In the name of Allah the most beneficent and the most merciful

Strategic control Chapter 6 Presented by: Attia Sarwar Presented to: Madam Humaira Khan

Organizational control and strategic control Without an understanding of the broader issues involved in organizational control, it is impossible to appreciate special issues that arise in strategic control, A broad view of organizational control Definition: Control consists of making something happen the way it was planned to happen. General characteristic of the process 1: Measuring performance 2: Comparing measured performance 3: Taking corrective action

General model of the control process Controlling begins Measuring performance Compare Measurement To standards Network Situation begins Take corrective Action: change plans, organization, and/or influencing methods Performance Significantly Different from standards Performance Equivalent to standards No corrective Action necessary Work continues

The application of strategic control Definition of strategic control: Strategic control is a special type of organizational control that focuses on monitoring and evaluating the strategic management process in order to make sure it is functioning properly. The purposes of strategic control: There are five main purposes of strategic control: (1) Achieve organizational goals through monitoring and evaluating. (2) Assessment of organizational environment. (3) The establishment of organizational mission and goals. (4) The development of ways to deal with compaction. (5) A plan for translating organizational strategy into action.

The process of strategic control There are three distinct steps to carry out the strategic control: Step1: Measure organizational performance For effective strategic management process the manager should take measures that reflect current organizational performance. In order to understand how manager can take these measurements there are three steps. 1: strategic audits: 2: strategic audit measurement methods: i: strategic audits: Strategic audit is an examination and evaluation of areas affected by the operation of a strategic management process within an organization.

ii: strategic audit measurement method : For measuring organizational performance there are two methods: (1)Qualitative (2)Quantitative (1)Qualitative organizational measurement: These measurements are organizational assessments resulting in data that are subjectively summarized and organized before any conclusions are drawn on which to base strategic control action. Some managers believe that these are best arrived by answering a series of critical questions, Like: 1: Is organizational strategy is internally consistent? 2: Is organizational strategy consistent with its environment? 3: Is organizational strategy appropriate given organizational resources? 4: Is organizational strategy too risky? 5: Is the time horizon of the strategy appropriate?

(2)Quantitative organizational measurement: These measurements are organizational assessments resulting in data that are Numererically summarized and organized before any conclusions are drawn on which to base strategic control action. Three examples of such a measurement are: 1: Return on investment (ROI): It is obtained by dividing net income by total assets. net income total assets ROI The result indicates the relationship between the amount of income generated and the amount of assets needed to operate the organization

2: Z score: This common quantitative measure results from an analysis that numerically weights and sums five measures to arrive at an overall score. The score becomes a basis for classifying firms as “healthy” ones that are not likely to go bankrupt or as “risk” ones that are likely to go bankrupt. Formula: Z= 1.2 X X X X X 5 Z is an index of overall corporate health. X 1= Working capital Total assets This is a measure of the net liquid assets of the firm relative to the total capitalization

X2=X2= Retained earning Total assets This is a measure of cumulative profitability over time. X3=X3= EBIT Total assets It is the a measure of the true productivity of the firm's assets, abstracting from any tax or leverage factors. X4=X4= Market value of equity Book value of Total liabilities The measure shows how much the firm's assets can decline in value before the liabilities exceed the assets and the firm become insolvent.

X4=X4= Sales Total assets 3: Stakeholders audit: Stakeholders are people interested in a corporation's activities because they are significantly affected by accomplishment of the organization's objectives. The organizational Stakeholders include: (a)Stakeholders in the appreciation of stock and dividends: (b)Unions interested in favourable wage rates and benefit packages: (c)Creditors interested in the organization's ability to pay its debts: (d)Suppliers interested in retaining the organization as a customer: (e)Governments, who see organizations as taxpayers contributing to the costs of running a society: (f)Social interest groups, such as customer advocates and environmentalists. The capital turnover ratio is a standard financial ratio illustrating the sales generating ability of the firm's assets.

Step2: Compare organizational performance to Goals & Standards After measurement of organizational performance it should be compared with two established benchmarks Organizational Goals Standards Standards are developed to reflect organizational goals Eight Types of standards 1.Profitability standards 2.Productivity standards 3.Product Leadership standards 4.Market Position standards 5.Personal Development standards 6.Employee Attitude standards 7.Public Responsibility standards 8.Standards Reflecting balance between short range and long range goals

Step3: Take Necessary Corrective Action Corrective Action is defined as a change management makes in the way an organization functions in Order to ensure that the organization can more effectively and efficiently reach organizational goals and perform up to standards that have been established

INFORMATION Importance of Information in Strategic Control Without information action taken to exert strategic control will be highly subjective and have little chance of consistency improving organizational performance. Information System MIS (Management Information System) MDSS (Management Decision Support System)

Feedback Environmental analysis Internal External Establishing Organizational direction Mission objective Strategy formulation Strategy Implementation Strategic Control Relationship between the strategic management process and the strategic control

Strategic control begins Change go into effect Measure Organizational performance Compare Organizational Performance to Goals and standards Organizational Goals and standards Are reached Organizational Goals and standards Are not reached No corrective Action necessary Take corrective Action Status que continues

MIS (Management Information System) MIS is a formally organization network that’s a normally computer assisted and is established within an organization to provide managers with information to help there decision making. The MIS and Management Levels The MIS should be flexible enough to provide various management level with the information that carrying out these activities requires. Symptoms of an INADEQUATE MIS When MIS is not operating effectively and efficiently after discovering the symptoms the management must takes step to solve whatever problems plague the MIS. Once these problems are eliminated the symptoms of trouble should disappear. These kinds of symptoms can also betray an MIS that is operating improperly Organizational Symptoms Psychological symptoms Report Content Symptoms

Directing Needs Priorities indicators Analyzing Pertinence Reliability and validity Transformation To Intelligence Collecting Sources Factors being Investigated system Dissemination Who receives what, When :distortion problems Feedback and Adaptive Restructuring Use Major steps in operating an MIS

MDSS (Management Decision Support System) MDSS is an interdependent set of decision aids that helps managers make relatively under unstructured perhaps nonrecurring decisions TOP Management and Strategic Control To maintain strategic momentum or leap to new strategy,top management must ensure the following Appropriate behavior within the organization is encouraged through the used of organizational incentives Organizational structure contributes to attainment the objective Values and norms existing within the organizational culture are consistent with the objective being pursued. The information support needed to reach the objective is available.

Organizational Structure Value System/Norms Information System Incentives Strategic Control New Strategic Adopted Present Strategy maintained Influences

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