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Chapter 9: Strategy Review, Evaluation and Control
Strategic Management: Concepts and Cases. 9th edition Fred R. David PowerPoint Slides by Anthony F. Chelte Western New England College Fred R. David Prentice Hall
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Chapter Outline The Nature of Strategy Evaluation
A Strategy-Evaluation Framework Published Sources of Strategy-Evaluation Information Fred R. David Prentice Hall
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Chapter Outline Characteristics of an Effective Evaluation System
Contingency Planning Auditing Fred R. David Prentice Hall
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Chapter Outline Using Computers to Evaluate Strategy
Guidelines for Effective Strategic Management Fred R. David Prentice Hall
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Implementing Strategies
Organizations are most vulnerable when they are at the peak of their success. -- R.T. Lenz Fred R. David Prentice Hall
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Strategy Review, Evaluation & Control
Systematic Review, Evaluation & Control – Strategies become obsolete Internal environments are dynamic External environments are dynamic Fred R. David Prentice Hall
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Strategy Evaluation Strategy evaluation is vital to the organization’s well-being Alert management to potential or actual problems in a timely fashion Erroneous strategic decisions can have severe negative impact on organizations Fred R. David Prentice Hall
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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 Fred R. David Prentice Hall
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Strategy Evaluation Strategy evaluation –
Complex and sensitive undertaking Overemphasis can be costly and counterproductive Fred R. David Prentice Hall
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Strategy Evaluation In many organizations, evaluation is an appraisal of performance – Have assets increased? Increase in profitability? Increase in sales? Increase in productivity? Profit margins, ROI and EPS ratios increased? Fred R. David Prentice Hall
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Strategy Evaluation Four Criteria (Richard Rummelt): Consistency
Consonance Feasibility Advantage Fred R. David Prentice Hall
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Rummelt’s Criteria Consistency
Strategy should not present inconsistent goals and policies. Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency Fred R. David Prentice Hall
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Rummelt’s Criteria Consonance
Need for strategies to examine sets of trends Adaptive response to external environment Trends are results of interactions among other trends Fred R. David Prentice Hall
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Rummelt’s Criteria Feasibility
Neither overtax resources or create unsolvable subproblems Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy Fred R. David Prentice Hall
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Rummelt’s Criteria Advantage
Creation or maintenance of competitive advantage Superiority in resources, skills, or position Fred R. David Prentice Hall
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Strategy Evaluation Difficulty in strategy evaluation –
Increase in environment’s complexity Difficulty predicting future with accuracy Increasing number of variables Fred R. David Prentice Hall
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Strategy Evaluation Difficulty in strategy evaluation –
Rate of obsolescence of plans Domestic and global events Decreasing time span for planning certainty Fred R. David Prentice Hall
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Process of Strategy Evaluation
Strategy evaluation should – Initiative managerial questioning Trigger review of objectives and values Stimulate creativity in generating alternatives Fred R. David Prentice Hall
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Reviewing Bases of Strategy
Review of underlying bases of strategy – Develop revised EFE Matrix Develop revised IFE Matrix Fred R. David Prentice Hall
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Reviewing Bases of Strategy
Review effectiveness of strategy – Competitors’ reaction to strategy Competitors’ change in strategy Competitors’ changes in strengths and weaknesses 4. Reasons for competitors’ strategic change Fred R. David Prentice Hall
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Reviewing Bases of Strategy
Review effectiveness of strategy – Reasons for competitors’ successful strategies Competitors’ present market positions and profitability Potential for competitor retaliation Potential for cooperation with competitors Fred R. David Prentice Hall
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Reviewing Bases of Strategy
Monitor Threats and Opportunities and Weaknesses and Strengths Are our internal strengths still strengths? Have we added additional strengths? Are our weaknesses still weaknesses? Have we other internal weaknesses? Fred R. David Prentice Hall
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Reviewing Bases of Strategy
Monitor Threats and Opportunities and Weaknesses and Strengths Are opportunities still opportunities? Other external opportunities? Are threats still threats? Are there other threats? Are we vulnerable to a hostile takeover? Fred R. David Prentice Hall
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II. Measure Firm Performance
I. Review Underlying Bases Evaluation Framework III. Take Corrective Actions Yes Differences? NO II. Measure Firm Performance Yes Differences? NO Continue present course Fred R. David Prentice Hall
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Measuring Organizational Performance
Comparing expected to actual results Investigating deviations from plan Evaluating individual performance Progress toward stated objectives Fred R. David Prentice Hall
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Measuring Organizational Performance
Quantitative criteria for strategy evaluation – Financial Ratios: Compare performance over different periods Compare performance to competitors Compare performance to industry averages Fred R. David Prentice Hall
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Measuring Organizational Performance
Key Financial Ratios – Return on investment Return on equity Profit margin Market share Fred R. David Prentice Hall
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Measuring Organizational Performance
Key Financial Ratios – Debt to equity Earnings per share Sales growth Asset growth Fred R. David Prentice Hall
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Measuring Organizational Performance
Qualitative evaluation of strategy - Internal consistency of strategy Consistency of strategy with environment Strategy appropriate in view of resources Acceptable degree of risk Appropriate time frame Workability of the strategy Fred R. David Prentice Hall
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Characteristics of Evaluation
Basic requirements for effective strategy evaluation – Economical Meaningful Generate useful information Timely information Provide a true picture of what is happening Fred R. David Prentice Hall
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Strategy-Evaluation Assessment Matrix
Continue course Yes No Corrective actions Result Has the firm progressed satisfactorily toward achieving its stated objectives? Have major changes occurred in the firm’s external strategic position? Have major changes occurred in the firm’s internal strategic position? Fred R. David Prentice Hall
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Contingency Planning Premise of sound strategic management –
Planning to deal with unfavorable and favorable events before they occur. Fred R. David Prentice Hall
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Contingency Planning Contingency Planning –
Alternative plans that can be put into effect if certain key events do not occur as expected Fred R. David Prentice Hall
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Auditing Financial audits to determine correspondence between assertions based on strategic plans and established criteria Environmental audits to insure sound and safe practices Fred R. David Prentice Hall
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Key Terms Advantage Auditing Consistency Consonance Contingency Plans
Corporate Agility Feasibility Fred R. David Prentice Hall
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Key Terms Future Shock Management by Wandering Around
Measuring Organizational Performance Planning Process Audit (PPA) Reviewing the Underlying Bases of an Organization’s Strategy Fred R. David Prentice Hall
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Key Terms Revised EFE Matrix Revised IFE Matrix
Taking Corrective Actions Fred R. David Prentice Hall
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