CHAPTER SEVEN

Strategy Review, Evaluation

and Control

05/15/2021 SM 1
 Discuss:
• Meaning of strategic evaluation
• Why strategic evaluation
• When strategic evaluation

05/15/2021 SM 2
 The Nature of Strategy Evaluation
 The best formulated and best implemented strategies
become obsolete as a firm’s external and internal
environments change.

 It is essential, therefore, that strategists systematically

review, evaluate, and control the execution of strategies.

 Strategy evaluation is important because organizations

face dynamic environments in which key external and
internal factors often change quickly and dramatically.
 Success today is no guarantee of success tomorrow
 Adequate and timely feedback is the cornerstone of
effective Strategy Evaluation.
05/15/2021 SM 3
 Cont’d …
 Strategy-evaluation activities should be performed on a
continuing basis, rather than at the end of specified
periods of time or just after problems occur.
Strategy evaluation includes three basic activities:
 Examining the underlying bases of a firm’s strategy
 Comparing expected results with actual results, and
 Taking corrective actions to ensure that performance
conforms to plans

05/15/2021 SM 4
 Strategy Review and Evaluation
Consistency

Rumelt’s 4 Consonance
Criteria
Feasibility

Advantage
Source: Adapted from Richard Rumelt, “ The evaluation of Business
Strategy,” in W. F. Glueck (ed.), Business Policy and Strategic Management
(New York: Mcgraw-Hill, 1980), 359–367 (cited in David & David, 2015)
05/15/2021 5
SM
 Strategy should be:
 Consistent between goals and policies

• The strategy must not present mutually inconsistent

goals and policies.
• Inconsistency in strategy is not simply a flaw in logic. A
key function of strategy is to provide coherence to
organizational action. A clear and explicit concept of
strategy can foster a climate of tacit coordination that
is more efficient than most administrative mechanisms.
05/15/2021 SM 6
 Cont’d …
 Consonance refers to the need for strategists to

examine sets of trends, as well as individual trends, in

evaluating strategies in agreement or compatibility.
• The strategy must represent an adaptive response to the external
environment and to the critical changes occurring within it.
• The way in which a business relates to its environment has two
aspects: the business must both match and be adapted to its
environment and it must at the same time compete with other
firms that are also trying to adapt.

05/15/2021 SM 7
 Cont’d …
 Feasible: not to overtax resources nor create
unsolvable sub-problems Feasibility is concerned with
whether the resources required to implement the
strategy are available, can be developed or obtained.
• Resources include funding, people, time and
information. Feasibility can be evaluated by cash
flow analysis, forecasting, break-even analysis, etc….
 Create or maintain previous competitive advantage
05/15/2021 SM 8
Cont’d …
Suitability
 Suitability deals with the overall rationale of the
strategy.
 Whether it makes economic sense?
 Whether the organization obtains economies of
scale, economies of scope or experience economy?
 Would it be suitable in terms of environment and
capabilities?
05/15/2021 SM 9
Cont’d …
Acceptability
Acceptability is concerned with the
expectations of the identified stakeholders
(mainly shareholders, employees and customers)
with the expected performance outcomes, which
can be return, risk and stakeholder reactions.

05/15/2021 SM 10
 Challenges to Strategy Evaluation
 A dramatic increase in the environment’s complexity
 The increasing difficulty of predicting the future with
accuracy
 The rapid rate of obsolescence of even the best plans
 The increase in the number of both domestic and
world events affecting organizations
 The decreasing time span for which planning can be
done with any degree of certainty

05/15/2021 SM 11
 A Strategy-Evaluation Framework
1. Reviewing Bases of Strategy approached by
developing a revised EFE Matrix and IFE Matrix.
 A revised IFE Matrix should focus on changes in the
organization’s management, marketing,
finance/accounting, operations, R&D, and
management information systems strengths and
weaknesses.
 A revised EFE Matrix should indicate how effective a
firm’s strategies have been in response to key
opportunities and threats.
05/15/2021 SM 12
 Cont’d …
Some key questions to review the base for strategy in evaluating
strategies:
 Are our internal strengths still strengths?
 Have we added other internal strengths? If so, what are they?
 Are our internal weaknesses still weaknesses?
 Do we now have other internal weaknesses? If so, what are
they?
 Are our external opportunities still opportunities?
 Are there now other external opportunities? If so, what are they?
 Are our external threats still threats?
 Are there now other external threats? If so, what are they?
05/15/2021 SM 13
 Strategy Evaluation Framework
The following figure illustrates relationships among strategy
evaluation activities: in terms of key questions that should be
addressed, alternative answers to those questions, and
appropriate actions for managers to take.
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
05/15/2021 SM 14
SM Ch 9 -15
Cont’d …
2. Measuring Organizational Performance
This activity includes:
 Comparing expected results or standard to
actual results,
 Investigating deviations from plans
Strategy evaluation is based on both quantitative and
qualitative criteria.

05/15/2021 SM 16
Cont’d…
Quantitative criteria commonly used to evaluate
strategies are financial ratios, which strategists use to
make three critical comparisons:
1. Comparing the firm’s performance over different time
periods,
2. Comparing the firm’s performance to competitors’,
and
3. Comparing the firm’s performance to industry
averages.

05/15/2021 SM 17
Cont’d …
Some key financial ratios that are particularly useful as
criteria for strategy evaluation are as follows:
1. Return on investment (ROI)
2. Return on equity (ROE)
3. Profit margin
4. Market share
5. Debt to equity
6. Earnings per share
7. Sales growth
8. Asset growth
05/15/2021 SM 18
Cont’d …
Factor Actual Expected Variance Actions
Result Result
• Corporate Revenues
• Corporate Profits
• Corporate ROI
• Region 1 Revenues
• Region 1 Profits
• Region 1 ROI
• Product 1 Revenues
• Product 1 Profits
• Product 1 ROI

05/15/2021 SM 19
 Cont’d …
Some potential problems are associated with using
quantitative criteria for evaluating strategies.
 most quantitative criteria are geared to annual
objectives rather than long-term objectives.
 different accounting methods can provide different
results on many quantitative criteria.
 intuitive judgments are almost always involved in
deriving quantitative criteria.
 For these and other reasons, qualitative criteria are
also important in evaluating strategies.
05/15/2021 SM 20
 3. Taking Corrective Actions
Requires making changes to competitively reposition a
firm for the future.
Alter the firm’s structure
Replace one or more key individuals
Divest a division
Alter the firm’s vision and/or mission
 Revise objectives
 Alter strategies
 Devise new policies

05/15/2021 SM 21
Cont’d …
 Install new performance incentives
 Raise capital with stock or debt
 Add or terminate salespersons, employees, or
managers
 Allocate resources differently
 Outsource (or rein in) business functions
Taking corrective actions does not necessarily mean
that existing strategies will be abandoned or even that
new strategies must be formulated.
05/15/2021 SM 22
Characteristics of an Effective Evaluation System
 Must be economical; too much information can be just as
bad as too little information; and too many controls can do
more harm than good.
 Should be meaningful; they should specifically relate to a
firm’s objectives. should provide managers with useful
information about tasks over which they have control and
influence.
 Should provide timely information; on occasion and in some
areas, managers may daily need information.
 Should be designed to provide a true picture of what is
happening.
 Should not dominate decisions; it should foster mutual
understanding, trust, and common sense
05/15/2021 SM 23
 Contingency Planning
• Regardless of how carefully strategies are
formulated, implemented, and evaluated, unforeseen
events, such as strikes, boycotts, natural disasters,
arrival of foreign competitors, and government
actions, can make a strategy obsolete.
• To minimize the impact of potential threats,
organizations should develop contingency plans as
part of their strategy-evaluation process
• Contingency plans can promote a strategist’s ability
to respond quickly to key changes in the internal
and external bases of an organization’s current
strategy
05/15/2021 SM 24
 Nature of Control
Management control refers to the process by which an
organization influences its subunits and members to behave in
ways that lead to the attainment of organizational objectives.
There are many methods/ techniques used in strategic control
systems
Every organization has its own way of using a particular technique
according to the requirements of the organization.
• System of financial control
• Budget – i.e. preparation and allocation of resources
• Time-related control
• Audits
• MBO
05/15/2021 SM 25
 Types of Control
Management can implement controls:
• Before an activity commences/start,
• While the activity is going on, or
• After the activity has been completed.
The above three respective Stages of Control
system which is based on timing are also known
as:
• Feed forward,
• Concurrent, and
• Feedback

05/15/2021 SM 26
 Problems of control systems
• There are a large number of problems associated
with control systems for strategy evaluation.
• An efficient system may collect a lot of irrelevant
data whereas a sophisticated system might ignore
crucial information
•Some of the typical problems in control:
 There may not be a consensus on the criteria for
measuring the effectiveness and efficiency of the
strategy.
 The reporting data may be invalid
 The performance norms may be based on output
on which the relevant business may not have a
control
05/15/2021 SM 28
Cont’d …
 Often performance standards may be set with inherent
contradictions.
For example, an increase in market share may be expected in
conjunction with an absolute decrease in marketing
expenditure.
 Employees may consider the system to be unfair and therefore
may not accept it.
 Overemphasis on measuring short-term performance may
make managers forget about the strategy which inherently
has long connotations.
 It is very difficult to set “good”, “average”, and “poor” levels
of performance in situations where the outputs are not very
tangible.

05/15/2021 SM 29
 Current Challenges In Strategic
Management
• Globalization.
• Outsourcing.
• Downsizing.
• The role of ICT.
• Sustainability.
• Business ethics and corporate social responsibility.
• The increasing demands of the various stakeholders and
government’s move to protect the involuntary stakeholders.
• The pace of technological development.
• The dynamic role of the internet and the social media.
• Shortening product life cycle stages.
• Diversity of the work force.
05/15/2021 SM 30