Strategic Evaluation & Control

Presented By:

Malvi Sharma, Manav Jamwal,

Manik Kudyar & Pardeep Verma

Central University of Jammu

Strategic Management Process

Strategic Evaluation is defined as the process of determining the effectiveness of a given strategy in achieving the organizational objectives and taking corrective action wherever required.

Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as it’s implementation meets the organizational objectives.

Nature of Strategic Evaluation

Nature of the strategic evaluation and control process is to test the effectiveness of strategy.

During the strategic management process, the strategists formulate the strategy to achieve a set of objectives and then implement the strategy.

There has to be a way of finding out whether the strategy being implemented will guide the organisation towards its intended objectives. Strategic evaluation and control, therefore, performs the crucial task of keeping the organisation on the right track.

In the absence of such a mechanism, there would be no means for strategists to find out whether or not the strategy is producing the desired effect.

Through the process of strategic evaluation and control, the strategists attempt to answer set of questions, as below. Are the premises made during strategy formulation proving

to be correct? Is the strategy guiding the organization towards its intended

objectives? Are the organization and its managers doing things which

ought to be done? Is there a need to change and reformulate the strategy? How is the organization performing? Are the time schedules being adhered to? Are the resources being utilized properly? What needs to be done to ensure that resources are utilized

properly and objectives met?

Importance of Strategic Evaluation

Strategic evaluation can help to assess whether the decisions match the intended strategy requirements.

Strategic evaluation, through its process of control, feedback, rewards, and review, helps in a successful culmination of the strategic management process.

The process of strategic evaluation provides a considerable amount of information and experience to strategists that can be useful in new strategic planning.

Participants in Strategic Evaluation

Shareholders

Board of Directors

Chief executives

Profit-centre heads

Financial controllers

Company secretaries

External and Internal Auditors

Audit and Executive Committees

Corporate Planning Staff or Department

Middle-level managers

Process of Strategic Evaluation1) Fixing benchmark of performance

While fixing the benchmark, strategists encounter questions such as - what benchmarks to set, how to set them and how to express them.

In order to determine the benchmark performance to be set, it is essential to discover the special requirements for performing the main task.

The organization can use both quantitative and qualitative criteria for comprehensive assessment of performance.

Quantitative criteria includes determination of net profit, ROI, earning per share, cost of production, rate of employee turnover etc. Among the Qualitative factors are subjective evaluation of factors such as - skills and competencies, risk taking potential, flexibility etc.

2) Measurement of performance The standard performance is a bench mark with which the actual performance is to be

compared. The reporting and communication system help in measuring the performance. For measuring the performance, financial statements like - balance sheet, profit and

loss account must be prepared on an annual basis.

3) Analyzing Variance While measuring the actual performance and comparing it with standard performance

there may be variances which must be analyzed. The strategists must mention the degree of tolerance limits between which the

variance between actual and standard performance may be accepted.

4)Taking Corrective Action Once the deviation in performance is identified, it is essential to plan for a corrective

action. If the performance is consistently less than the desired performance, the strategists

must carry a detailed analysis of the factors responsible for such performance.

Techniques of Strategic Evaluation

1)Gap Analysis

The gap analysis is one strategic evaluation technique used to measure the gap between the organization’s current position and its desired position.

The gap analysis is used to evaluate a variety of aspects of business, from profit and production to marketing, research and development and management information systems.

Typically, a variety of financial data is analyzed and compared to other businesses within the same industry to evaluate the gap between the organization and its strongest competitors.

2) SWOT Analysis

The SWOT analysis is another common strategic evaluation technique used as a part of the strategic management process. The SWOT analysis evaluates the organization’s strengths, weaknesses, opportunities and threats.

Strengths and weaknesses are internal factors, while opportunities and threats are external factors.

This identification is essential in determining how best to focus resources to take advantage of strengths and opportunities and combat weaknesses and threats.

3) PEST Analysis

Another common strategic evaluation technique is the PEST analysis, which identifies the political, economic, social and technological factors that may impact the organization’s ability to achieve its objectives.

Political factors might include such aspects as impending legislation regarding wages and benefits, financial regulations, etc

Economic factors include all shifts in the economy, while social factors may include demographics and changing attitudes. Technological pressures are also inevitable as technology becomes more advanced each day.

These are all external factors, which are outside of the organization’s control but which must be considered throughout the decision making process.

4) Benchmarking

Benchmarking is a strategic evaluation technique that’s often used to evaluate how close the organization has come to its final objectives, as well as how far it has left to go.

Organizations may benchmark themselves against other organizations within the same industry, or they may benchmark themselves against their own prior situation.

A variety of performance measures, as well as policies and procedures, may be evaluated regularly to identify where adjustments are necessary to maintain the sustainable competitive advantage.

Strategic ControlStrategic controls take into account the changing assumptions that determine a strategy, continually evaluate the strategy as it is being implemented, and take the necessary steps to adjust the strategy to the new requirements.

Most commentators would agree with the definition of strategic control offered by Schendel and Hofer:

"Strategic control focuses on the dual questions of whether: (1) the strategy is being implemented as planned; and (2) the results produced by the strategy are those intended.“

Types of Strategic Control

The types of strategic controls are: Premise control Implementation control Strategic surveillance Special alert control

1)Premise Control

Every strategy is based on certain planning premises or predictions.

Premise control has been designed to check systematically and continuously whether or not the premises set during the planning and implementation process are still valid.

It involves the checking of environmental conditions. Premises are primarily concerned with two types of factors:

a. Environmental factors (for example, inflation, technology, interest rates, regulation, and demographic/social changes).

b. Industry factors (for example, competitors, suppliers, substitutes, and barriers to entry)

2) Implementation Control

Implementing a strategy takes place as a series of steps, activities, investments and acts that occur over a lengthy period.

The two basis types of implementation control are:

a. Monitoring strategic thrusts (new or key strategic programs): Two approaches are useful in enacting implementation controls focused on monitoring strategic thrusts: (1) one way is to agree early in the planning process on which thrusts are critical factors in the success of the strategy or of that thrust; (2) the second approach is to use stop/go assessments linked to a series of meaningful thresholds (time, costs, research and development, success, etc.) associated with particular thrusts.

b. Milestone Reviews: Milestones are significant points in the development of a programme, such as points where large commitments of resources must be made. A milestone review usually involves a full-scale reassessment of the strategy and the advisability of continuing or refocusing the direction of the company.

3) Strategic Surveillance

Strategic surveillance is designed to monitor a broad range of events inside and outside the company that are likely to threaten the course of the firm's strategy.

The basic idea behind strategic surveillance is that some form of general monitoring of multiple information sources should be encouraged, with the specific intent being the opportunity to uncover important yet unanticipated information.

Strategic surveillance appears to be similar in some way to "environmental scanning." Strategic surveillance is designed to safeguard the established strategy on a continuous basis.

4) Special Alert Control

Another type of strategic control is a special alert control.

"A special alert control is the need to thoroughly, and often rapidly, reconsider the firm's basis strategy based on a sudden, unexpected event."

The analysts of recent corporate history are full of such potentially high impact surprises (i.e., natural disasters, chemical spills, plane crashes, product defects, hostile takeovers etc.).

An example of such event is the acquisition of your competitor by an outsider. Such an event will trigger an immediate and intense reassessment of the firm's strategy. Form crisis teams to handle your company's initial response to the unforeseen events.

The fact that hot water freezes faster than cold water still remains a mystery…

Thank you…