strategy evalution and control as a tool of strategic mgt

strategy evaluation and control as a tool of strategic mgt

1. Fred R. David Prentice Hall Ch 9- 1 Chapter 9: Strategy Review, Evaluation and Control Strategic Management: Concepts and Cases . 9 th edition Fred R. David PowerPoint Slides by Anthony F. Chelte Western New England College

2. Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 7 - 2

3. Fred R. David Prentice Hall Ch 9- 3 Chapter Outline The Nature of Strategy Evaluation A Strategy-Evaluation Framework Published Sources of Strategy-Evaluation Information

4. Fred R. David Prentice Hall Ch 9- 4 Chapter Outline Characteristics of an Effective Evaluation System Contingency Planning Auditing

5. Fred R. David Prentice Hall Ch 9- 5 Chapter Outline Using Computers to Evaluate Strategy Guidelines for Effective Strategic Management

6. Fred R. David Prentice Hall Ch 9- 6 Implementing Strategies Organizations are most vulnerable when they are at the peak of their success. -- R.T. Lenz

7. Fred R. David Prentice Hall Ch 9- 7 Systematic Review, Evaluation & Control – Strategies become obsolete Internal environments are dynamic External environments are dynamic Strategy Review, Evaluation & Control

8. Fred R. David Prentice Hall Ch 9- 8 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

9. Fred R. David Prentice Hall Ch 9- 9 3 Basic Activities – Examining the underlying bases of a firms’ strategy Comparing expected to actual results Corrective actions to ensure performance conforms to plans Strategy Evaluation

10. Fred R. David Prentice Hall Ch 9- 10 Strategy evaluation – Complex and sensitive undertaking Overemphasis can be costly and counterproductive Strategy Evaluation

11. Fred R. David Prentice Hall Ch 9- 11 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? Strategy Evaluation

12. Fred R. David Prentice Hall Ch 9- 12 Four Criteria (Richard Rummelt): Consistency Consonance Feasibility Advantage Strategy Evaluation

13. Fred R. David Prentice Hall Ch 9- 13 Consistency Strategy should not present inconsistent goals and policies. Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency Rummelt’s Criteria

14. Fred R. David Prentice Hall Ch 9- 14 Consonance Need for strategies to examine sets of trends Adaptive response to external environment Trends are results of interactions among other trends Rummelt’s Criteria

15. Fred R. David Prentice Hall Ch 9- 15 Feasibility Neither overtax resources or create unsolvable subproblems Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy Rummelt’s Criteria

16. Fred R. David Prentice Hall Ch 9- 16 Advantage Creation or maintenance of competitive advantage Superiority in resources, skills, or position Rummelt’s Criteria

17. Fred R. David Prentice Hall Ch 9- 17 Difficulty in strategy evaluation – Increase in environment’s complexity Difficulty predicting future with accuracy Increasing number of variables Strategy Evaluation

18. Fred R. David Prentice Hall Ch 9- 18 Difficulty in strategy evaluation – Rate of obsolescence of plans Domestic and global events Decreasing time span for planning certainty Strategy Evaluation

19. Fred R. David Prentice Hall Ch 9- 19 Strategy evaluation should – Initiative managerial questioning Trigger review of objectives and values Stimulate creativity in generating alternatives Process of Strategy Evaluation

20. Fred R. David Prentice Hall Ch 9- 20 Review of underlying bases of strategy – Develop revised EFE Matrix Develop revised IFE Matrix Reviewing Bases of Strategy

21. Fred R. David Prentice Hall Ch 9- 21 Review effectiveness of strategy – Competitors’ reaction to strategy Competitors’ change in strategy Competitors’ changes in strengths and weaknesses 4. Reasons for competitors’ strategic change Reviewing Bases of Strategy

22. Fred R. David Prentice Hall Ch 9- 22 Review effectiveness of strategy – Reasons for competitors’ successful strategies Competitors’ present market positions and profitability Potential for competitor retaliation Potential for cooperation with competitors Reviewing Bases of Strategy

23. Fred R. David Prentice Hall Ch 9- 23 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? Reviewing Bases of Strategy

24. Fred R. David Prentice Hall Ch 9- 24 Monitor Threats and Opportunities and Weaknesses and Strengths Are opportunities still opportunities? Other external opportunities? Are threats still threats? Are there other threats? Are we vulnerable to a hostile takeover? Reviewing Bases of Strategy

25. Fred R. David Prentice Hall Ch 9- 25 Evaluation Framework I. Review Underlying Bases Continue present course II. Measure Firm Performance III. Take Corrective Actions Differences? Differences? Yes NO Yes NO

26. Fred R. David Prentice Hall Ch 9- 26 Comparing expected to actual results Investigating deviations from plan Evaluating individual performance Progress toward stated objectives Measuring Organizational Performance

27. Fred R. David Prentice Hall Ch 9- 27 Quantitative criteria for strategy evaluation – Financial Ratios: Compare performance over different periods Compare performance to competitors Compare performance to industry averages Measuring Organizational Performance

28. Fred R. David Prentice Hall Ch 9- 28 Key Financial Ratios – Return on investment Return on equity Profit margin Market share Measuring Organizational Performance

29. Fred R. David Prentice Hall Ch 9- 29 Key Financial Ratios – Debt to equity Earnings per share Sales growth Asset growth Measuring Organizational Performance

30. Fred R. David Prentice Hall Ch 9- 30 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 Measuring Organizational Performance

31. Fred R. David Prentice Hall Ch 9- 31 Basic requirements for effective strategy evaluation – Economical Meaningful Generate useful information Timely information Provide a true picture of what is happening Characteristics of Evaluation

32. Balanced Scorecard The purpose of balanced scorecard is to: “translate strategy into measures that uniquely communicate your vision to the organization”

33. Balanced Scorecard The balanced scorecard consists of four perspectives : Financial perspective: Ultimate results that the business provide to its shareholders i.e revenue growth, ROI. Internal perspective: Key Internal Processes i.e quality levels, productivity, cycle time. Customer perspective: Focus on customer’s needs and satisfaction i.e Service level, satisfaction ratings, repeat business. Innovation and learning perspectives : Focus on Organization’s people and infrastructure i.e. employee satisfaction, market innovation, skill development

34. Balanced Scorecard A good balanced Scorecard contains both leading and lagging measures and indicators. Lagging measures (outcomes) tell what has happened; leading measures (performance drivers) predict what will happen.

35. Fred R. David Prentice Hall Ch 9- 35 Premise of sound strategic management – Planning to deal with unfavorable and favorable events before they occur. Contingency Planning

36. Fred R. David Prentice Hall Ch 9- 36 Contingency Planning – Alternative plans that can be put into effect if certain key events do not occur as expected Contingency Planning

37. Fred R. David Prentice Hall Ch 9- 37 Financial audits to determine correspondence between assertions based on strategic plans and established criteria Environmental audits to insure sound and safe practices Auditing

38. Fred R. David Prentice Hall Ch 9- 38 Key Terms Advantage Auditing Consistency Consonance Contingency Plans Corporate Agility Feasibility

39. Fred R. David Prentice Hall Ch 9- 39 Key Terms Future Shock Management by Wandering Around Measuring Organizational Performance Planning Process Audit (PPA) Reviewing the Underlying Bases of an Organization’s Strategy

40. Fred R. David Prentice Hall Ch 9- 40 Key Terms Revised EFE Matrix Revised IFE Matrix Taking Corrective Actions