Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 9 -1 “Organizations are most vulnerable when they are at the peak of their success.” – R. T. Lenz Strategy Evaluation

Strategy Importance Strategy is important, but excessive strategy can create problems: - It can be counterproductive - It can be expensive Overanalyzing and underacting can be detrimental Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 9 -2

Evaluating of Strategy Competitive advantage normally is the result of superiority in resources, skills and position A cornerstone of an effective strategy evaluation is Feedback, why? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 9 -3

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 9 -4 Vital to the organization’s well-being Alert management to potential/actual problems in a timely fashion Erroneous strategic decisions can have severe negative impact on organizations Strategy Review, Evaluation, and Control Strategy Evaluation

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Examine the underlying bases of a firm’s strategy 2. Compare expected to actual results 3. Take corrective actions to ensure that performance conforms to plans Strategy Review, Evaluation, and Control Three Basic Activities

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 9 -6 Strategy Review, Evaluation, and Control Increase in assets? Increase in profitability? Increase in sales? Increase in productivity? Increases in profit margins, ROI, and EPS ratios? Appraisal of Strategic Performance

Difficulty of Strategy Evaluation Why is strategy becoming more and more difficult with the passage of time? Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 9 -7

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 9 -8 Strategy Review, Evaluation, and Control 1. Increase in environment’s complexity 2. Difficulty predicting future with accuracy 3. Increasing number of variables Difficulties in Strategy Evaluation

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 9 -9 Strategy Review, Evaluation, and Control 4. Rate of obsolescence of plans 5. Domestic and global events 6. Decreasing time span for planning certainty Difficulties in Strategy Evaluation

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy Review, Evaluation, and Control 1. Competitors’ reaction to strategy 2. Competitors’ change in strategy 3. Competitors’ changes in strengths & weaknesses 4. Reasons for competitors’ strategic change Review Effectiveness of Strategy –

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy Review, Evaluation, and Control 5. Reasons for competitors’ successful strategies 6. Competitors’ satisfaction with present market positions & profitability 7. Potential for competitor retaliation 8. Potential for cooperation with competitors Review Effectiveness of Strategy –

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy Review, Evaluation, and Control Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses? Monitor Strengths & Weaknesses; Opportunities & Threats

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy Review, Evaluation, and Control Are opportunities still opportunities? Other opportunities develop? Are threats still threats? Other threats emerged? Are we vulnerable to hostile takeover? Monitor Strengths & Weaknesses; Opportunities & Threats

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy Review, Evaluation, and Control 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

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy Review, Evaluation, and Control Economical Meaningful feedback Generates useful information Timely feedback Provides accurate picture of events Characteristics of an Effective Evaluation System

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Strategy Review, Evaluation, and Control Alternative plans that can be put into effect if certain key events do not occur as expected Contingency Planning