ch 9strategy review

8/4/2019 Ch 9Strategy Review

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Chapter 9

Strategy Review, Evaluation and

ControlDr., prof. Tatjana Volkova

1 STRATEGY IMPLMEMENTATION

SBS SWISS BUSINESS SCHOOL
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Learning Outcomes

After studying this chapter you will be able to:Describe practical framework for evaluating strategies;

Explain why strategy evaluation is complex, sensitive and

essential for organizational success;

Discuss the importance of contingency planning instrategy evaluation;

Discuss the role of auditing in strategy evaluation;

Explain how computers can aid in evaluating strategies;

Discuss the balanced scorecard

Discuss 21st century challenges in strategic management


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Outline

1. The Nature of Strategy Evaluation

2. Strategy Evaluation Framework

3. Measuring Organizational Performance

4. The Balanced Scorecard

5. Auditing

6. 21st Century Challenges in Strategic Management


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1. The Nature of Strategy Evaluation

Timely evaluations can alert management to problems orpotential problems before situation becomes critical

Strategy evaluation is essential to ensure that stated

objectives are being achieved

adequate and timely feedback is the cornerstone ofeffective strategy evaluation

Evaluation may be expensive and counterproductive

Strategy evaluation must have a long run and short run

focus

Success today is no guarantee of success tomorrow


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STRATEGY IMPLMEMENTATION SBS SWISS BUSINESSSCHOOL Ch 9 -5

1. Examine the underlying bases of a firms strategy

2. Compare expected to actual results

3. Identify corrective actions to ensure thatperformance conforms to plans

Strategy Review, Evaluation &

Control

3 Basic Activities
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Why strategy evaluation is more difficult

today ? Environment complexity

Difficulty to predict futurewith accuracy

Increasing number ofvariables

The rapid rate ofobsolescence of even bestplans

Increasing number of bothdomestic and world eventsaffecting organizations

The decrasing time span forwhich planning can be donewith any degree of certainty


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Issues for managers

How to ensure thatempowered employees

acting in entrepreneurial

manner;

How to effectively controlemployees in light of

modern organizational

demands for greater

flexibility, innovation,creativity and initiative

form employees




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STRATEGY

IMPLMEMENTATION

Ch 9 -8

Strategy Review,Evaluation, & Control

Feasibility

Consistency

Advantage

Consonance

Rumelts

4 Criteria for

Strategy

Evaluation
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Rumelts 4 Criteria for Strategy

Evaluation

Consistency Strategy should not presentinconsistent goals & policies

Consonance Need for strategies to examine sets of

trends

Feasibility Neither overtax resources or createunsolvable sub-problems

Advantage Creation or maintenance of competitiveadvantage


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The Process of Evaluating Strategies

Management by wandering

around;

Performed on a

continuous basis; Awareness of progress

being made

Broad involvement of staff




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STRATEGY IMPLMEMENTATION


11

2. Strategy evaluation framework
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Have major

changes

occured in

the firms

internal

strategicposition

Have major

changes

occured in the

firms external

strategic

position

Has the firm

progressed

satisfactorily

toward achieving

its stated

objectives

Result

No No No Take corrective actions

Yes Yes Yes Take corrective actions

Yes Yes No Take corrective actions

Yes No Yes Take corrective actions

Yes No No Take corrective actions

No Yes Yes Take corrective actions

No Yes No Take corrective actions

No No Yes Continue present strategic course12 STRATEGY IMPLMEMENTATIONSBS SWISS BUSINESS SCHOOL
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STRATEGY IMPLMEMENTATION SBS SWISS BUSINESS SCHOOL

Strategy Review, Evaluation, & Control

Are strengths still strengths? Have we added additional strengths?

Are weaknesses still weaknesses?

Have we developed other weaknesses?

Monitor Strengths & Weaknesses;

Opportunities & Threats
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STRATEGY IMPLMEMENTATION


Are opportunities stillopportunities?

Other opportunities

develop?

Are threats still threats Other threats emerged?

Are we vulnerable to

hostile takeover?

Monitor Strengths & Weaknesses;

Opportunities & Threats


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Factors influencing success of strategy

implementation

External

Competition

Changes in demand

Changes in technology

Economic changes

Demographic shifts

Governmental actions




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Factors influencing success of

strategy implementation

Internal

Poor strategies chosen

Poor implementationactivitities

Too optimistic objectives Weak organizational

structure

Unfunctional culture

Poor quality management Unadequate resources,

etc




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STRATEGY

IMPLMEMENTATION

Ch 9 -17

Evaluation Framework

I. Review Underlying Bases

Continue present course

II. Measure Firm Performance

III.

TakeCorrective

Actions

Differences?

Differences?

Yes

NO

Yes

NO


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3. Measuring organizational performance

Determine objectives for

evaluation

Select criteria (both

quantitative and qualitative)

Problems for using quantitativecriteria:

1. More associated with

annual objectives

2.Different accountingmethods used provide

different uncomparable

results




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Measuring organizational performance

STRATEGY IMPLMEMENTATIONSBS SWISS BUSINESS SCHOOL

Ch 9 -19

Return on investment

(ROI)

Return on equity (ROE)

Profit margin Market Share Debt to

equity

Earnings per share (EPS)

Sales growth

Asset growth

Key Financial Ratios


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Qualitative questions (Tilles)

Is the strategy internallyconsistent?

Is the strategy consistent

with the environment?

Is the strategy appropriatein view of available

resources?

Does the strategy involve

an acceptable degree ofrisk?

Is the strategy workable?

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Additional key questions

How good is the firmsbalance of investmentbetween high risk and lowrisk?

How good is the firms

balance of investmentbetween long term andshort term projects?

How good is the firms

balance of investmentbetween slow growing andfast growing markets?



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Taking corrective actions

Making changes tocompetitively reposition a

company for the future:

Alerting an organizational

structure Replacing staff when

necessary

Selling division (s)

Revising a businessmission, objectives

Issuing stock



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Taking correcting actions dont mean

that new strategies must be formulated

Is necessary to keep anorganization on tracktoward stated objectives

Strategy evaluationenhances an organizations

ability and capacity toadapt to changingcircumstances;

Participation of the staff in

evaluation activities helpsto overcome resistance tothe change;



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Strategy evaluation can lead to:

1.

strategy-formulationchanges

2. Strategy-implementation

changes

3. Both formulation andimplementation changes

4. No changes at all, but

sooner or later changes

will take place

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STRATEGY IMPLMEMENTATION SBS SWISS BUSINESS

SCHOOL

Ch 9 -26

-- Evaluate strategies from 4 perspectives:

1. Financial performance

2. Customer knowledge

3. Internal business processes

4. Learning & growth

4. The Balanced Scorecard

Video : what is a balancescored ?


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The Balanced Scorecard analysis:

How well company is

continually imprving and

creating value along

measures such as

innovation, technological

leadership, product quality,

operational process

efficinecies....

Ch 9 -28STRATEGY IMPLMEMENTATION SBS SWISS BUSINESS

SCHOOL


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How well is the company

sustaining or even

improving upon its corecompetencies and

competitive advantages?


SCHOOL


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How satisfied are our

customers?


SCHOOL


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Published sources of Strategy

Evaluation Information

North American Industry Classifictaion System;

Magazine Fortune ( The World Most Admired Companies)

The Annual Report on American Industry

Business week

Industry week

Duns Business Month

The Economist

World Competitiveness Report



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http://money.cnn.com/magazines/fortune/global500/2011/countries/India.html

www.tata.com



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www3.weforum.org/.../WEF_GlobalCompetitivenessReport_2010-11.pdf39 STRATEGY IMPLMEMENTATIONSBS SWISS BUSINESS SCHOOL


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Effective Evaluation System

Strategy evaluation activities must be economical

Avoiding too much information also to little information

Avoid too many control

Activities should be meaningful

Should provide to managers useful information

Must be designed to provide true picture

Should facilitate action rather than information oriented

Foster mutual understanding, trust, respect Should be simple



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STRATEGYIMPLMEMENTATION

Ch 9 -41

Alternative plans that can be put into effect if certain keyevents do not occur as expected

To minimize the impact of unforeseen events

(government actions; strikes, natural disasters, etc. )

To capitalizing on opportunities

Contingency Planning

5 A diti


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STRATEGYIMPLMEMENTATION

Ch 9 -42

Financial audits determine correspondence betweenassertions based on strategic plan & established criteria

Environmental audits ensure sound and safe practices

5. Auditing


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Auditing


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a systematic process of objectively obtaining andevaluating evidence regarding assertions about economicactions and events to ascertain the degree ofcorrespondance between these assertions and establishedcriteria and communicating results to interested users

American Accounting Association Independant auditors are certified public accountants

examining the financial statements of an companywhether they fairly represent the activities;

Independant auditors use a set of standarts calledgenerally accepted auditing standarts


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The environmental audit


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Environment affairs becoming an important strategic

management concern;

Main issues for environmental consideration:

Product design

Manufacturing Transportation

Packaging

Product disposal

Corporate rewards and sunctions

6 21st C Ch ll i


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Ch 9 -45

Process is more an art

than science

Should strategies be

visible or hidden from

stakeholders Should process be more

top-down or bottom up

6. 21st Century Challenges in

Strategic Management

Challenges


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Challenges


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Should the strategic

management process be

more an art or a science?

Should strategies be

visible or hidden fromstakeholders?

Should the strategic

management process bemore top-down or

bottom-up?

The Visible or Hidden Issue


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Reasons for Openness

All stakeholders can readilycontribute to the process,which results in many excellentideas.

Investors and creditors have agreater basis for supporting afirm.

Visibility promotes democracyand secrecy promotesautocracy.

Participation and openness

enhances understanding,commitment, andcommunication within the firm.


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Without secrecy, competitive

intelligence can learn and

exploit information.

Secrecy limits criticism, second

guessing, and hindsight.

Participants in a visible strategy

become more attractive to rival

firms who may lure them away.

Secrecy limits rival firms from

imitating or duplicating thefirms resources and abilities

undermining the firm.

The Top Down or Bottom Up Approach


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The Top-Down or Bottom-Up Approach


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The Top-Down Approach:

Top executives are the

only persons in the firm

with the collective

experience, acumen, and

fiduciary responsibility tomake key strategy

decisions.

The Top Down or Bottom Up Approach


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The Top-Down or Bottom-Up Approach


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The Bottom-Up Approach:

Lower- and middle-level

managers and employees who

will be implementing the

strategies need to be actively

involved in the process of

formulating the strategies to

assure their support and

commitment


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