Prentice Hall, Inc. © STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 11 Evaluation & Control

Prentice Hall, Inc. © Evaluation and Control

Prentice Hall, Inc. © Evaluation and Control Evaluation and Control Information – –Performance data –Activity reports

Prentice Hall, Inc. © Evaluation and Control Measuring performance – –The end result of activity

Prentice Hall, Inc. © Evaluation and Control Types of Controls – –Behavior controls How something is done through policies, procedures, rules, SOP’s

Prentice Hall, Inc. © Evaluation and Control Types of Controls – –Output controls What is to be accomplished; focus on end result through performance targets

Prentice Hall, Inc. © Evaluation and Control Types of Controls – –Input controls Resources – skills, abilities, values, motives

Prentice Hall, Inc. © Evaluation and Control Types of Controls – –Behavior controls ISO 9000 Standards Series ISO Standards Series

Prentice Hall, Inc. © Evaluation and Control Types of Controls – –Activity Based Costing (ABC) Allocation of indirect and fixed costs to individual products or product lines Based on value-added activities More accurate charge of costs

Prentice Hall, Inc. © Evaluation and Control Types of Controls – –Enterprise Risk Management (ERM) Identify risks Rank risks Measure risks

Prentice Hall, Inc. © Evaluation and Control Primary Measures of Performance – –Traditional Financial Measures Return on investment (ROI) Earnings per share (EPS) Return on equity (ROE) Operating cash flow Free cash flow

Prentice Hall, Inc. © Evaluation and Control Primary Measures of Performance – –Shareholder Shareholder value Economic value added (EVA) Market value added (MVA)

Prentice Hall, Inc. © Evaluation and Control Primary Measures of Performance – –Balanced Scorecard Approach Financial Customer Internal business perspective Innovation and learning

Prentice Hall, Inc. © Evaluation and Control

Prentice Hall, Inc. © Evaluation and Control Evaluating Top Management & Board – –Chairman-CEO Feedback Instrument –Management Audit –Strategic Audit

Prentice Hall, Inc. © Evaluation and Control Divisional & Functional Performance – –Responsibility Centers Standard cost centers Revenue centers Expense centers profit centers Investment centers

Prentice Hall, Inc. © Evaluation and Control Using Benchmarking – –Continual process of measuring products, service, and practices against the toughest competitors or those companies recognized as industry leaders

Prentice Hall, Inc. © Evaluation and Control International Measurement Issues – –International transfer pricing –Repatriation of profit –piracy

Prentice Hall, Inc. © Evaluation and Control Strategic Information Systems – –Enterprise Resource Planning (ERP) –Divisional and functional IS support

Prentice Hall, Inc. © Evaluation and Control Problems in Measuring Performance – –Short-term orientation –Goal displacement Behavior substitution Suboptimization

Prentice Hall, Inc. © Evaluation and Control Guidelines for Proper Control – –Minimum amount of information necessary –Meaningful activities and results –Timely –Long and short-term –Pinpointing exceptions –Meeting/exceeding standards

Prentice Hall, Inc. © Evaluation and Control Strategic Incentive Management – –Weighted-factor method –Long-term evaluation method –Strategic funds method