Chapter 8

Strategy Review, Evaluation and Control

 Introduction

• Systematic Review, Evaluation & Control :

 Strategies become obsolete

 Internal environments are dynamic
 External environments are dynamic
 Strategy Evaluation
• Strategy evaluation is vital to the
organization’s well-being

• Alert management to potential or actual

problems in a timely fashion

• Erroneous strategic decisions can have severe

negative impact on organizations
 Strategy Evaluation

 Strategy evaluation is vital to the

organization’s well-being
 Alert management to potential or actual
problems in a timely fashion

 Erroneous strategic decisions can have severe

negative impact on organizations
 Contd…

3 Basic Activities in strategy evaluation:

1. Examining the underlying bases of a firms’
strategy
2. Comparing expected to actual results
3. Corrective actions to ensure performance
conforms to plans
 Contd…

• In many organizations, evaluation is an

appraisal of performance:
 Have assets increased?
 Increase in profitability?
 Increase in sales?
 Increase in productivity?
 Profit margins, ROI and EPS ratios increased?
 Contd…

• Four Criteria (Richard Rummelt):

 Consistency
 Consonance
 Feasibility
 Advantage
 Contd…
Consistency
• Strategy should not present inconsistent goals
and policies.
Consonance
• Need for strategies to examine sets of trends

• Adaptive response to external environment

• Trends are results of interactions among other
trends
 Contd…

Feasibility
• Neither overtax resources or create
unsolvable subproblems

• Organizations must demonstrate the abilities,

competencies, skills and talents to carry out a
given strategy
 Contd…

Advantage
-Creation or maintenance of competitive
advantage

• Superiority in resources, skills, or position

 Contd..

Difficulty in strategy evaluation –

• Increase in environment’s complexity
• Difficulty predicting future with accuracy
• Increasing number of variables
• Rate of obsolescence of plans
• Domestic and global events
• Decreasing time span for planning certainty
 Reviewing Bases of Strategy

Review of underlying bases of strategy –

• Develop revised EFE Matrix

• Develop revised IFE Matrix

 Contd….

Review effectiveness of strategy –

1. Competitors’ reaction to strategy
2. Competitors’ change in strategy
3. Competitors’ changes in strengths and
weaknesses
4. Reasons for competitors’ strategic change
 Contd…

5. Reasons for competitors’ successful strategies

6. Competitors’ present market positions and
profitability
7. Potential for competitor retaliation
8. Potential for cooperation with competitors
 Contd…

Monitor Threats and Opportunities and Weaknesses

and Strengths-
• Are our internal strengths still strengths?
• Have we added additional strengths?
• Are our weaknesses still weaknesses?
• Have we other internal weaknesses?
• Are opportunities still opportunities?
• Other external opportunities?
• Are threats still threats?
• Are there other threats?
• Are we vulnerable to a hostile takeover?
Process of Strategy Evaluation
 Measuring Organizational Performance

• Comparing expected to actual results

• Investigating deviations from plan
• Evaluating individual performance
• Progress toward stated objectives

Quantitative criteria for strategy evaluation –

• Financial Ratios:
• Compare performance over different periods
• Compare performance to competitors
• Compare performance to industry averages
 Contd…
Key Financial Ratios –
• Return on investment
• Return on equity
• Profit margin
• Market share
• Debt to equity
• Earnings per share
• Sales growth
• Asset growth
 Contd…

Qualitative evaluation of strategy -

Internal consistency of strategy
Consistency of strategy with environment
Strategy appropriate in view of resources
Acceptable degree of risk
Appropriate time frame
Workability of the strategy
 Taking Corrective Actions
• Corrective Actions Possibly Needed to Correct
Unfavorable Variances.
1. Alter the firm’s structure
2. Replace one or more key individuals
3. Divest a division
4. Alter the firm’s vision and/or mission
5. Revise objectives
6. Alter strategies
 Contd…

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 rein in) business functions