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Chapter 9

Strategy Review, Evaluation, & Control


Strategic Management:
Concepts & Cases
11th Edition Fred
David
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Revised by
Azhar Kazmi
KFUPM Dhahran

Copyright 2007 Prentice Hall

Ch 9-1

Strategic Management
Process Model

Copyright 2007 Prentice Hall

Ch 9-2

Strategy Review, Evaluation &


Control
-- Strategies become obsolete
-- Internal environments are dynamic
-- External environments are dynamic
-- It is essential therefore that strategists
systematically review, evaluate, and control the
execution of strategy
Copyright 2007 Prentice Hall

Ch 9-3

Strategy Evaluation, Review,


& Control
Understanding strategy evaluation

Vital to the organizations well-being


Alert management to potential/actual problems in a
timely fashion
Erroneous strategic decisions can have severe
negative impact on organizations
Complex and sensitive undertaking
Overemphasis can be costly & counterproductive

Too much time spent measuring performance rather


than in action and doing

Copyright 2007 Prentice Hall

Ch 9-4

Strategy Evaluation, Review &


Control
Three Basic Activities

1. Examine the underlying bases of a firms


strategy
2. Compare expected to actual results
3. Identify corrective actions to ensure that
performance conforms to plans

Copyright 2007 Prentice Hall

Ch 9-5

Strategy Evaluation, Review &


Control
Strategy evaluation is often an appraisal of
performance. Strategists ask questions like:

Have the firms assets increased?


Has there been an increase in profitability?
Has there been an increase in sales?
Has there been an increase in productivity?
Have profit margins, ROI, and EPS ratios
increased?

Copyright 2007 Prentice Hall

Ch 9-6

Strategy Evaluation, Review


& Control
Difficulties in Strategy Evaluation

Increase in environments 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

Copyright 2007 Prentice Hall

Ch 9-7

Strategy Evaluation, Review &


Control
Consistency
Rummelts
4 Criteria for
Strategy
evaluation

Consonance
Feasibility
Advantage

Copyright 2007 Prentice Hall

Ch 9-8

Strategy Evaluation, Review & Control

Consistency
Strategy should not present inconsistent goals and policies. There is
inconsistency when:
Persistence of issues-based (not personality-based) conflicts
Success for one department means failure for another
Policy problems are frequently referred to the top for resolution

Consonance
Need for strategies to examine sets of trends rather than a single trend
Need a holistic view (internal and external environments)

Feasibility
Neither overtax resources or create unsolvable sub-problems
Can it be done with the given or available resources?

Advantage
Creation or maintenance of competitive advantage
If it doesn't create a competitive advantage then whats the point?

Copyright 2007 Prentice Hall

Ch 9-9

Strategy Evaluation, Review &


Control
Strategy Evaluation Should -

Initiate managerial questioning


Trigger review of objectives and values
Stimulate creativity in generating
alternatives

Copyright 2007 Prentice Hall

Ch 9-10

Strategy Evaluation, Review &


Control
Review of underlying bases of strategy --

Develop a revised EFE Matrix

What changed in the external environment?

Develop a revised IFE Matrix

What internal changes occurred in the


organization ?

Copyright 2007 Prentice Hall

Ch 9-11

A strategy evaluation matrix


Have major
Have Mjor changes
changes occurred occurred in firms
in the firms
external strategic
internal strategic
position
position

Has the firm


progressed
satisfactorily
towards achieving
its stated
objectives

Result

No

No

No

Take corrective
actions

Yes

Yes

Yes

Corrective actions

Yes

Yes

No

Corrective actions

Yes

No

Yes

Corrective actions

Yes

No

No

Corrective actions

No

Yes

Yes

Corrective actions

Yes

Corrective actions
Ch 9-12

Yes

Continue present

No

Yes
Copyright 2007 Prentice Hall
No
No

Strategy Evaluation, Review &


Control
Review effectiveness of strategy -1.
2.
3.
4.
5.
6.
7.
8.

Competitors reaction to strategy


Competitors change in strategy
Competitors changes in strengths & weaknesses
Reasons for competitors strategic change
Reasons for competitors successful strategies
Competitors present market positions & profitability
Potential for competitor retaliation
Potential for cooperation with competitors

Copyright 2007 Prentice Hall

Ch 9-13

Strategy Evaluation, Review &


Control
Monitor Strengths & Weaknesses;
Opportunities & Threats

Are strengths still strengths?


Have we added additional strengths?
Are weaknesses still weaknesses?
Have we developed other weaknesses?

Copyright 2007 Prentice Hall

Ch 9-14

Strategy Evaluation, Review &


Control
Monitor Strengths & Weaknesses;
Opportunities & Threats

Are opportunities still opportunities?


Have other opportunities developed?
Are threats still threats?
Have other threats emerged?
Are we vulnerable to hostile takeover?

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Ch 9-15

Review Underlying Bases


Revised IFE and EFE
Differences?

Evaluation Framework

Yes

NO
Measure Firm Performance
Ratios and stated objectives

Differences?

Take
Corrective
Actions

Yes

NO
Continue
present
course
Copyright 2007
Prentice
Hall

Ch 9-16

Strategy Evaluation, Review &


Control
Measuring Organizational Performance

Compare expected to actual results


Investigate deviations from plan
Evaluate individual performance
Progress toward stated objectives

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Ch 9-17

Strategy Evaluation, Review &


Control
Quantitative Criteria for Strategy Evaluation

Financial Ratios

Compare performance over different periods


Compare performance to competitors
Compare performance to industry averages

Copyright 2007 Prentice Hall

Ch 9-18

Strategy Evaluation, Review &


Control
Typical financial ratios used in strategy
evaluation

Return on investment (ROI)


Return on equity (ROE)
Profit margin
Market Share
Debt to equity
Earnings per share (EPS)
Sales growth
Asset growth

Copyright 2007 Prentice Hall

Ch 9-19

Strategy Evaluation, Review &


Control
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

Copyright 2007 Prentice Hall

Ch 9-20

Strategy Evaluation, Review &


Control
Balanced Scorecard

-- Evaluate strategies from 4 perspectives:


1. Financial performance
2. Customer knowledge
3. Internal business processes
4. Learning & growth
Copyright 2007 Prentice Hall

Ch 9-21

Balanced Scorecard
Area of Objectives

Measure or Target

Time Expectation

Primary Responsibility

Customers
1
2
Managers/Employees
1
2
Operations/Processes
1
2
Community/Social Responsibility
1
2
Business Ethics/Natural Environment
1
2
Financial
1
2

Copyright 2007 Prentice Hall

Ch 9-22

Strategy Evaluation, Review &


Control
Characteristics of strategy evaluation

Economical
Meaningful
Generates useful information
Timely information
Provides accurate picture of events

Copyright 2007 Prentice Hall

Ch 9-23

Strategy-Evaluation Assessment Matrix


Have major
changes
occurred in the
firms internal
strategic
position?

Have major
changes
occurred in the
firms external
strategic
position?

No

No

No

Corrective actions

Yes

Yes

Yes

Corrective actions

Yes

Yes

No

Corrective actions

Yes

No

Yes

Corrective actions

Yes

No

No

Corrective actions

No

Yes

Yes

Corrective actions

No

Yes

No

Corrective actions

No

No

Yes

Continue course

Copyright 2007 Prentice Hall

Has the firm


progressed
satisfactorily toward
achieving its stated
objectives?

Result

Ch 9-24

Strategy Evaluation, Review &


Control
Contingency Planning: Alternative plans that
can be put into effect if certain key events do
not occur as expected
Some examples of situations requiring contingency planning:

If a major competitor withdraws from particular markets as


intelligence reports indicate, what actions should the firm take?

If our sales objectives are not reached, what actions should firm
take to avoid losses?

If demand for new product exceeds plans, what actions should firm
take to meet higher demand?

If a new technological development makes new product obsolete


sooner than expected, what actions should firm take?
Copyright 2007 Prentice Hall

Ch 9-25

Strategy Evaluation, Review &


Control
Auditing
Financial audits determine correspondence
between assertions based on strategic plan and
established criteria

Required for publicly traded companies

Environmental audits insure sound and safe


practices

Copyright 2007 Prentice Hall

Ch 9-26

Strategy Evaluation, Review & Control


21st Century Challenges in
Strategic Management

Is the process of strategic management more an


art than science or vice versa? (Your text says it
is more science than art)
Should strategies be visible or hidden from
stakeholders? (Your text says that they should
hidden only when secrecy gives some competitive
advantage)
Should process be more top-down or bottom up
(Current research suggests bottom-up)

Copyright 2007 Prentice Hall

Ch 9-27