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8/4/2019 Ch 9Strategy Review
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Chapter 9
Strategy Review, Evaluation and
ControlDr., prof. Tatjana Volkova
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Learning Outcomes
After studying this chapter you will be able to:Describe practical framework for evaluating strategies;
Explain why strategy evaluation is complex, sensitive and
essential for organizational success;
Discuss the importance of contingency planning instrategy evaluation;
Discuss the role of auditing in strategy evaluation;
Explain how computers can aid in evaluating strategies;
Discuss the balanced scorecard
Discuss 21st century challenges in strategic management
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Outline
1. The Nature of Strategy Evaluation
2. Strategy Evaluation Framework
3. Measuring Organizational Performance
4. The Balanced Scorecard
5. Auditing
6. 21st Century Challenges in Strategic Management
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1. The Nature of Strategy Evaluation
Timely evaluations can alert management to problems orpotential problems before situation becomes critical
Strategy evaluation is essential to ensure that stated
objectives are being achieved
adequate and timely feedback is the cornerstone ofeffective strategy evaluation
Evaluation may be expensive and counterproductive
Strategy evaluation must have a long run and short run
focus
Success today is no guarantee of success tomorrow
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STRATEGY IMPLMEMENTATION SBS SWISS BUSINESSSCHOOL Ch 9 -5
1. Examine the underlying bases of a firms strategy
2. Compare expected to actual results
3. Identify corrective actions to ensure thatperformance conforms to plans
Strategy Review, Evaluation &
Control
3 Basic Activities
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Why strategy evaluation is more difficult
today ? Environment complexity
Difficulty to predict futurewith accuracy
Increasing number ofvariables
The rapid rate ofobsolescence of even bestplans
Increasing number of bothdomestic and world eventsaffecting organizations
The decrasing time span forwhich planning can be donewith any degree of certainty
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Issues for managers
How to ensure thatempowered employees
acting in entrepreneurial
manner;
How to effectively controlemployees in light of
modern organizational
demands for greater
flexibility, innovation,creativity and initiative
form employees
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STRATEGY
IMPLMEMENTATION
Ch 9 -8
Strategy Review,Evaluation, & Control
Feasibility
Consistency
Advantage
Consonance
Rumelts
4 Criteria for
Strategy
Evaluation
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Rumelts 4 Criteria for Strategy
Evaluation
Consistency Strategy should not presentinconsistent goals & policies
Consonance Need for strategies to examine sets of
trends
Feasibility Neither overtax resources or createunsolvable sub-problems
Advantage Creation or maintenance of competitiveadvantage
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The Process of Evaluating Strategies
Management by wandering
around;
Performed on a
continuous basis; Awareness of progress
being made
Broad involvement of staff
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2. Strategy evaluation framework
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Have major
changes
occured in
the firms
internal
strategicposition
Have major
changes
occured in the
firms external
strategic
position
Has the firm
progressed
satisfactorily
toward achieving
its stated
objectives
Result
No No No Take corrective actions
Yes Yes Yes Take corrective actions
Yes Yes No Take corrective actions
Yes No Yes Take corrective actions
Yes No No Take corrective actions
No Yes Yes Take corrective actions
No Yes No Take corrective actions
No No Yes Continue present strategic course12 STRATEGY IMPLMEMENTATIONSBS SWISS BUSINESS SCHOOL
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STRATEGY IMPLMEMENTATION SBS SWISS BUSINESS SCHOOL
Strategy Review, Evaluation, & Control
Are strengths still strengths? Have we added additional strengths?
Are weaknesses still weaknesses?
Have we developed other weaknesses?
Monitor Strengths & Weaknesses;
Opportunities & Threats
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Are opportunities stillopportunities?
Other opportunities
develop?
Are threats still threats Other threats emerged?
Are we vulnerable to
hostile takeover?
Monitor Strengths & Weaknesses;
Opportunities & Threats
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Factors influencing success of strategy
implementation
External
Competition
Changes in demand
Changes in technology
Economic changes
Demographic shifts
Governmental actions
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Factors influencing success of
strategy implementation
Internal
Poor strategies chosen
Poor implementationactivitities
Too optimistic objectives Weak organizational
structure
Unfunctional culture
Poor quality management Unadequate resources,
etc
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STRATEGY
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Ch 9 -17
Evaluation Framework
I. Review Underlying Bases
Continue present course
II. Measure Firm Performance
III.
TakeCorrective
Actions
Differences?
Differences?
Yes
NO
Yes
NO
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3. Measuring organizational performance
Determine objectives for
evaluation
Select criteria (both
quantitative and qualitative)
Problems for using quantitativecriteria:
1. More associated with
annual objectives
2.Different accountingmethods used provide
different uncomparable
results
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Measuring organizational performance
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Ch 9 -19
Return on investment
(ROI)
Return on equity (ROE)
Profit margin Market Share Debt to
equity
Earnings per share (EPS)
Sales growth
Asset growth
Key Financial Ratios
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Qualitative questions (Tilles)
Is the strategy internallyconsistent?
Is the strategy consistent
with the environment?
Is the strategy appropriatein view of available
resources?
Does the strategy involve
an acceptable degree ofrisk?
Is the strategy workable?
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Additional key questions
How good is the firmsbalance of investmentbetween high risk and lowrisk?
How good is the firms
balance of investmentbetween long term andshort term projects?
How good is the firms
balance of investmentbetween slow growing andfast growing markets?
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Taking corrective actions
Making changes tocompetitively reposition a
company for the future:
Alerting an organizational
structure Replacing staff when
necessary
Selling division (s)
Revising a businessmission, objectives
Issuing stock
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Taking correcting actions dont mean
that new strategies must be formulated
Is necessary to keep anorganization on tracktoward stated objectives
Strategy evaluationenhances an organizations
ability and capacity toadapt to changingcircumstances;
Participation of the staff in
evaluation activities helpsto overcome resistance tothe change;
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Strategy evaluation can lead to:
1.
strategy-formulationchanges
2. Strategy-implementation
changes
3. Both formulation andimplementation changes
4. No changes at all, but
sooner or later changes
will take place
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STRATEGY IMPLMEMENTATION SBS SWISS BUSINESS
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Ch 9 -26
-- Evaluate strategies from 4 perspectives:
1. Financial performance
2. Customer knowledge
3. Internal business processes
4. Learning & growth
4. The Balanced Scorecard
Video : what is a balancescored ?
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The Balanced Scorecard analysis:
How well company is
continually imprving and
creating value along
measures such as
innovation, technological
leadership, product quality,
operational process
efficinecies....
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The Balanced Scorecard analysis:
How well is the company
sustaining or even
improving upon its corecompetencies and
competitive advantages?
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The Balanced Scorecard analysis:
How satisfied are our
customers?
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Published sources of Strategy
Evaluation Information
North American Industry Classifictaion System;
Magazine Fortune ( The World Most Admired Companies)
The Annual Report on American Industry
Business week
Industry week
Duns Business Month
The Economist
World Competitiveness Report
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http://money.cnn.com/magazines/fortune/global500/2011/countries/India.html
www.tata.com
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www3.weforum.org/.../WEF_GlobalCompetitivenessReport_2010-11.pdf39 STRATEGY IMPLMEMENTATIONSBS SWISS BUSINESS SCHOOL
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Effective Evaluation System
Strategy evaluation activities must be economical
Avoiding too much information also to little information
Avoid too many control
Activities should be meaningful
Should provide to managers useful information
Must be designed to provide true picture
Should facilitate action rather than information oriented
Foster mutual understanding, trust, respect Should be simple
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STRATEGYIMPLMEMENTATION
Ch 9 -41
Alternative plans that can be put into effect if certain keyevents do not occur as expected
To minimize the impact of unforeseen events
(government actions; strikes, natural disasters, etc. )
To capitalizing on opportunities
Contingency Planning
5 A diti
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Ch 9 -42
Financial audits determine correspondence betweenassertions based on strategic plan & established criteria
Environmental audits ensure sound and safe practices
5. Auditing
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Auditing
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a systematic process of objectively obtaining andevaluating evidence regarding assertions about economicactions and events to ascertain the degree ofcorrespondance between these assertions and establishedcriteria and communicating results to interested users
American Accounting Association Independant auditors are certified public accountants
examining the financial statements of an companywhether they fairly represent the activities;
Independant auditors use a set of standarts calledgenerally accepted auditing standarts
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The environmental audit
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Environment affairs becoming an important strategic
management concern;
Main issues for environmental consideration:
Product design
Manufacturing Transportation
Packaging
Product disposal
Corporate rewards and sunctions
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STRATEGY IMPLMEMENTATIONSBS SWISS BUSINESS SCHOOL
Ch 9 -45
Process is more an art
than science
Should strategies be
visible or hidden from
stakeholders Should process be more
top-down or bottom up
6. 21st Century Challenges in
Strategic Management
Challenges
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Challenges
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Should the strategic
management process be
more an art or a science?
Should strategies be
visible or hidden fromstakeholders?
Should the strategic
management process bemore top-down or
bottom-up?
The Visible or Hidden Issue
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The Visible or Hidden Issue
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Reasons for Openness
All stakeholders can readilycontribute to the process,which results in many excellentideas.
Investors and creditors have agreater basis for supporting afirm.
Visibility promotes democracyand secrecy promotesautocracy.
Participation and openness
enhances understanding,commitment, andcommunication within the firm.
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The Visible or Hidden Issue
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Without secrecy, competitive
intelligence can learn and
exploit information.
Secrecy limits criticism, second
guessing, and hindsight.
Participants in a visible strategy
become more attractive to rival
firms who may lure them away.
Secrecy limits rival firms from
imitating or duplicating thefirms resources and abilities
undermining the firm.
The Top Down or Bottom Up Approach
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The Top-Down or Bottom-Up Approach
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The Top-Down Approach:
Top executives are the
only persons in the firm
with the collective
experience, acumen, and
fiduciary responsibility tomake key strategy
decisions.
The Top Down or Bottom Up Approach
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The Top-Down or Bottom-Up Approach
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The Bottom-Up Approach:
Lower- and middle-level
managers and employees who
will be implementing the
strategies need to be actively
involved in the process of
formulating the strategies to
assure their support and
commitment
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