1. STRATEGIC MANAGEMENT & BUSINESS POLICY 13TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER

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. Evaluation and Control
Types of Controls –
Behavior controls: Focus on activities that generate performance.
It specifies how something is to be done through policies, rules, standards and procedures.
Behavior controls are very appropriate when results are hard to measure and a clear cause-effect exists between activities (behaviors) and results.
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8. Examples of Behavior controls:
Evaluation and Control
Examples of Behavior controls:
ISO 9000 Standards Series: Quality assurance.
ISO Standards Series: for environment awareness.
Companies monitoring employees phone calls.
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9. Types of Controls – Output controls
Evaluation and Control
Types of Controls –
Output controls
What is to be accomplished; focus on end result through performance targets.
Some examples of output controls are sales quotas, cost reduction or profit objectives, and surveys of customer satisfaction.
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10. Types of Controls – Input controls
Evaluation and Control
Types of Controls –
Input controls
Resources – skills, abilities, values, motives.
Input controls are the least useful and are most appropriate when output is difficult to measure and there is no clear cause-effect relationship between behavior and performance (such as in college teaching).
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11. Activity Based Costing (ABC)
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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12. Steps of ranking risks:
Enterprise Risk Management a corporate-wide, integrated process for managing uncertainties that could negatively or positively influence the achievement of objectives. E.g., hire a chief risk officer in corp.
Steps of ranking risks:
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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13. Primary Measures of Corporate
Performance
Using financial Racio
Return on Investment (ROI)
Earnings per share (EPS)
Return on equity (ROE)
Operating cash flow
Free cash flow
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14. Popular Measures of Internet Companies Non-Financial Measures
Stickiness: length of web site visit.
Eyeballs: number of people who visit the site.
Mindshare: brand awareness.
Monthly unique viewers: registered users.
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17. Shareholder Value- the present value of the anticipated future streams of cash flows from the business plus the value of the company if liquidated.
The New York consulting firm Stern Stewart & Company devised and popularized two shareholder value measures: economic value added (EVA) and market value added (MVA).
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18. 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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19. 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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20. 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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21. Evaluating Top Management and the Board of Directors
Very popular in USA, Europe and Asia to use objective method to evaluate the performance of their CEO.
Chairman-CEO Feedback Instrument
Management Audit: very useful to boards of directors in evaluating management’s handling of various corporate activities.
Strategic Audit: strategic planning framework.
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22. This very much linked to ABC
Primary Measures of Divisional and Functional Performance
This very much linked to ABC
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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23. The benchmarking process usually involves the following steps:
Benchmarking- the continual process of measuring products, services and practices against the toughest competitors or those companies recognized as industry leaders.
The benchmarking process usually involves the following steps:
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24. 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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25. International Measurement Issues
In one study, 95% of the corporate officers interviewed, stated that they use the same evaluation techniques for foreign and domestic operations.
Most widely used measurement techniques
Return on investment
Budget analysis
Historical comparison
International transfer pricing
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26. Barriers to international trade
International Measurement Issues
Barriers to international trade
Different standards for products and services
Safety/environmental
Energy efficiency
Testing procedures
counterfeit/ imitation: copies of well-known name-brand products and selling them globally as well as locally, e.g., copying Nike.
Management Control and Reward systems. Companies may use:
Multidomestic – loose control (more power)
Multinational- tight control (less delegation).
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27. Lack of quantifiable objectives or performance standards
Inability to use information systems to provide timely and valid information
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28. Short term orientation- managers only consider current tactical or operational issues and ignore long-term strategic issues. Why:
Lack of time
Do not recognize importance of long-term issues
Are not evaluated on a long-term basis
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29. Goal Displacement- confusion of the means with ends
Goal Displacement- confusion of the means with ends. It include 2 types: behavior substitution and suboptimization.
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30. Behavior substitution
Behavior substitution refers to a phenomenon when people substitute activities that do not lead to goal accomplishment for activities that do lead to goal accomplishment because the wrong activities are being rewarded.
Managers tend to focus their behavior on activities that are clearly measureable, e.g., ignore non-financial measures.
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31. Suboptimization- when a unit optimizing its goal accomplishment is to the detriment of the organization as a whole.
The emphasis in large corporations on developing separate responsibility centers can create some problems for the corporation as a whole. A division or functional unit views itself as a separate entity.
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32. 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): Monitor those 20% of the factors that determine 80% of the results
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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33. Approaches to Strategic Incentive Management
1)Weighted-factor method:
Appropriate for measuring and rewarding the performance of top SBU managers and group-level executives when performance factors and their importance vary from one SBU to another. E.g., high-performing (star) SBUs is measured equally in terms of ROI, cash flow, market share, and progress on several future-oriented strategic projects
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35. 2)Long-term evaluation method
The long-term evaluation method : compensates managers for achieving objectives set over a multiyear period. An executive is promised some company stock or “performance units”. for example, might set a particular objective in terms of growth in earnings per share during a five-year period. The giving of awards would be contingent on the corporation’s meeting that objective within the designated time.
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36. 3)Strategic funds method:
It encourages executives to look at developmental expenses as being different from expenses required for current operations.
The accounting statement for a corporate unit enters strategic funds as a separate entry below the current ROI. It is, therefore, possible to distinguish between expense dollars consumed in the generation of current revenues and those invested in the future of a business.
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37. 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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38. Strategy Review
The firm’s internal and external environments are dynamic. Therefore, the best conceived and implemented strategies become obsolete!
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39. Strategy Evaluation—the 3 Basics
Strategy Review
Strategy Evaluation—the 3 Basics
Examining the underlying basis of the firm’s strategy
Comparing actual to expected results
Taking corrective action to address performance gaps
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40. Effective Strategy Evaluation
Strategy Review
Effective Strategy Evaluation
Adequate and timely feedback
The cornerstone of effective evaluation
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41. Strategy Review Strategy Evaluation Must have both
Short- & long-term focus
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42. Strategy Review Four Criteria (Richard Rumelt):
Consistency/ sameness الاتساق
Consonance=fit or harmony التكيف
Feasibility يمكن التحقق
Advantage
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43. Consistency=uniformity
A strategy should not present inconsistent goals and policies
If managerial problems continue despite changes in personnel and are issue based, then strategies may be inconsistent.
If success for one department means failure for another department, then strategies may be inconsistent.
If policy problems/issues continue to be brought to the top for resolution, then strategies may be inconsistent.
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44. Consonance= adapt, fit
Strategists need to examine sets of trends as well as individual trends in evaluating strategies.
Strategy must represent an adaptive response to the external environment and critical changes occurring within it.
Most trends are the result of interactions among other trends.
Difficult in matching key internal and external factors in formulation of strategy.
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45. Feasibility
Strategy must neither overtax available resources nor create unsolvable subproblems.
Can the strategy be attempted within the physical, human and financial resources of the enterprise?
Limitation on strategic choice imposed by individual and organizational capabilities must be considered.
Important to examine whether in the past the organization has demonstrated the capabilities, abilities, competencies, skills, and talents to carry out strategy.
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46. Strategy Review Contemporary Strategy Evaluation Difficulties
Increase in environment’s complexity
Difficulty in predicting the future with accuracy
Increasing number of variables
Contemporary
Strategy
Evaluation
Difficulties
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47. Strategy Review Contemporary Strategy Evaluation Difficulties
Rate of obsolescence of even the best plans
Increase in domestic and world events
Decreasing time span for which planning can be done with any certainty
Contemporary
Strategy
Evaluation
Difficulties
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48. Strategy Review Process of Evaluating Strategies:
Should initiate managerial questioning of expectations and assumptions
Should trigger a review of objectives and values
Should stimulate creativity in generating alternatives and criteria of evaluation
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49. I. Review Bases of Strategy
Develop a Revised Evaluation Framework Matrix:
How have competitors reacted to our strategies?
How have competitors’ strategies changed?
Have major competitors’ strengths and weaknesses changed?
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50. I. Review Bases of Strategy
Why are competitors making certain strategic changes?
Why are some competitors’ strategies more successful than others?
How satisfied are our competitors with their present market positions and profitability?
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51. I. Review Bases of Strategy
How far can our major competitors be pushed before retaliating?
How could we more effectively cooperate with our competitors?
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52. I. Review Bases of Strategy
Key Questions in Evaluating Strategy:
Are our internal strengths still strengths?
Have we added other internal strengths?
Are our internal weaknesses still weaknesses?
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53. I. Review Bases of Strategy
Do we now have other internal weaknesses?
Are our external opportunities still opportunities?
Are there now external opportunities?
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54. I. Review Bases of Strategy
Are our external threats still threats?
Are there now other external threats?
Are we vulnerable to a hostile takeover?
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55. What are some examples of behavior controls. Output. controls
What are some examples of behavior controls? Output controls? Input controls?
Is the evaluation and control process appropriate for a corporation that emphasizes creativity? Are control and creativity compatible?
What is the relationship between control and strategy? Mention and discuss 3 of measuring performance tools business may use? What are the measure problems when measuring performance?
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