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STRATEGIC EVALUATION AND CONTROL

Strategic evaluation and control is the process of determining the


effectiveness of a given strategy in achieving the organizational objectives
and taking corrective actions whenever required. The final stage in strategic
management is strategy evaluation and control. All strategies are subject to future
modification because internal and external factors are constantly changing. In the strategy
evaluation and control process managers determine whether the chosen strategy is achieving
the organization's objectives. The fundamental strategy evaluation and control activities are:
reviewing internal and external factors that are the bases for current strategies, measuring
performance, and taking corrective actions. The purpose of strategic evaluation is to evaluate
the effectiveness of strategy in achieving organisational objectives.
Importance of Strategic Evaluation
Strategic evaluation helps to keep a check on the validity of a strategic choice.
An ongoing process of evaluation would, in fact, provide feedback on the continued
relevance of the strategic choice made during the formulation phase. This is due to the
efficacy of strategic evaluation to determine the effectiveness of strategy.
Strategic evaluation, through its process of control, feedback, rewards, and review,
helps in a successful culmination of the strategic management process.
The process of strategic evaluation provides a considerable amount of information
and experience to strategists that can be useful in new strategic planning.
Requirements for Effective Evaluation
The effective control must be:

Control should involve only the minimum amount of information as too much
information tends to clutter up the control system and creates confusion.

Control should monitor only managerial activities and results even if the
evaluation is difficult to perform.

Controls should be timely so that corrective action can be taken quickly.

Long-term and short-term controls should be used so that a balanced approach


to evaluation can be adopted.

Controls should aim at pinpointing exceptions as nitpicking does not result in


effective evaluation.
The 80:20 principle, where 20 per cent of the activities result in 80 per cent of
achievement, needs to be emphasised.

Getting bogged down with the activities that do not really count for achievement
makes the evaluation ineffective.
Rewards for meeting or exceeding standards should be emphasised so that managers
are motivated to perform.
Unnecessary emphasis on penalties tend to pressurise the managers to rely on
efficiency rather than effectiveness

Control can be exercised through formulation of contingency strategies and a crisis


management team. There can be the following types of control
(i) Operational control- It is aimed at allocation and use of organizational resources
through evaluation of performance of organizational units, divisions, SBU`s to assess
their contribution in achieving organizational objectives.
(ii) Strategic control- It takes into account the changing assumptions that determine a
strategy, continually evaluate the strategy as it is being implemented and take the
necessary steps to adjust the strategy to the new requirements.
The four basic type of strategic control are1. Premise control- It identifies the key assumptions and keeps track of any change in
them to assess its impact on strategy and implementation. The goal is to find if the
assumptions are still valid or not .It is generally handled by the corporate planning staff
considering the environmental and organizational factors.
2. Implementation control- It includes evaluating plans, programs, projects, to see if
they guide the organization to achieve predetermined organizational objectives or not. It
leads to strategic rethinking .It consists of identification and monitoring of strategic
thrusts.
3. Strategic surveillance- It aims at generalized control. It is designed to monitor a
broad range of events inside and outside the organization that are likely to threaten the
course of the firm. Organizational learning and knowledge management systems capture
the information for strategic surveillance.
4. Special Alert control- It is a rapid response or immediate reassessment of strategy
in the light of sudden and unexpected events. It can be exercised through formulation of
contingency strategies and a crisis management team.
Participants in Strategic Evaluation
Shareholders
Board of Directors
Chief executives

Profit-centre heads
Financial controllers
Company secretaries
External and Internal Auditors
Audit and Executive Committees
Corporate Planning Staff or Department
Middle-level managers
Techniques of Strategic Evaluation
1)Gap Analysis

The gap analysis is one strategic evaluation technique used to measure the gap between the
organizations current position and its desired position.

The gap analysis is used to evaluate a variety of aspects of business, from profit and
production to marketing, research and development and management information systems.

Typically, a variety of financial data is analyzed and compared to other businesses within the
same industry to evaluate the gap between the organization and its strongest competitors.

2) SWOT Analysis

The SWOT analysis is another common strategic evaluation technique used as a part of the
strategic management process. The SWOT analysis evaluates the organizations strengths,
weaknesses, opportunities and threats.

Strengths and weaknesses are internal factors, while opportunities and threats are external
factors.

This identification is essential in determining how best to focus resources to take advantage
of strengths and opportunities and combat weaknesses and threats.

3) PEST Analysis

Another common strategic evaluation technique is the PEST analysis, which identifies the
political, economic, social and technological factors that may impact the organizations ability
to achieve its objectives.

Political factors might include such aspects as impending legislation regarding wages and
benefits, financial regulations, etc

Economic factors include all shifts in the economy, while social factors may include
demographics and changing attitudes. Technological pressures are also inevitable as
technology becomes more advanced each day.

These are all external factors, which are outside of the organizations control but which must
be considered throughout the decision making process.

4) Benchmarking

Benchmarking is a strategic evaluation technique thats often used to evaluate how close the
organization has come to its final objectives, as well as how far it has left to go.

Organizations may benchmark themselves against other organizations within the same
industry, or they may benchmark themselves against their own prior situation.

A variety of performance measures, as well as policies and procedures, may be evaluated


regularly to identify where adjustments are necessary to maintain the sustainable competitive
advantage.

Strategic Control
Strategic controls take into account the changing assumptions that determine a strategy, continually
evaluate the strategy as it is being implemented, and take the necessary steps to adjust the strategy
to the new requirements.
Most commentators would agree with the definition of strategic control offered by Schendel and Hofer:
"Strategic control focuses on the dual questions of whether: (1) the strategy is being
implemented as planned; and (2) the results produced by the strategy are those intended.
Types of Strategic Control
1) Premise Control

Every strategy is based on certain planning premises or predictions.

Premise control has been designed to check systematically and continuously whether or not
the premises set during the planning and implementation process are still valid.

It involves the checking of environmental conditions. Premises are primarily concerned with
two types of factors:

a. Environmental factors (for example, inflation, technology, interest

rates, regulation, and

demographic/social changes).
b. Industry factors (for example, competitors, suppliers, substitutes, and barriers to entry)
2) Implementation Control

Implementing a strategy takes place as a series of steps, activities, investments and acts that
occur over a lengthy period.

The two basis types of implementation control are:

a. Monitoring strategic thrusts (new or key strategic programs): Two approaches are useful in
enacting implementation controls focused on monitoring strategic thrusts: (1) one way is to agree
early in the planning process on which thrusts are critical factors in the success of the strategy or of
that thrust; (2) the second approach is to use stop/go assessments linked to a series of meaningful
thresholds (time, costs, research and development, success, etc.) associated with particular thrusts.
b. Milestone Reviews: Milestones are significant points in the development of a programme, such as
points where large commitments of resources must be made. A milestone review usually involves a
full-scale reassessment of the strategy and the advisability of continuing or refocusing the direction of
the company.
3) Strategic Surveillance

Strategic surveillance is designed to monitor a broad range of events inside and outside the
company that are likely to threaten the course of the firm's strategy.

The basic idea behind strategic surveillance is that some form of general monitoring of
multiple information sources should be encouraged, with the specific intent being the
opportunity to uncover important yet unanticipated information.

Strategic surveillance appears to be similar in some way to "environmental scanning."


Strategic surveillance is designed to safeguard the established strategy on a continuous
basis.

4) Special Alert Control

Another type of strategic control is a special alert control.

"A special alert control is the need to thoroughly, and often rapidly, reconsider the firm's basis
strategy based on a sudden, unexpected event."

The analysts of recent corporate history are full of such potentially high impact surprises (i.e.,
natural disasters, chemical spills, plane crashes, product defects, hostile takeovers etc.).

An example of such event is the acquisition of your competitor by an outsider. Such an event
will trigger an immediate and intense reassessment of the firm's strategy. Form crisis teams to
handle your company's initial response to the unforeseen events.

STRATEGIC EVALUATION PROCESS(A) Setting standards of performance It must focus on questions like:

What standards should be set?

How should the standards be set?

In what terms should these standards be expressed?

The firm must identify the areas of operational efficiency in terms of people, processes,
productivity and pace. Standards set must be related to key management tasks. The
special requirement for performance of these task must be studied. It can be expresses
in terms of performance indicators.
The criteria for setting standards may be qualitative or quantitative. Therefore standards
can be set keeping in mind past achievements, compare performance with industry
average or major competitors. Factors such as capabilities of a firm, core competencies,
risk bearing ability, strategic clarity and flexibility and workability must also be
considered.
(B) Measurement of performance Standards of performance act as a benchmark in
evaluating the actual performance. Operationally it is done through accounting, reporting
and communication system. The key areas which must be kept in mind are difficulty in
measurement, timing of measurement (critical points) and periodicity in measurement
(task schedule).

(C) Analyzing variances The two main tasks are noting deviations and finding the
cause of deviations.
When actual performance is equal to budgeted performance tolerance limits must be
set.

When actual performance is greater than budgeted performance one must check the
validity of standards and efficiency of management.
When actual performance is less than budgeted performance we must pinpoint the
areas where performance is low and take corrective action,
The cause of deviations may be External or internal, Random or expected, Temporary or
permanent. The two main questions to focus upon are :
Are the strategies still valid?
Does the organization have the capacity to respond to the changes needed?
(D) Taking corrective actions It consists of the following Checking of performance It includes in-depth analysis and diagnosis of the factors
that might be responsible for bad performance.
Checking of standards It results in lowering or elevation of standards according to
the conditions.
Reformulate strategies,plans,objectives Giving a fresh start to the strategic
management process
IMPORTANCE OF STRATEGIC EVALUATION AND CONTROL

There is a need for feedback ,appraisal and reward

to check on the validity of strategic choice

Congruence between decisions and intended strategy

Creating inputs for new strategic planning

The Strategic Decision Makers


The strategic management process requires competent individuals to ensure its success.
Therefore, to understand strategic management, we must know where strategic
decisions are made in organizations.
Inputs to strategic decisions can be generated in a number of ways. Overall, top
management, board of directors, and planning staff tend to be those positions that
have the most significant involvement and influence in the strategic management
process of organizations. The failure of an organization to achieve its objectives can
often be traced to a breakdown at the level of the board or top management. However,
the final responsibility rests with top management. Some of the strategic management
responsibilities are outlined in
Top Management
The term "top management" refers to a relatively small group of people include
president, chief executive officer, vice president, and executive vice president. Because
the insights of these executives play such a critical role, a number of writers have
stressed the importance of matching the characteristics of these executives with the
firm's strategies.
The strategic management process of today tends to be dominated by the chief
executive officer (CEO). For example, Kenneth R. Andrews described the chief
executive's role as "Chief Executive as Architect of Purpose."

George Steiner summarized the role of the CEO in strategic management as follows:
1. The CEO must understand that strategic management is his responsibility. Parts
of this task, but certainly not all of it, can be delegated.
2. The CEO is responsible for establishing a climate in the organization that is
congenial to strategic management.
3. The CEO is responsible for ensuring that the design of the process is appropriate
to the unique characteristics of the company.
4. The CEO is responsible for determining whether there should be a corporate
planner. If so, the CEO generally should appoint the planner (or planners) and see
that the office is located as close to that of the CEO as practical.
5. The CEO must get involved in doing planning.
6. The CEO should have face-to-face meetings with executives for making plans and
should ensure that there is a proper evaluation of the plans and feedback to those
making them.
7. The CEO is responsible for reporting the results of the strategic management
process to the board of directors.
The chief executive officer (CEO) is responsible for the final decisions, but its decisions is
the culmination of the ideas, information, and analyses of others.
Other Managers And Staff Members
In many organizations, the job of strategic management can become so overwhelming,
that the chief executive must assign individuals, usually called planning staff
personnel, to help with the tasks. Recent theory and studies suggest that middle-level
managers attempt to influence business strategy and often initiate strategic proposals.
Board Of Directors
The business which exists in corporate form has a board of directors, elected by
stockholders and given ultimate authority and responsibility. Boards typically elect a
chairperson who is responsible for overseeing board business, and they form standing
committees which meet regularly to conduct their business. A strategy committee is a
board committee that works with CEO to develop strategic management process.
It is common practice for organizations to have boards of directors consisting of both
outsiders and insiders. One approach used to reconcile the differing roles of outside
directors and inside strategic decision makers is agency theory.
Agency theory defines as a nexus of contractual relationships among various
stakeholders, including shareholders, managers, employees, and customers, each
motivated by self-interest. In this view, a firm exists to exploit the potential advantages
of cooperative behavior among stakeholders, and strengthening the link between the
company and its environments.

Board of directors it plays an important role in the strategic management process. A


strategy committee commonly audits various components of an organization's strategic
management process in order to make it more effective and efficient. For example, the
board can demand reexamination of the company's mission, its long-term goals, its
corporate strategy, and its approach to the competition.
To quote Kenneth Andrews, "A responsible and effective board should require of its
management a unique and durable corporate strategy, review it periodically for its
validity, use its as the reference point for all other board decisions,""
The boards guides the affairs of corporation and protects stockholder interests.
A growing literature suggests that boards can make a difference in the way the firms is
managed.
Each of the four cells in the matrix can be labelled according to type: caretaker,
statutory, proactive, and participative boards.
Variations in these qualities affect company performance in different ways:
1. The caretaker board is characterized by a low level of power in both the board
and in the CEO. This type of board does not contribute significantly to effective
company performance.
2. The statutory board differs from the caretaker board in that a powerful CEO is
the central figure in organization decision making. The CEO does not consider the
board as a true partner in shaping the strategic posture of the company.
3. The proactive board commands powers that surpass those of its CEO. These
boards are a true instrument of corporate governance.
4. The participative board is characterized by discussion, debate, and
disagreement. Leadership is shared among management, board members, and
outside directors, who constitute a majority. In this case, negotiation and
compromise are essential for effective governance.
Recently, the role of the directors has been growing in importance because of
increasingly vocals stockholders.
In essence, the board functions as the brain and soul of the organization and as the
guardian of shareholders interests, its pervasive influence in many aspects of
organizational life is believed to enrich the firm.
Strategic decisions are evaluated by the board of directors, but are the responsibility of
top management, supported by corporate planning staffs, that perform analyses and
manage the planning processes.
The Scope Of Strategic Management

J. Constable has defined the area addressed by strategic management as "the


management processes and decisions which determine the long-term structure and
activities of the organization". This definition incorporates five key themes:
* Management process. Management process as relate to how strategies are created
and changed.
* Management decisions. The decisions must relate clearly to a solution of perceived
problems (how to avoid a threat; how to capitalize on an opportunity).
* Time scales. The strategic time horizon is long. However, it for company in real
trouble can be very short.
* Structure of the organization. An organization is managed by people within a
structure. The decisions which result from the way that managers work together within
the structure can result in strategic change.
* Activities of the organization. This is a potentially limitless area of study and we
normally shall centre upon all activities which affect the organization.
These all five themes are fundamental to a study of the strategic management field and
are discussed further in this chapter and other part of this thesis.