Chapter 9 Strategy Review, Evaluation, & Control Strategic Management: Concepts & Cases 11th Edition Fred David Copyright 2007 Prentice Hall

Chapter Outline The Nature of Strategy Evaluation A Strategy-Evaluation Framework The Balanced Scorecard Copyright 2007 Prentice Hall

Chapter Outline Published Sources of Strategy Evaluation Information Characteristics of an Effective Evaluation System Contingency Planning Copyright 2007 Prentice Hall

Chapter Outline (cont’d) Auditing 21st Century Challenges in Strategic Management Copyright 2007 Prentice Hall

Strategy Evaluation R.T. Lenz Organizations are most vulnerable when they are at the peak of their success -- R.T. Lenz Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control -- Strategies become obsolete -- Internal environments are dynamic -- External environments are dynamic Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Strategy Evaluation 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 Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control 3 Basic Activities Examine the underlying bases of a firm’s strategy Compare expected to actual results Identify corrective actions to ensure that performance conforms to plans Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Strategy Evaluation Complex & sensitive undertaking Overemphasis can be costly & counterproductive Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Appraisal of Strategic Performance Have assets increased Increase in profitability Increase in sales Increase in productivity Profit margins, ROI, & EPS ratios increased Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Consistency Rumelt’s 4 Criteria Consonance Feasibility Advantage Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Consistency Strategy should not present inconsistent goals & policies Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Consistency Rumelt’s 4 Criteria Consonance Feasibility Advantage Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Consonance Need for strategies to examine sets of trends Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Consistency Rumelt’s 4 Criteria Consonance Feasibility Advantage Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Feasibility Neither overtax resources or create unsolvable sub-problems Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Consistency Rumelt’s 4 Criteria Consonance Feasibility Advantage Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Advantage Creation or maintenance of competitive advantage Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Difficulties in Strategy Evaluation Increase in environment’s complexity Difficulty predicting future with accuracy Increasing number of variables Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Difficulties in Strategy Evaluation Rate of obsolescence of plans Domestic and global events Decreasing time span for planning certainty Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Strategy Evaluation Should -- Initiate managerial questioning Trigger review of objectives & values Stimulate creativity in generating alternatives Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Review of Underlying Bases of Strategy -- Develop revised EFE Matrix Develop revised IFE Matrix Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Review Effectiveness of Strategy -- Competitors’ reaction to strategy Competitors’ change in strategy Competitors’ changes in strengths & weaknesses Reasons for competitors’ strategic change Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Review Effectiveness of Strategy -- Reasons for competitors’ successful strategies Competitors’ present market positions & profitability Potential for competitor retaliation Potential for cooperation with competitors Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & 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

Strategy Review, Evaluation, & Control Monitor Strengths & Weaknesses; Opportunities & Threats Are opportunities still opportunities? Other opportunities develop? Are threats still threats Other threats emerged? Are we vulnerable to hostile takeover? Copyright 2007 Prentice Hall

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II. Measure Firm Performance I. Review Underlying Bases Evaluation Framework III. Take Corrective Actions Yes Differences? NO II. Measure Firm Performance Yes Differences? NO Continue present course Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Measuring Organizational Performance Compare expected to actual results Investigate deviations from plan Evaluate individual performance Progress toward stated objectives Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & 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

Strategy Review, Evaluation, & Control Key Financial Ratios Return on investment (ROI) Return on equity (ROE) Profit margin Market Share Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Key Financial Ratios Debt to equity Earnings per share (EPS) Sales growth Asset growth Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Qualitative Evaluation of Strategy Internal consistency of strategy Consistency with environment Appropriateness in view of resources Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Qualitative Evaluation of Strategy Acceptable degree of risk Appropriate time frame Workability of the strategy Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & 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

Primary Responsibility Balanced Scorecard Area of Objectives Measure or Target Time Expectation Primary Responsibility Customers   1 2 Managers/Employees Operations/Processes Community/Social Responsibility Business Ethics/Natural Environment Financial Copyright 2007 Prentice Hall

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Strategy Review, Evaluation, & Control Characteristics of Strategy Evaluation Economical Meaningful Generates useful information Timely information Provides accurate picture of events Copyright 2007 Prentice Hall

Strategy-Evaluation Assessment Matrix Continue course Yes No Corrective actions Result Has the firm progressed satisfactorily toward achieving its stated objectives? Have major changes occurred in the firm’s external strategic position? Have major changes occurred in the firm’s internal strategic position? Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Contingency Planning Alternative plans that can be put into effect if certain key events do not occur as expected Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control Auditing Financial audits determine correspondence between assertions based on strategic plan & established criteria Environmental audits insure sound and safe practices Copyright 2007 Prentice Hall

Strategy Review, Evaluation, & Control 21st Century Challenges in Strategic Management Process is more an “art” than “science” Should strategies be visible or hidden from stakeholders Should process be more top-down or bottom up Copyright 2007 Prentice Hall

For Review (Chapter 9) Key Terms & Concepts Advantage Consonance Auditing Contingency Plans Balanced Score Card Corporate Agility Consistency Feasibility Copyright 2007 Prentice Hall

For Review (Chapter 9) Key Terms & Concepts Future Shock Revised EFE Matrix Revised IFE Matrix Management by Wandering Around Measuring Organizational Performance Taking Corrective Action Reviewing Underlying Bases of Strategy Copyright 2007 Prentice Hall