Paper 3: Strategic Management

Module 30: Strategic Control

Prof. S P Bansal
Principal Investigator Vice Chancellor
Maharaja Agrasen University, Baddi

Prof Yoginder Verma

Co-Principal Investigator Pro–Vice Chancellor
Central University of Himachal Pradesh. Kangra. H.P.

Dr. Anil Gupta

Paper Coordinator The Business School
University of Jammu, Jammu.

Dr. Ashish Saihjpal

Content Writer Assistant Professor,
University Business School, Panjab University (RC), Ludhiana.
Items Description of Module
Subject Name Management
Paper Name Strategic Management
Module Title Strategic Control
Module Id Module No.- 30
Pre- Requisites Strategic Management Process
Objectives To study the strategic control process and methods of control
Keywords Control, Ratio Analysis, Budgets, Budgetary Controls, Control System

QUADRANT-I

Module-11 Framework of Corporate Level Strategies

1. Learning Outcome
2. Introduction
3. Strategic Control Process
4. Barriers to Evaluation & Control
5. Types of Strategic Control
6. Methods of Control
7. Summary

1. Learning Outcome
After completing this module the students will be able to understand:
 The nature and importance of strategic evaluation and control
 The barriers in the path of strategic control process
 The types of strategic control
 The methods of control

2. Introduction

Strategic control is the terminal part of the strategic management

process (Fig. 1). The control function holds its own importance in the
process of strategic management. It is necessary, however, to
introduce the process of strategy evaluation and control at the early
stages of its implementation so as to take timely corrective measures
if required, for achieving the desired goals and objectives of the
corporation. The process of control is crucial as the internal and
external factors of business environment may not follow the trends as
anticipated at time of planning the strategy. For example: In 2010,
Airtel as part of its international expansion strategy acquired the
African operations of Kuwait-based Mobile Telecommunications
Company referred to as Zain Group.
Image Source: http://images.clipartpanda.com/self-control-clipart-14551.jpg

At that time the business in India was tough. About 14 operators were competing in a strictly regulated
environment that lowered the profit margin in the industry. Anticipating that Africa had almost everything
similar to India, Airtel exported its high volume/low cost business model to Africa, where operators used
a fixed cost/high tariffs approach so as to rewrite its success story in the African market. No doubt that the
combined African population was ten times that of India’s population, had a telecom penetration of 40%
Fig. 1: Strategic Management Process

that was increasing at a good rate and had far more spectrum available but Airtel could not gain a strong
footing in Africa as planned. The falling African currency, low average revenue per user (ARPU), high
cost structures coupled with high debt burden back home for the acquisition of Zain group led to more
troubles than the achievements for Airtel. Meanwhile, the India telecom industry started to show the signs
of growth with the launch of 3G & 4G
services leading to steady rise in data
revenues giving Airtel an opportunity
for growth back home. Therefore, Airtel
has to a adopt control systems to
generate revenues from its African
operations and make it profitable. This
could include new network partners, IT
(information technology) hardware and
software partners, new network designs
among others or the company may have
to exit from not-so- promising African
countries and to remain focused on
markets like Kenya and Nigeria that
hold high potential in the future.
Image Source: http://topnews.in/files/Bharti-Airtel-Zain_1.jpg

3. Strategic Control Process

Strategic Control Process is the course of action for determining what is being accomplished and enabling
the manager to take a corrective measure in case of any failure or deviations so that performance remains
on the path of progress. Thus, strategic control engulfs the evaluation and is perpetual rather than
periodical in nature. According to P. Drucker, ‘Strategic control maintains equilibrium between ends and
means, output and efforts’.

The strategic control process consists of three phases: Evaluation criteria; Performance evaluation and
Feedback. The first phase i.e. the evaluation criteria can be done both quantitative as well as qualitative.
The quantitative criteria of evaluation lay stress on the data which is a post facto analysis for the
performance evaluation where the actual results are compared with the expected results. If there happen to
be significant variations in the performance, the corrective measures are taken to meet the set objectives.
While, the qualitative evaluation and control of strategy is a real time process where the performance is
monitored and mid way corrective actions are taken.
It is worth noting that if undesired performance results from the inappropriate use of the strategic
management process, operational managers must know about it so that they can correct the employee
activities. While, if the undesired performance results are the outcome of the processes themselves than
both the top management and the operational managers, must know about it so that mid way corrections
are taken or they could develop new implementation programs.

4. Barriers to Evaluation and Control

The process of strategic evaluation and control is not that simple and plain. There fall certain hurdles or
barriers in the path of strategy evaluation and control that are discussed as below:

4.1 Resistance to Evaluation: Any change in the business processes or activities may perhaps invite
resistance from different quarters within an organization. Whenever, a strategy is formulated and
implemented, certain quarters like employees or strategic business unit may develop a resistance for the

Barriers to
Evaluation and
Control
same. This resistance is generally because measurement of performance in strategic formulation and
implementation is always perceived as one’s own performance by an individual or group of individuals
involved in these activities or the processes. It is interesting to note that the evaluation of strategy is not
distinguished from the evaluation of an individual or the group of individuals involved in the
implementation of strategy. Therefore, it is important to understand that the evaluation of strategy is to
ascertain whether the strategy formulated is moving in the right direction or not rather than the individual
employee’s contribution towards the strategic implementation.

4.2 Short-term Orientation: A strategy followed by an organization comprises of two different

targets i.e. short-term and long-term. If the corporation’s short-term target does not coincides with that of
long-term strategy target, the corporation may start giving importance to the short-term targets
overlooking the long-term objectives so that compliance is made in the short run. This misalignment of
the short-term objectives may lead to short fall in implementing the strategy and resulting to variation in
the strategy evaluation. Therefore, the short-termism approach has to be avoided for successful strategic
control in the process of strategic management.

4.3 The Limits of Control: What should be the upper and lower limits of control? This remains a
general dilemma of any control system. Though it is not impossible but is the toughest task undertaken by
the strategist to determine the upper and lower limits of control. Imposing excess of control may lead to
negative effect on to the performance of the employees in the organization. As a result the employees may
not use the best of their potential and may lack creativity. On the contrary, too less a control too makes
the employees non-serious about their performance thus, making the process of evaluation & control
ineffective and sometimes redundant. In order to overcome the above mentioned barriers to evaluation
and control, the organizations have to make its people believe in its objectives at the very first step. The
strategic intent of the organization has to be well communicated across all levels within the organization
and its stakeholders outside the organization. Moreover, the best way to eliminate or reduce the impact of
barriers to evaluation & control is to change the attitude of people i.e. to limit the problem by increasing
the perception of problems.

Exhibit 1: Titan Edge, the Slimmest Watch in the Universe

Titan- Edge is a perfect example that how the company made its team believes that they could design the
world’s slimmest watch back in 2002. The catchphrase of ‘we will do what the Swiss cannot’ kept the
people at Titan going and the world’s slimmest watch was born. It was the first time ever that an Indian
watch company pushed the boundaries to design and manufacture indigenously the slimmest watch,
thereby gaining an entry into the Guinness Book of World Records. Ten years later, the new generation
Edge 2012, was lighter than ever before at 36 grams, by using a skeletal structure encased in titanium- a
new age material used in aircraft and spacecraft. The new EDGE was the slimmest and lightest watch in
the universe. Its form and proportions are very contemporary. The watches have sapphire crested top and
bottom, unique construction houses 1.15mm movement between 2 layers of sapphire which reduces
overall thickness of watch to 4mm only (Source: http://titaninnovationnewsletter.com/skeletal-edge-red-
dot-award/).

5. Types of Strategic Controls

There are four types of strategic controls that are discussed as follows:

5.1 Premise Control: Business strategy is based on the assumptions that how things will occur in the
future. Premise control allows the top management of the corporation to examine whether these
assumptions will continue to hold true with the implementation of the strategy or not. Therefore, premise
control helps the management to take corrective actions at the appropriate time and discontinue the
original strategy that was based on invalid assumptions. These presumptions may relate to the changing
government policies, environmental factors such as inflation, interest rates and social changes or by
industry factors such as competitors, suppliers and barriers to entry. For example: Titan Company
Limited (TCL) formerly known as Titan industries Limited had a successful jewelry purchase schemes
named as Tanishq, Golden Harvest Scheme (GHS). This scheme helped the company to boost its sales in
times when the price of gold was on rise. Under this scheme, the consumers were allowed to make eleven
equal monthly payments towards the purchase of jewelry, where the final & twelfth installment was being
made by the company itself. With the total accumulated amount the customer was finally allowed to make
purchase of the jewelry post twelve months. This scheme was convenient for the consumers for making
purchase of gold jewelry as it was based on systematic investment and gave a run to other financial
products in the market as far as returns were concerned. However, with the newly enacted Companies
Act, which became a law on 1st April 2014, certain new rules were introduced, specifically under
Explanation to Section 2(1) (b) of the Companies (Acceptance of Deposit) Rules, 2014 which appeared to
bring such schemes also under the definition of Public Deposits. TCL was now constrained to comply
with this new law immediately and was required to wind off the level of “deposits” (as these were termed
now) in its current form. This meant that TCL was constrained to stop accepting any further installments
from the existing account holders also. Tanishq later revised it ‘Golden Harvest Scheme’ which was
discontinued earlier because of the new Companies Act. The new Act put a limit on the returns offered by
the companies to deposit holders to 12 per cent and capped the total amount of deposits to 25 per cent of
their net worth. The revised scheme now complied with the new law. (Source:
https://www.tanishqgoldenharvest.co.in/ online/oldschemeclosure).

Exhibit 2: Tanishq Golden Harvest Scheme (Image Source: https://www.tanishqgoldenharvest.co.in/)

5.2 Strategic Surveillance Control: Premise control and implementation control are looked upon as
more specific by nature whereas surveillance control is more generalized and overarching control. A
company has to protect its business from the external threats that may hinder the success of the strategy
implemented. Strategic surveillance controls
allow the management to monitor multiple
sources for these threats. The managers may
safeguard the strategy by continually updating
themselves about the industry specific
information through trade journals & magazines,
attending trade conference etc.

Exhibit 3: Tata Motors halts production to

prevent inventory pile up (Image Source:
www.tatamotors.com)
 Exhibit 4: AIRTEL- Open Network
5.3 Special Alert Control: This
control is based on the trigger
mechanism designed to enable rapid
response to any unexpected or sudden
events that may pose threat to the
strategy implemented. Such a control
is based on the immediate
reassessment of the strategy
formulated in a given contingency. For
example: The country's largest
commercial vehicle manufacturer Tata
Motors had to shut production of its
truck for the fourth time in 2013 as it
struggled because of falling retail
demand. The company had done it to
avoid piling up of inventory with its
dealers. The three- day block closure
was planned to ensure alignment of
production with demand so as to bring
the costs under control that could have
been elevated because of piling of
inventory and to maintain the health of
the ecosystem (‘Falling demand forces
Tata Motors to shut truck plant’
Business Standard, 14 January 2013),
Exhibit 3.

Exhibit 1: AIRTEL- Open Network 5.4 Implementation Control:

Once a strategy is formulated, it has to
be implemented. As the managers take
the necessary steps to put the strategy
in action, implementation control is
used to review whether the original
plan, programs, and projects are being
well implemented and the corporation
is glided through its pre-determined
objectives or not. Milestone reviews is
another tool used in for
implementation control. The milestone
reviews allow the managers to
determine the critical points in strategy
implementation in terms of events,
resources or even time. Exhibit 4;
showcase an open email to the Airtel
customer from the CEO, Bharti Airtel
Limited, where an attempt is being
made by the company to provide the best network through its new initiative – Open Network. Through
this initiative, the company provides its network information to its customers so that they could tell Airtel
where the gaps are. This would help the company to improve its coverage and provide an experience like
no other in the industry. The company acknowledges that there a coverage holes in India and are still a
challenge. At some locations the company need to install new towers, while at some others, towers have
been forcibly shut down. Such implementation control will help company like Airtel to optimally utilize
its infrastructure and achieve its objective of being the best network service provider in India.

6. Methods of Control

There are various methods/tools/techniques used in strategic control system. These methods are adopted
by the organizations based on types of control required. No doubt, most of these methods are related to
financial control and neglect the non-financial parameters. The financial reporting system provides the
information of how a company has performed in the past but offers little information about how it might
performance in the future. Some of these methods are discussed briefly in the following sections of the
module so as to develop a basic understanding of various control methods.

Methods of
Control
Budget &
Budgetary
Control

Ratio
Analysis

Audits

Time- related
Control
Methods

6.1 Budgets and Budgetary Controls: Budgeting has been accepted as one of the efficient method
of short-term planning and control. Though, it is employed in large business organizations but the small
businesses are also using it at least in some informal manner. Budget is defined as " A financial and/or
quantitative statement, prepared and approved prior to define period of time, of the policy to be persued
during that period for the purpose of attaining a given objective" by the Chartered Institute of
Management Accountants, England. Therefore, a budget is taken as a document that usually deals the
allocation of resources to different units with the organization and is classified under the three different
modes:
 Time: Annual budgets, quarterly budgets, monthly budgets, zero base
budgets, etc.

Functional: Human resources, materials, marketing & sales, research

& development, administration, etc.

Flexibility: To evaluate the performance at different volume levels or

capacity utilization, sensitivity to key parameters, etc.

Image Source: http://www.expertmanagementtraining.com/wp-content/uploads/2014/08/Financial-Budgets-Budgetary-Control-Alt.jpg

Further, budgetary control is the process of establishment of budgets relating to various activities and
comparing the actual performance with the budgeted figures for calculating the deviations if any. It is to
be noted that budgetary control is not possible without budgets.

6.2 Ratio Analysis: Ratio analysis is a form of financial statement analysis, used to obtain a quick
snapshot of a firm’s performance in various key areas. It is used to measure the company’s operating and
financial performances such as efficiency, liquidity, solvency and profitability. The trend of
various ratios is studied over a period of time to check whether the strategy pursued so far is proceeding
in the right direction or not.

Efficiency

Profitability
Ratio Liquidity
Analysis

Solvency

Quantifying the 5Cs; Character, Capacity, Capital, Collateral and Conditions is a step forward in the
process of strategic evaluation and control. These five parameters are discussed in brief as follows:

Character: It represents the firm’s moral and ethical approach towards it stakeholder especially
creditors. Firm’s repayment performance on past and current debts is considered as a measure to check
this parameter.
 Capacity: It refers to company’s capability to maintain both profitability and solvency. Measures
such as historic and present adequacy of working capital, income statements showcasing a history of good
profit margins, analyze of income and expenses and realistic evaluation of current income generating
capacity are important in evaluating this factor.

Capital: Capital is the long-term borrowings, shareholders’ funds, and working capital
borrowings and collectively represents the wealth of the business. The relevant ratios that determine the
health of the company are: Liquidity ratios; Current ratio, Solvency ratios; Debt-to-Equity ratio, Debt-to-
Asset ratio.

Collateral: Growth strategy is the most popular strategy. The companies that do business in
growing industries must expand to survive for which monetary resources are absolutely necessary. For
raising the required capital the companies negotiate for long and short-term borrowings from the current
& prospective shareholders. In such situations the collaterals becomes the essential requisite and the
extent of collateral therefore reflects the firm’s capacity for borrowing. Net Realizable Value (NRV) is an
important measure to check the collateral parameter.

Conditions: Every industry undergoes a business cycle which includes recession, depression,
recovery and boom. These cycles affect the financial standing of the company. The performance of the
corporation during these periods calls for the appropriateness of the strategy being implemented and
taking any mid-course correction for the strategy employed.

6.3 Audits: Audit is another method of control. An audit is the process by

which the financial statements of a organization are evaluated so as to ensure that
these are accurate representation of the transactions the organization claims for. The
audits can be done both internally and externally. Internal audits are done by
employees of the organization while external audits are conducted by independent
agencies outside the firm.

6.4 Time-related Control Methods: Critical Path Method

(CPM) and Programme Evaluation and Review Technique
(PERT) are the most popular graphical and analytical methods
used in the strategic control process. These tools help the
management to take remedial action and get the project back on
course. The techniques take recognition of three factors that
influence successful achievement of program objectives i.e. time,
resource and technical performance specifications.

7. Summary

A well thought strategy is of no purpose till its objectives are achieved as intended. Therefore, the
strategy formulation and implementation should be followed up by strategic evaluation and control. It
henceforth becomes important to know whether the strategy implemented has been assiduously following
the intent and adhering to the time frame that was originally proposed. It is also important to note that
strategic control engulfs the evaluation and is perpetual rather than periodical in nature. The phase of
evaluation includes understanding the influence of internal and external environmental factors on the
strategy during the time horizon of its implementation. This evaluation has to be supported by a proper
control system so as to provide the necessary mid-course correction or modification of the strategy
employed. Moreover, it becomes imperative for the managers to understand the barriers in the path of
strategy evaluation and control and overcoming these hurdles could help accomplishing the targeted
strategy.

Further, the strategic control can be classified under four heads: premise controls, implementation control,
strategic surveillance control and special alert control. There are various methods/tools of control used in
strategic control system. These methods are adopted by the organizations based on types of control
required. Budgets & budgetary controls along with ratio analysis, audits and time-related control
techniques are well suited methods for strategic control.