Chapter seven: Strategy Evaluation and

Control
• Up on completion of this unit, the learner is
expected to:
 The nature of strategy evaluation
 A strategy evaluation framework
 Characteristics of An effective evaluation system
 The contingency model
 Strategic Control: Control Process

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 Introduction

•Evaluation is the systematic determination of

merit, worth, and significance of something or
someone.
•Evaluation often is used to characterize and
appraise subjects of interest in a wide range of
human enterprises, including the Arts, business,
computer science, criminal justice, education,
engineering, foundations and non-profit
organizations, government, health care, and
other human services.
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 7.1 The nature of strategy evaluation
The strategic-management process results in
decisions that can have significant, long-lasting
consequences.
Strategy evaluation includes three basic
activities:
1. examining the underlying bases of a firm's
strategy,
2. comparing expected results with actual
results, and
3. taking corrective actions to ensure that
performance conforms to plans. 3
 Purpose of strategy evaluation

Strategy evaluation is vital to the

organization’s well-being
Alert management to potential or actual
problems in a timely fashion
Erroneous/wrong strategic decisions can have
severe negative impact on organizations

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 Basic Activities –
[Link] the underlying bases of a firms’
strategy
[Link] expected to actual results
[Link] actions to ensure performance
conforms to plans
•In many organizations, evaluation is an appraisal of
performance –
• Have assets increased?
•Increase in profitability?
•Increase in sales?
•Increase in productivity? 5
 Four Criteria (Richard Rummelt):

•Consistency: Strategy should not be Conflict and

interdepartmental backbiting symptomatic of
managerial disorder and strategic inconsistency
•Consonance/harmony: Need for strategies to
examine sets of trend
• Adaptive response to external environment
•Feasibility: Organizations must demonstrate the
abilities, competencies, skills and talents to carry out a
given strategy
•Advantage: Creation or maintenance of competitive
advantage 6
 The process of evaluating Strategies

1. Strategy evaluation is necessary for all sizes and

kinds of organization.
2. Evaluating strategies on continuous rather than a
periodic basis allows benchmark of progress to
established and more effectively monitored
3. Managers and employees of the firm should be
continually aware of progress being made towards
achieving the firm’s objectives. 7
 7.2 A strategy evaluation framework
•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.
•Notice that corrective actions are almost always needed
except when
(1)external and internal factors have not significantly
changed and
(2)The firm is progressing satisfactorily toward achieving
stated objectives. 8
9
 1. REVIEWING BASES OF STRATEGY
•Reviewing the EFE Matrix
1. How have competitors reacted to our
strategies?
2. How have competitors' strategies
changed?
3. Have major competitors' strengths and
weaknesses changed?
4. Why are competitors making certain
strategic changes?
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 Conti…..

5. Why are some competitors' strategies

more successful than others?
6. How satisfied are our competitors with
their present market positions and
profitability?
7. How far can our major competitors be
pushed before strike back?
8. How could we more effectively
cooperate with our competitors?
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 Conti…..

•Some key IFE questions to address

1. Are our internal strengths still
strengths?
2. Have we added other internal
strengths? If so, what are they?
3. Are our internal weaknesses still
weaknesses?
4. Do we now have other internal
weaknesses? If so, what are they?
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 Conti…

5. Are our external opportunities still

opportunities?
6. Are there now other external
opportunities? If so, what are they?
7. Are our external threats still threats?
8. Are there now other external
threats?

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 Measuring Organizational Performance

•Criteria for evaluating strategies should be

measurable and easily verifiable.
•Quantitative criteria commonly used to evaluate
strategies are financial ratios, which strategists use to
make three critical comparisons:
(1)comparing the firm's performance over different
time periods,
(2) comparing the firm's performance to competitors',
(3) comparing the firm's performance to industry
averages. 14
 Conti…

•Some key financial ratios that are particularly useful

as criteria for strategy evaluation are as follows:
1. Return on investment
2. Return on equity
3. Profit margin
4. Market share
5. Debt to equity
6. Earnings per share
7. Sales growth
8. Asset growth 15
 six qualitative questions to evaluating strategies:

1. Is the strategy internally consistent?

2. Is the strategy consistent with the
environment?
3. Is the strategy appropriate in view of
available resources?
4. Does the strategy involve an acceptable
degree of risk?
5. Does the strategy have an appropriate time
framework?
6. Is the strategy workable? 16
 Conti….

•Some additional key questions are as follows:

1. How good is the firm's balance of investments between
high-risk and low-risk projects?
2. How good is the firm's balance of investments between
long-term and short-term projects?
3. How good is the firm's balance of investments between
slow-growing markets and fast growing markets?
4. How good is the firm's balance of investments among
different divisions?
5. To what extent are the firm's alternative strategies socially
responsible?
6. What are the relationships among the firm's key internal
and external strategic factors?
7. How are major competitors likely to respond to particular
strategies? 17
 Taking Corrective Actions

•The probabilities and possibilities for

incorrect or inappropriate actions
increase geometrically with an
arithmetic increase in personnel.
•If either the actions or results do not
comply with preconceived or planned
achievements, then corrective actions
are needed.
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7.3. Characteristics of An effective evaluation system

• strategy-evaluation activities must be

economical meaningful, provide timely
• provide a true picture of what is happening.
• reports that are provided for informational
purposes only
• Controls need to be action-oriented rather
than information-oriented.
• Successful companies treat facts as friends
and controls as liberating.
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 7.4. The contingency model (Contingency
Planning)
• Contingency plans can be defined as
alternative plans that can be put into effect if
certain key events do not occur as expected.
• Only high-priority areas require the insurance
of contingency plans.
• Strategists cannot try to cover all bases by
planning for all possible contingencies.
• But in any case, contingency plans should be
as simple as possible.
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 Some contingency plans commonly established by firms
include the following:
1. If a major competitor withdraws from particular markets as
intelligence reports indicate, what actions should our firm take?
2. If our sales objectives are not reached, what actions should
our firm take?
3. If demand for our new product exceeds plans, what actions
should our firm take?
4. If certain disasters occur—what actions should our firm take?
5. If a new technological advancement makes our new product
obsolete sooner than expected, what actions should our firm
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effective contingency planning involves a seven-
step process as follows:
1. Identify both beneficial and unfavorable
events that could possibly
2. Specify trigger points. Calculate about when
contingent events are likely to occur.
3. Assess the impact of each contingent event.
4. Develop contingency plans. Be sure that
contingency plans are compatible with
current strategy and are economically
feasible.
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 Conti….

5. Assess the counter impact of each

contingency plan.
Doing this will quantify the potential value of
each contingency plan.
6. Determine early warning signals for key
contingent events. Monitor the early warning
signals.
7. For contingent events with reliable early
warning signals, develop advance action plans
to take advantage of the available lead time.
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 7.5. Strategic Control: Control Process

•Strategic control systems are the formal

target-setting, measurement, and feedback
systems that allow strategic managers to
evaluate whether a company is achieving
superior efficiency, quality, innovation, and
customer responsiveness and is implementing
its strategy successfully.
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 Conti…

•An effective control system should have three

characteristics:
[Link] should be flexible enough to allow managers to
respond as necessary to unexpected events;
[Link] should provide accurate information, giving a true
picture of organizational performance; and
[Link] should supply managers with the information in a
timely manner, because making decisions on the
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•End of the chapter
•And the course

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