1. STRATEGIC MANAGEMENT & BUSINESS POLICY 12TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
Instructor: Dr.Shanmuganathan

2. Evaluation and Control ensures that a company is achieving what it set out to accomplish by comparing performance with desired results and taking corrective action as needed
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3. Determine what to measure Establish standards of performance
Measure actual performance
Compare actual performance with the standard
Take corrective action
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6. Performance is the end result of activity
Appropriate Measures
Performance is the end result of activity
Steering controls measure variables that influence future profitability
Cost per passenger mile (airlines)
Inventory turnover ratio (retail)
Customer satisfaction
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7. Types of Controls
Output controls- specify what is to be accomplished by focusing on the end result
Behavior controls specify how something is done through policies, rules, standard operating procedures and orders from supervisors
Input controls emphasize resources
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8. Activity Based Costing
Activity based costing- allocates indirect and direct costs to individual product lines based on value-added activities going into that product
Allows accountants to charge costs more accurately since it allocates overhead more precisely
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9. Enterprise Risk Management a corporate-wide, integrated process for managing uncertainties that could negatively or positively influence the achievement of objectives
Identify the risks using scenario analysis, brainstorming, or performing risk assessments
Rank the risks, using some scale of impact and likelihood
Measure the risks using some agreed-upon standard
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10. Primary Measures of Corporate Performance
Return on Investment (ROI)
Earnings per share (EPS)
Return on equity (ROE)
Operating cash flow
Free cash flow
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11. Popular Measures of Internet Companies Non-Financial Measures
Stickiness
Eyeballs
Mindshare
Monthly unique viewers
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14. EVA=After tax income-total annual cost of capital
Shareholder Value- the present value of the anticipated future streams of cash flows from the business plus the value of the company if liquidated
Economic Value Added (EVA)- measures the difference between the pre-strategy and post-strategy values for the business
EVA=After tax income-total annual cost of capital
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15. Market Value Added (MVA)- measures the difference between the market value of a corporation and the capital contributed by shareholders and lenders
Measures the stock market’s estimate of the net present value of a firm’s past and expected capital investment projects
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16. Balanced score card– combines financial measures that tell results of actions already taken with operational measures on customer satisfaction, internal processes and the corporation’s innovation and improvement activities
Financial
Customer
Internal business perspective
Innovation and learning
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17. Evaluating Top Management and the Board of Directors
Chairman-CEO Feedback Instrument
Management Audit
Strategic Audit
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18. Primary Measures of Divisional and Functional Performance
Responsibility centers- used to isolate a unit so it can be evaluated separately from the rest of the corporation
Standard cost centers
Revenue centers
Expense centers
Profit centers
Investment centers
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19. Benchmarking- the continual process of measuring products, services and practices against the toughest competitors or those companies recognized as industry leaders
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20. Indentify the area or process to be examined
Find behavioral and output measures
Select an accessible set of competitors of best practices
Calculate the differences among the company’s performance measurements and those of the competitors and determine why the differences exist
Develop tactical programs for closing performance gaps
Implement the programs and compare the results
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21. International Measurement Issues
Most widely used measurement techniques
Return on investment
Budget analysis
Historical comparison
International transfer pricing
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22. International Measurement Issues
Barriers to international trade
Different standards for products and services
Safety/environmental
Energy efficiency
Testing procedures
Counterfeiting/piracy
Control and Reward systems
Multidomestic – loose
Multinational- tight control
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23. Enterprise Resource Planning (ERP)- unites all of a company’s major business activities within a single family of software modules providing instant access throughout the organization
Radio Frequency Identification (RFID)- an electronic tagging technology used to improve supply chain efficiency
Divisional and Functional IS Support- used to support, reinforce, or enlarge business level strategy throughout the decision support system
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24. Lack of quantifiable objectives or performance standards
Inability to use information systems to provide timely and valid information
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25. Short term orientation- managers only consider current tactical or operational issues and ignore long-term strategic issues
Lack of time
Do not recognize importance of long-term issues
Are not evaluated on a long-term basis
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26. Goal Displacement- confusion of the means with ends
Behavior substitution- when people substitute activities that do not lead to goal accomplishment for activities that do lead to goal accomplishment because the wrong activities are rewarded
Suboptimization- when a unit optimizing its goal accomplishment is to the detriment of the organization as a whole
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27. Long-term and short-term goals should be used
Controls should involve only the minimum amount of information needed to give a reliable picture of events (80/20 Rule)
Controls should monitor only meaningful activities and results, regardless of measurement difficulty
Controls should be timely so that corrective action can be taken before it is too late
Long-term and short-term goals should be used
Controls should aim at pinpointing exceptions
Emphasize the reward of meeting or exceeding standards rather than punishment for failing to meet standards
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28. Approaches to Strategic Incentive Management
Weighted-factor method
Long-term evaluation method
Strategic funds method
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29. Effective means to achieve results is through a reward system that combines all 3 approaches
Segregate strategic funds from short-term funds
Develop a weighted factor chart for each SBU
Measure performance based on:
Pre-tax profit (Strategic funds approach)
Weighted factors
Long-term evaluation of the SBU’s performance
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31. Is Figure 11-1 a realistic model of the evaluation and
control process?
What are some examples of behavior controls? Output
controls? Input controls?
Is EVA an improvement over ROI, ROE, or EPS?
How much faith can a manager place in transfer price
as a substitute for market price in measuring a profit
center’s performance?
Is the evaluation and control process appropriate for a
corporation that emphasizes creativity? Are control and
creativity compatible?
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32. PowerPoint created by:
Ronald Heimler
Dowling College- MBA
Georgetown University- BS Business Administration
Adjunct Professor- LIM College, NY
Adjunct Professor- Long Island University, NY
Lecturer- California State Polytechnic University, Pomona, CA
President- Walter Heimler, Inc.
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