thrust is on
track or not, and how that may subsequently affect the strategy.

• Reviewing Milestones

During strategic planning, you likely identified important points in the implementation process.
When these milestones are reached, your organization will reassess the strategy and its relevance.
Milestones could be based on timeframes, such as the end of a quarter, or on significant actions, such
as large budget or resource allocations.

Implementation control can also take place via operational control systems, like budgets, schedules,
and key performance indicators.

3)Special Alert Control

When something unexpected happens, a special alert control is mobilized. This is a reactive process,
designed to execute a fast and thorough strategy assessment in the wake of an extreme event that
impacts an organization. The event could be anything from a natural disaster or product recall to a
competitor acquisition. In some cases, a special alert control calls for the formation of a crisis team—
usually comprising members of the strategic planning and leadership teams—and in others, it merely
means activating a predetermined contingency plan.

4)Strategic Surveillance Control

Strategic surveillance is a broader information scan. Its purpose is to identify overlooked factors both
inside and outside the company that might impact your strategy. This process ideally covers any
“ground” that might be missed by the more focused tactics of premise and implementation control.
Your surveillance could encompass industry publications, online or social mentions, industry trends,
conference activities, etc.
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ACTIVITY-BASED COSTING
Activity-based costing (ABC) is a costing method that identifies activities in an organization and
assigns the cost of each activity to all products and services according to the actual consumption by
each. Therefore this model assigns more indirect costs (overhead) into direct costs compared to
conventional costing.

CIMA, the Chartered Institute of Management Accountants, defines ABC as an approach to the
costing and monitoring of activities which involves tracing resource consumption and costing final
outputs. Resources are assigned to activities, and activities to cost objects based on consumption
estimates. The latter utilize cost drivers to attach activity costs to outputs.

Manufacturing businesses with high overhead costs use activity-based costing to get a clearer picture
of where money is going. Because ABC gives specific production cost breakdowns, you can see
which products are actually profitable.

By using activity-based costing, you can:

• Take into consideration both the direct and overhead costs of creating each product

• Recognize that different products require different indirect expenses

• More accurately set prices

• See which overhead costs you might be able to cut back on

Enterprise Risk Management (ERM)

Enterprise risk management (ERM) is the process of identifying and addressing methodically the
potential events that represent risks to the achievement of strategic objectives, or to opportunities to
gain competitive advantage.

The fundamental elements of ERM are the assessment of significant risks and the implementation of
suitable risk responses. Risk responses include: acceptance or tolerance of a risk; avoidance or
termination of a risk; risk transfer or sharing via insurance, a joint venture or other arrangement; and
reduction or mitigation of risk via internal control procedures or other risk prevention activities.

Management responsibilities include the risk architecture or infrastructure, documentation of

procedures or risk management protocols, training, monitoring and reporting on risks and risk
management activities.

What benefits does ERM provide?

1. Greater awareness about the risks facing the organisation and the ability to respond effectively
2. Enhanced confidence about the achievement of strategic objectives
3. Improved compliance with legal, regulatory and reporting requirements
4. Increased efficiency and effectiveness of operations.
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Process of ERM

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RESPONSIBILITY CENTER
A responsibility center is an organizational unit headed by a manager, who is responsible for its
activities and results.In responsibility accounting, revenues and cost information are collected and
reported on by responsibility centers.

Typical examples of responsibility centers are the profit center, cost center and the investment center.

Profit Center
A profit center is characterized by the responsibility to choose inputs and outputs with a fixed level
of investment.

Performance Evaluation

A typical measurement for profit center management is the ability to maximize profits as they are
responsible for both costs and revenues.

Cost Center
A cost center is characterized by the lowest level of responsibility compared to the other two centers.
Cost center managers are expected to produce as much output with a fixed amount of resources/input
and to reduce costs.

Performance Evaluation

Managers are generally evaluated based on cost control and reduction as they have no delegation to
increase sales generation.

Investment Center
An investment center has the highest level of delegated autonomy. Investment center's have the
highest level of autonomy as they can determine the level of inputs, outputs and additional
investments.

Performance Evaluation

The most common metric for evaluating management performance is the return on investment (ROI).
The unit can be held responsible for generating an adequate ROI as the business unit has the
autonomy to determine the key influencing variables.
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BENCHMARKING
Benchmarking is the competitive edge that allows organizations to adapt, grow, and thrive through change.
Benchmarking is the process of measuring key business metrics and practices and comparing them—within
business areas or against a competitor, industry peers, or other companies around the world—to understand
how and where the organization needs to change in order to improve performance.

There are four main TYPES of benchmarking: internal, external, performance, and practice.

1. Performance benchmarking involves gathering and comparing quantitative data (i.e., measures or key
performance indicators). Performance benchmarking is usually the first step organizations take to identify
performance gaps.

What you need: Standard measures and/or KPIs and a means of extracting, collecting, and analyzing that data.

What you get: Data that informs decision making. This form of benchmarking is usually the first step
organizations take to identify performance gaps.

2. Practice benchmarking involves gathering and comparing qualitative information about how an activity is
conducted through people, processes, and technology.

What you need: A standard approach to gather and compare qualitative information such as process mapping.

What you get: Insight into where and how performance gaps occur and best practices that the organization can
apply to other areas.

3. Internal benchmarking compares metrics (performance benchmarking) and/or practices (practice

benchmarking) from different units, product lines, departments, programs, geographies, etc., within the
organization.

What you need: At least two areas within the organization that have shared metrics and/or practices.

What you get: Internal benchmarking is a good starting point to understand the current standard of business
performance. Sustained internal benchmarking applies mainly to large organizations where certain areas of the
business are more efficient than others.

4. External benchmarking compares metrics and/or practices of one organization to one or many others.

What you need: For custom benchmarking, you need one or more organizations to agree to participate. You
may also need a third party to facilitate data collection. This approach can be highly valuable but often
requires significant time and effort. That’s why organizations engage with groups like APQC, which offers
more than 3,300 measures you can use to compare performance to organizations worldwide and in nearly
every industry.
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What you get: An objective understanding of your organization’s current state, which allows you to set
baselines and goals for improvement.

The Benefits of Benchmarking

• Competitive Analysis

By identifying areas you wish to improve on in your business and benchmarking your existing performance
against competitors, your business can strive to enhance your execution tenfold. Using benchmarking this way
has allowed businesses to gain strategic advantages over competitors and grow industry averages.

• Monitor Performance

Benchmarking involves looking at current trends in data and projecting future trends depending on what you
aim to achieve. In order to know you have been successful, benchmarking needs to be a continuous process.
Monitoring performance is an inherent characteristic of it.

• Continuous Improvement

As well as monitor performance, continuous improvement is an essential attribute of benchmarking. This is

because the aim of benchmarking is to improve a certain element of a business. This improvement should not
merely be something that improves once and is forgotten, but something that improves over time and is
continuous.

• Planning and Goal Setting

Once benchmarking has been carried out, goals and performance metrics are set in order to improve
performance. These goals are new, more competitive targets for a company but they must be achievable. If
goals are unrealistic to achieve teams become demotivated and goals are destined to remain unfulfilled.

• Encourage Ownership

When companies look at their processes and metrics they need to ask hard questions to get all the answers
they need. This includes talking to everyone in the business and understanding their roles. By asking these
questions and gaining a better understanding of everyone’s role, ownership for processes and performance is
encouraged. This means that employees will take pride in their job and the work they do. This pride leads to
better performance and higher-quality end results.

• Understand Your Companies Advantages

Benchmarking identifies where your company is right now compared to where you want it to go. If you are
looking at improving any process in your business, benchmarking is a way of looking at how you can excel
and become more successful through outlining the steps needed to achieve your goal.
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Benchmarking Process
1.Planning

The first stage of benchmarking is the most important in the process. Planning includes highlighting what you
want to improve, who you will benchmark yourself against, and how you envisage success. Only once this
step has been completed will you be able to move onto the next step as the results of planning will focus on
the information you need to collect and what success will look like.

2.Collection of Information

After planning, benchmarking is about collecting information on your processes and how competitors do
them. If you are looking to improve your customer service satisfaction rating you should understand the
processes involved in the department, how calls and communication are dealt with, and also how it differs
from your competition. Maybe you can talk to someone in another call center, or call the center directly to
gain first-hand knowledge of their processes. At this point, it is important to gather as much information as
possible.

3.Analysis of Data

Once you feel you have all the information you can gather, you can start to plot it and begin to understand the
shortcomings you may have. It is important to remember at this point in the process that no business is perfect
and you must have an open mind to be able to analyze information objectively. Once findings start to be
uncovered you can draft a report and start discussing the next steps to achieve better performance in this area.

4.Action

Presenting findings to a department is never an easy thing, especially when you are proposing changes.
Gathering and analyzing information is only worthwhile when you can implement changes and better the
company in the process. Gaining buy-in from a department can involve concessions so make sure the MVP
you present is accepted and will likely equate to the success highlighted in the planning stage.

5.Monitoring

No plan is ever complete without monitoring results to determine how successful the plan has been. The
implementation phase will have highlighted metrics and goals for success within a time frame so monitoring
these is the only way of knowing the efficacy of the changes. Monitoring can be over a short or long period of
time depending on the desired outcomes.
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