Chapter # 8

Strategy Review,
Evaluation, and Control

 References
 Strategic Management Concepts & Cases Fred R. David
Internet

Resource Person: Furqan-ul-haq Siddiqui 1

Strategy Review, Evaluation, and Control
 The best formulated and best implemented
strategies become obsolete
 Internal environments are dynamic
 External environments are dynamic
Strategy Evaluation

 Vital to the organization’s well-being

 Alert management to potential/actual problems in
a timely fashion
 Erroneous strategic decisions can have severe
negative impact on organizations
 Complex & sensitive undertaking
 Overemphasis can be costly & counterproductive
 Too little or no evaluation can create worse
problems
Appraisal of Strategic Performance

 Have assets increased?

 Increase in profitability?
 Increase in sales?
 Increase in productivity?
 Profit margins, ROI, and EPS ratios increased?
 Difficulties in Strategy Evaluation
1. Increase in environment’s complexity
2. Difficulty predicting future with accuracy
3. Increasing number of variables
4. Rate of obsolescence of plans
5. Domestic and global events
6. Decreasing time span for planning certainty
WebTV (now MSN TV) offered consumers Internet
connection via their television sets in the mid-1990s.
Microsoft which bought WebTV in 1997, scrapped
the brand. It never passed the one-million-subscriber
mark.
Zune is a digital media brand owned by Microsoft.
On October 3, 2011, Microsoft announced the
discontinuation of all Zune hardware, encouraging
users to transition to Windows Phone.

Vol. Lic.: November 30, 2006;

Retail: January 30, 2007
A short time later, Microsoft essentially admitted
failure and in April 2007 allowed Dell to start
offering XP on new computers again. Microsoft also
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accelerated development of its next OS, Windows 7.
Webvan was an online grocery store that promised to revolutionize the grocery business. The company, which
was launched in the late 1990s, delivered grocery store items to customers’ homes within a 30-minute window of
their choosing. The basic idea behind Webvan’s business plan was that the company could lower the costs of
selling groceries by storing and sorting groceries in huge warehouses and making home deliveries rather than
incurring the costs involved with running traditional grocery stores. The company reasoned that consumers would
flock to its service because it relieved them of the time-intensive task of grocery shopping. The strength of its
business idea allowed Webvan to get off to a fast start. In fact, Webvan attracted more venture capital funding
than any other Internet company, other than Amazon.com. In 1999, Webvan went public, raising $375 million. At
its peak, it offered service in ten US markets. The company had hoped to expand to 26 cities While Webvan was
popular, the money spent on infrastructure far exceeded sales growth, and the company eventually ran out of
cash. Webvan placed a $1 billion order with engineering company Bechtel to build its warehouses in early 2000s
and bought a fleet of delivery trucks. Webvan's legacy consists of thousands of colored plastic shipping bins, now
used for household storage and their re-painted distinctly-shaped vans seen in the San Francisco area years later.
Less then 2 years later, Webvan went broke, laying off 2,000 employees and losing all of its investors’ money.
What went wrong?

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 The primary mistake that Webvan made was that the company’s growth far outstripped the
demand for its service. Rather than patiently building its infrastructure to accommodate
growing demand, Webvan rushed ahead with its expansion plans. Apparently, the obvious
risk of lower-than-expected consumer demand wasn’t accounted for in Webvan’s business
plan. Everything about Webvan’s operations was built to accommodate scale, so when the
lower-than-expected demand materialized, it worked to Webvan’s disadvantage in multiple
ways. For example, in some cases Webvan drivers were driving 30 miles to make a single
delivery. The end result was that the company simply ran out of money, and its investors
had no appetite to invest additional funds. As a postscript, although the online grocery
market is still in its infancy, it does have successes. HomeGrocer, a similar company,
started operating the year before Webvan. It went public in March 2000 and, like Webvan,
was losing large amounts of money. On 26 June 2000, Webvan bought out HomeGrocer. In
June 2008, CNET named Webvan the largest dot-com flop in history,

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 Webvan was one of the
biggest flameouts of the
dot-com era, losing over $1
billion of its
investors’money. One has
to wonder how sound
Webvan’s business plan
was to begin with.

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 It is impossible to demonstrate conclusively that a
particular strategy is optimal, but it can be evaluated for
critical flaws. Here are four criteria to use in evaluating
a strategy:

Consistency

Rumelt’s Consonance
4 Criteria
Feasibility

Advantage
 Consistency
 A strategy should not present inconsistent goals and
policies.
 “Red flags” of inconsistent strategies:
 Managerial problems continue despite personnel changes.
Problems tend to be issue-based rather than people-based.
 Success of one means failure of another department.
 Policy problems and issues brought to top for resolution.
 Consonance
 Are the strategies in agreement with the various
trends (and sets of trends) in the environment?
To answer this questions, you need to look
at all the major trends that impact the selected
strategy - both positively and negatively.
 Consonance – a strategy must represent an
adaptive response to the external and internal
environment.
 Feasibility
  Is the strategy reasonable in terms of the
organization's resources?
 Money and capital
 Management, professional, and technical
resources
 Time span
Advantage
 Does the strategy create/maintain competitive
advantage in the selected area of activity?
 Resources
 Skills
 Position
Three Basic Activities in Strategy Evaluation

1. Examine the underlying bases of a firm’s

strategy.

2. Compare expected to actual results.

3. Identify corrective actions to ensure that

performance conforms to plans.
 Review Effectiveness of Strategy –
1. Competitors’ reaction to strategy
2. Competitors’ change in strategy
3. Competitors’ changes in strengths & weaknesses
4. Reasons for competitors’ strategic change
5. Reasons for competitors’ successful strategies
6. Competitors’ present market positions &
profitability
7. Potential for competitor retaliation
8. Potential for cooperation with competitors
 Potential for cooperation with competitors
 The number of corporate alliances has been
increasing at a rate of 25 percent a year, and many
of those have been between competitors.
 In today’s world, a new form of competition is in
fact intensifying.
 For one thing, companies now need to coevolve
with others in the ecosystem so that everyone gets
stronger.
 “The caribou feeds the wolf, but it is the wolf that
keeps the caribou strong.”
 Traditional competition no longer exists 17
 Competitive Collaboration
 Collaboration between competitors is in fashion.
 General Motors and Toyota assemble automobiles,
Siemens and Philips develop semiconductors, Canon
supplies photocopiers to Kodak, France’s Thomson and
Japan’s JVC manufacture videocassette recorders. GM,
Daimler and BMW have come together to develop hybrids.
 Mutual dependencies and partnerships have become a
fact of life. Is competition dead? Companies today may
use their strength to achieve victory over competitors, but
ultimately cooperation carries the day.
The Open Handset Alliance (OHA) is a consortium of 84 firms to
develop open standards for mobile devices. The OHA was established on
5 November 2007, led by Google with 34 members.
Monitor Strengths & Weaknesses;
Opportunities & Threats
 Are strengths still strengths?
 Have we added additional strengths?
 Are weaknesses still weaknesses?
 Have we developed other weaknesses?
 Are opportunities still opportunities?
 Other opportunities develop?
 Are threats still threats?
 Other threats emerged?
 Are we vulnerable to hostile takeover?
Review of Underlying Bases of Strategy –

 Develop revised EFE Matrix

 Develop revised IFE Matrix

Quantitative Criteria for Strategy Evaluation
 Financial Ratios
 Compare performance over different periods
 Compare performance to competitors’
 Compare performance to industry averages
 Return on investment (ROI)
 Return on equity (ROE)
 Profit margin
 Market share
 Debt to equity
 Earnings per share (EPS)
 Sales growth
 Asset growth
Qualitative Evaluation of Strategy
 Internal consistency of strategy
 Consistency with environment
 Appropriateness in view of resources
 Acceptable degree of risk
 Appropriate time frame
 Workability of the strategy
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 Balanced Scorecard

The Balanced Scorecard (BSC) is a strategic

performance management framework that allows
organizations to manage and measure the delivery of
their strategy.

– Evaluate strategies from 4 perspectives:

1. Financial performance
2. Customer knowledge
3. Internal business processes
4. Learning & growth
 21st Century Challenges in Strategic
Management
 Process is more an “art” than “science”
 Should strategies be visible or hidden from
stakeholders?
 Should process be more top-down or bottom-
up?
Characteristics of Strategy Evaluation

 Economical
 Meaningful
 Generates useful information
 Timely information
 Provides accurate picture of events
 Deming’s
PDCA cycle
 PDCA (plan-do-
check-act) is an
iterative four-step
problem-solving
process typically
used in business
process
improvement. It is
also known as the
Deming cycle,
Deming wheel, or
plan-do-study-act.
 Contingency Planning

 Alternative plans that can be put into effect if

certain key events do not occur as expected.
 A contingency plan is a plan devised for an
outcome other than in the usual (expected) plan.

Fred R. David
Ch 9-35 Prentice Hall