1. C HAPTER 11 S TRATEGY E VALUATION & C ONTROL S TRATEGIC M ANAGEMENT AND B USINESS P OLICY 11 th Edition Thomas L. Wheelen J. David Hunger

2. Strategy Evaluation & Control Organizations are most vulnerable when they are at the peak of their success -- R.T. Lenz Strategy Review

3. -- Strategies become obsolete -- Internal environments are dynamic -- External environments are dynamic Strategy Review, Evaluation & Control Strategy Evaluation & Control

4. Vital to the organization’s well-being Alert management to potential/actual problems in a timely fashion Erroneous strategic decisions can have severe negative impact on organizations Strategy Evaluation, Review, & Control Strategy Evaluation Strategy Evaluation & Control

5. 1. Examine the underlying bases of a firm’s strategy 2. Compare expected to actual results 3. Identify corrective actions to ensure that performance conforms to plans Strategy Evaluation, Review & Control Framework 3 Basic Activities Strategy Evaluation & Control

6. Evaluation Framework I. Review Underlying Bases Continue present course II. Measure Firm Performance III. Take Corrective Actions Differences? Yes NO Yes NO

7. Complex & sensitive undertaking Overemphasis can be costly & counterproductive Strategy Evaluation, Review & Control Strategy Evaluation Strategy Evaluation & Control

8. Strategy Evaluation, Review & Control Have assets increased Increase in profitability Increase in sales Increase in productivity Profit margins, ROI, & EPS ratios increased Appraisal of Strategic Performance Strategy Evaluation & Control

9. Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rummelt’s 4 Criteria Strategy Evaluation & Control

10. Strategy Evaluation, Review & Control Strategy should not present inconsistent goals & policies Consistency Strategy Evaluation & Control

11. Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rummelt’s 4 Criteria Strategy Evaluation & Control

12. Strategy Evaluation, Review & Control Need for strategies to examine sets of trends Consonance Strategy Evaluation & Control

13. Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rummelt’s 4 Criteria Strategy Evaluation & Control

14. Strategy Evaluation, Review & Control Neither overtax resources or create unsolvable sub-problems Feasibility Strategy Evaluation & Control

15. Strategy Evaluation, Review & Control Consonance Consistency Feasibility Advantage Rummelt’s 4 Criteria Strategy Evaluation & Control

16. Strategy Evaluation, Review & Control Creation or maintenance of competitive advantage Advantage Strategy Evaluation & Control

17. Strategy Evaluation, Review & Control 1. Increase in environment’s complexity 2. Difficulty predicting future with accuracy 3. Increasing number of variables Difficulties in Strategy Evaluation Strategy Evaluation & Control

18. Strategy Evaluation, Review & Control 4. Rate of obsolescence of plans 5. Domestic and global events 6. Decreasing time span for planning certainty Difficulties in Strategy Evaluation Strategy Evaluation & Control

19. Strategy Evaluation, Review & Control Initiate managerial questioning Trigger review of objectives & values Stimulate creativity in generating alternatives Strategy Evaluation Should -- Strategy Evaluation & Control

20. Strategy Evaluation, Review & Control Develop revised EFE Matrix Develop revised IFE Matrix Review of underlying bases of strategy -- Strategy Evaluation & Control

21. Strategy Evaluation, Review & Control 1. Competitors’ reaction to strategy 2. Competitors’ change in strategy 3. Competitors’ changes in strengths & weaknesses 4. Reasons for competitors’ strategic change Review effectiveness of strategy -- Strategy Evaluation & Control

22. Strategy Evaluation, Review & Control 5. Reasons for competitors’ successful strategies 6. Competitors’ present market positions & profitability 7. Potential for competitor retaliation 8. Potential for cooperation with competitors Review effectiveness of strategy -- Strategy Evaluation & Control

23. Strategy Evaluation, Review & Control Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses? Monitor Strengths & Weaknesses; Opportunities & Threats Strategy Evaluation & Control

24. Strategy Evaluation, Review & Control Are opportunities still opportunities? Other opportunities develop? Are threats still threats Other threats emerged? Are we vulnerable to hostile takeover? Monitor Strengths & Weaknesses; Opportunities & Threats Strategy Evaluation & Control

25. Strategy Evaluation, Review & Control Compare expected to actual results Investigate deviations from plan Evaluate individual performance Progress toward stated objectives Measuring Organizational Performance Strategy Evaluation & Control

26. Strategy Evaluation, Review & Control Financial Ratios  Compare performance over different periods  Compare performance to competitors  Compare performance to industry averages Quantitative Criteria for Strategy Evaluation Strategy Evaluation & Control

27. Strategy Evaluation, Review & Control Return on investment (ROI) Return on equity (ROE) Profit margin Market Share Key Financial Ratios Strategy Evaluation & Control

28. Strategy Evaluation, Review & Control Debt to equity Earnings per share (EPS) Sales growth Asset growth Key Financial Ratios Strategy Evaluation & Control

29. Strategy Evaluation, Review & Control Internal consistency of strategy Consistency with environment Appropriateness in view of resources Qualitative Evaluation of Strategy Strategy Evaluation & Control

30. Strategy Evaluation, Review & Control Acceptable degree of risk Appropriate time frame Workability of the strategy Qualitative Evaluation of Strategy Strategy Evaluation & Control

31. Strategy Evaluation, Review & Control -- Evaluate strategies from 4 perspectives: 1. Financial performance 2. Customer knowledge 3. Internal business processes 4. Learning & growth Balanced Scorecard Strategy Evaluation & Control

32. Strategy Evaluation, Review & Control Economical Meaningful Generates useful information Timely information Provides accurate picture of events Characteristics of strategy evaluation Strategy Evaluation & Control

33. Strategy Evaluation, Review & Control Alternative plans that can be put into effect if certain key events do not occur as expected Contingency Planning Strategy Evaluation & Control

34. Strategy Evaluation, Review & Control 1. Identify both favorable and unfavorable events that could come up. 2. Specify trigger points, i.e. estimate when contingent events are likely to occur. 3. Assess the –ve/+ve impact of that contingent event, i.e. estimate the harm/benefit from each event. 4. Develop a contingency plan. 5. Assess the –ve/+ve impact of the developed contingent plan, i.e. estimate how much this plan will deal with the contingent event. 6. Determine early warning signals for key contingent events and monitor them. 7. Develop action plans for the implementation of the contingency plan when needed. Contingency Planning – 7 Steps Process Strategy Evaluation & Control

35. Strategy Evaluation, Review & Control Financial audits determine correspondence between assertions based on strategic plan & established criteria Environmental audits insure sound and safe practices Auditing Strategy Evaluation & Control

36. Strategy Evaluation, Review & Control Process is more an “art” than “science” Should strategies be visible or hidden from stakeholders Should process be more top-down or bottom up 21 st Century Challenges in Strategic Management Strategy Evaluation & Control