Assignment II
STRATEGY EVALUATION AND CONTROL
OUTLINE
* The Nature of Strategy Evaluation
* A Strategy-Evaluation Framework
* Published Sources of Strategy-Evaluation Information
* Characteristics of an Effective Evaluation System
* Contingency Planning of strategy Evaluation & Control
OBJECTIVES
After studying this assignment we should be able to do the following:
1. Describe a practical framework for evaluating strategies.
2. Explain why strategy evaluation is complex, sensitive, and yet essential for organizational success.
3. Discuss the importance of contingency planning in strategy evaluation.
OVERVIEW
The best formulated and implemented strategies become obsolete as a firm’s external and internal environments change. It is essential, therefore, that strategists systematically evaluate, and control the execution of strategies. This assignment presents a framework that can guide managers’ efforts to evaluate strategic-management activities, to make sure they are working, and to make timely changes. Computer information systems being used to evaluate strategies are discussed. Guidelines are presented for formulating, implementing, and evaluating strategies.
EXTENDED OUTLINE WITH TIPS
I. THE NATURE OF STRATEGY EVALUATION
A. Importance of Strategy Evaluation
1. The strategic-management process results in decisions that can have significant, long-lasting consequences. Erroneous strategic decisions can inflict severe penalties and can be exceedingly difficult, if not impossible, to reverse.
2. Most strategists agree, therefore, that strategy evaluation is vital to an organization’s well-being; timely evaluations can alert management to problems or potential problems before a situation becomes critical.
3. Strategy evaluation includes three basic activities:
a. Examining the underlying bases of a firm’s strategy.
b. Comparing expected results with actual results.
c. Taking corrective actions to ensure that performance conforms to plans.
4. The strategy-evaluation stage of the strategic-management process.
5. Strategy evaluation can be a complex and sensitive undertaking. Too much emphasis on evaluating strategies may be expensive and counterproductive. Yet, too little or no evaluation can create even worse problems. Strategy evaluation is essential to ensure that stated objectives are being achieved.
6. 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:
a. Consistency
• Strategy should not present inconsistent goals & policies
• Issue and not “people” problems
• Success for one department means failure for another
• Policy problems rise to the top
b. Consonance
• Need for strategies to examine sets of trends
• Need a Holistic view
c. Feasibility
• Neither overtaxes resources or create unsolvable sub-problems
• Can it be done with the given resources?
d. Advantage
• Creation or maintenance of competitive advantage
• If it doesn't create a competitive advantage then what’s the point?
7. Fectors which prohibit achieiving abjectives:
Internal Facors External Factors
1) Action by competitors 1) Ineffective strategies
2) Changes in demand 2) Poor implementation in strategies
3) Changes in technology
4) Econmic Changes
5) Demographic shift
6) Government actions and policies
B. The Process of Evaluating Strategies
1. Strategy evaluation is necessary for all sizes and kinds of organizations.
a. Strategy evaluation should initiate managerial questioning of expectations and assumptions, trigger a review of objectives and values, and stimulate creativity in generating alternatives and formulating criteria of evaluation.
2. Evaluating strategies on a continuous rather than a periodic basis allows benchmarks of progress to be established and more effectively monitored.
3. Managers and employees of the firm should continually be aware of progress being made toward achieving the firm’s objectives. As critical success factors change, organizational members should be involved in determining appropriate corrective actions.
II. A STRATEGY-EVALUATION FRAMEWORK
The strategy-evaluation activities in terms of key questions that should be addressed, alternative answers to those questions, and appropriate actions for an organization to take.
Measuring Organizational Performance
1. Another important strategy-evaluation activity is measuring organizational performance. This activity includes comparing expected results to actual results, investigating deviations from plans, evaluating individual performance, and examining progress being made toward meeting stated objectives. Both long-term and annual objectives are commonly used in this process.
2. Failure to make satisfactory progress toward accomplishing long-term or annual objectives signals a need for corrective action.
3. Quantitative and Qualitative criteria commonly used to evaluate strategies:
Quantitative
a. comparing the firm’s performance over different time periods,
b. comparing the firm’s performance to competitors, and
c. comparing the firm’s performance to industry averages.
Qualitative
d. Poor production quality quality rate
e. Low employ satisfaction
C. Taking Corrective Action
1. The final strategy-evaluation activity, taking corrective action, requires making changes to reposition a firm competitively for the future.
2. Examples of changes that may be needed are altering an organization’s structure, replacing one or more key individuals, selling a division, or revising a business mission.
3. Taking corrective action raises employees’ and managers’ anxieties. Research suggests that participation in strategy-evaluation activities is one of the best ways to overcome individuals’ resistance to change.
Example of corrective actions:
• Altering an organizational structure
• Replacing one or more key individuals
• Selling a division of the company
• Revising a business mission or objective
• Reviewing company’s policy
• Issuing stock or revised capital
• Adding more sale stock
• Allocating resources difference
III. PUBLISHED SOURCES OF STRATEGY-EVALUATION INFORMATION
A. Examples of Helpful Publications
1. A number of publications are helpful in evaluating a firm’s strategies. For example, Fortune annually identifies and evaluates the Fortune 1,000 (the largest manufacturers) and the Fortune 50 (the largest retailers, transportation companies, utilities, banks, insurance companies, and diversified financial corporations in the United States).
2. Another excellent evaluation of corporations in America, “The Annual Report on American Industry,” is published annually in the January issue of Forbes. Business Week, Industry Week, and Dun’s Business Month also periodically publish detailed evaluations of American businesses and industries.
Tip: The following are the website addresses of publications that frequently report on the strategies of American firms.
• Business 2.0 {http://www.business2.com/}
• Business Week {http://www.businessweek.com/}
• Fast Company {http://www.fastcompany.com/homepage/}
• Fortune {http://www.fortune.com/fortune/}
• Forbes {http://www.forbes.com/}
• Industry Week {http://www.industryweek.com/}
• Red Herring {http://www.herring.com/}
IV. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM
A. Strategy evaluation must meet several basic requirements to be effective.
1. Strategy-evaluation activities must be economical; too much information can be just as bad as too little information.
2. Strategy-evaluation activities should also be meaningful; they should specifically relate to a firm’s objectives.
3. Strategy-evaluation activities should provide timely information; on occasion and in some areas, managers may need information daily.
4. Strategy evaluation should be designed to provide a true picture of what is happening.
B. There is more than one ideal strategy-evaluation system. The unique characteristics of an organization, including its size, management style, purpose, problems, and strengths can determine a strategy-evaluation and control system’s final design.
V. CONTINGENCY PLANNING OF STRATEGY EVALUATION & CONTROL
A. Essence of Contingency Planning
1. A basic premise of good strategic management is that firms plan ways to deal with unfavorable and favorable events before they occur.
2. Contingency plans can be defined as alternative plans that can be put into effect if certain key events do not occur as expected.
B. Effective Contingency Planning Involves These Steps:
1. Identify both beneficial and unfavorable events that could possibly derail the strategy or strategies.
2. Specify trigger points. Estimate when contingent events are likely to occur.
3. Assess the impact of each contingent event. Estimate the potential benefit or harm of each contingent event.
4. Develop contingency plans. Be sure that the contingency plans are compatible with current strategy and financially feasible.
5. Assess the counter impact of each contingency plan. That is, estimate how much each contingency plan will capitalize on or cancel out its associated contingent event.
6. Determine early warning signals for key contingent events. Monitor the early warning signals.
7. Develop advanced action plans to take advantage of the available lead time.
