Chapter 9 Strategy Review, Evaluation, and Control

Strategy Evaluation 3 Basic Activities – Examining the underlying bases of a firms’ strategy Comparing expected to actual results Corrective actions to ensure performance conforms to plans

A Strategy-Evaluation Framework (Figure 9-2) Activity One: Review Underlying Bases of Strategy Prepare revised Internal Factor Evaluation Prepare revised External Factor Matrix Matrix Compare revised versus existing Internal Compare revised versus existing External Evaluation Matrix Evaluation Matrix Do significant differences occur? Yes Activity Three: Take Corrective Actions No Activity Two: Measure Organizational Performance: Compare planned versus actual progress toward meeting stated objectives Do significant differences occur? Yes No Continue present course ©1999 Prentice Hall

Measuring Organizational Performance What gets measured gets produced--so measure behaviors or outcomes that you expect. Compare expected results to actual results, investigate deviations from plans, evaluate individual performance, and examine progress being made toward meeting stated objectives. Ratio analysis is often used to evaluate strategies: 1) compare the firm’s performance over different time periods 2) compare the firm’s performance to competitors’ 3) compare the firm’s performance to industry averages. Useful ratios include ROI, ROE, profit margin, market share, debt to equity, EPS, sales growth, and asset growth. Qualitative criteria should also be used: evaluate absenteeism and turnover rates, production quality and quantity rates, employee satisfaction, etc. Ask the following: Is the measurement important? How will the measurement be tracked? Do employees understand the measurement? Is the measurement stated in positive terms (shoot for a goal rather than count mistakes)?

Problems in Measuring Performance Short-term orientation Goal displacement Behavior substitution Suboptimization

Taking Corrective Action Does not necessarily mean that current strategies will be abandoned. Corrective actions strengthen an organization’s competitive position.

Characteristics of an Effective Evaluation System Strategy evaluation activities must be: Economical – too much information and too many controls can be harmful Meaningful – relate to the firm’s objectives Timely – done when needed Accurate – provide a true picture

Contingency Planning Contingency plans are alternative plans that can be put into effect if certain key events do not occur as expected. Consider using strategies that were originally discarded.