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Examine the underlying bases of a firms strategy Compare expected to actual results Identify corrective actions to ensure that performance conforms to plans
Are strengths still strengths? Have we added additional strengths? Are weaknesses still weaknesses? Have we developed other weaknesses?
Are opportunities still opportunities? Other opportunities develop? Are threats still threats Other threats emerged? Are we vulnerable to hostile takeover?
Evaluation Framework
Differences?
Y e s
N O
Continue present course
Y e s
Return on investment (ROI) Return on equity (ROE) Profit margin Market Share
Debt to equity Earnings per share (EPS) Sales growth Asset growth
Barriers in Evaluation
Limits of Controls Difficulties in measurement Resistance to evaluation Short-termism Relying on efficiency versus effectiveness
Strategic Control
Strategic Control
n
Are the premises made during strategy formulation proving to be correct? Is the strategy guiding the organization towards its intended objectives? Are the organization & the managers doing things which ought to be done? Is there a need to change & reformulate the strategy?
Premise Control
n
Necessary to identify the key assumptions (government policies, nature of competition, breakthrough in R&D) & keep track of any change in them so as to assess their impact on strategy & its implementation Continually tests the assumptions Responsibility: Corporate Planning Staff
n n
Implementation Control
n
n n -
To evaluate whether the plans, programmes & projects, resulting from implementation of the strategy, are actually guiding the organization towards its predetermined objectives or not. May lead to Strategic rethinking Can be put into practice through Identification & monitoring of strategic thrusts and Milestone Review
Strategic Surveillance
Designed to monitor a broad range of events inside & outside the company that are likely to threaten the course of a firms strategy. n Is a more general form of control n Information for this can be obtained through formal yet simple strategic information scanning systems like Knowledge management systems & organizational learning
n
n n
Based on a trigger mechanism for rapid response & immediate reassessment of strategy in light of sudden & unexpected events (eg: sudden fall of a govt., natural catastrophe, unfortunate industrial disaster etc.) Hope for the best ~ Prepare for the worst Can be handled by formulation of contingency strategies,& by assigning responsibility of unforeseen events to crisis management teams
Operational Control
Aimed at the allocation and use of organisational resources Concerned with action or performance
Operation Control
n
n n
n n
Recognizing the linkages that exist between strategic planning and mgt control is vital to org success. John C. Cammilus, Mgt Consultant. It takes the last phase of mgt functions. Done in order to ensure if the org achieves the obj or not. To measure the strategic actions. To give feedback and action decision.
OPERATIONAL CONTROL
n
It is aimed at the allocation and use of organizational resources through an evaluation of the performance of organizational units, such as divisions, SBUs and so on, to assess their contribution to the achievement of organizational objectives.
3. Main Concern
External environment Long- term Environmental scanning, information gathering, questioning and review
Organizations are required to make strategic leaps in order to make significant changes when the environment is relatively unstable. It can assist such organizations by helping to define the new strategic requirements and to cope with emerging environmental realities.
1) Strategic issue management. 2) Strategic field analysis. 3) Systems modeling. 4) Scenarios
Comparative Analysis Which consist of of historical analysis, industry norms and benchmarking, compares the performance of a firm with its own past performance or with other firms.
1.
Comprehensive Analysis Which includes balanced scorecard and key factor rating, adopts a total approach rather than focusing on one area of activity or a function of department. 1) The balanced scorecard 2) Key Factor Rating
Evaluate strategies from 4 perspectives: 1. Financial performance 2. Customer knowledge 3. Internal business processes 4. Innovation & Learning Besides, performance of people and performance according to stakeholders can be added
Balanced Scorecard
Balanced Scorecard
Balanced Scorecard
Area of Objectives Measure or Target Time Expectation Primary Responsibility Customers 1 2 Managers/Employees 1 2 Operations/Processes 1 2 Community/Social Responsibility 1 2 Business Ethics/Natural Environment 1 2 Financial 1 2
Has the firm progressed satisfactorily toward achieving its stated objectives?
No No Yes No Yes No Yes Yes
Result
Corrective actions Corrective actions Corrective actions Corrective actions Corrective actions Corrective actions Corrective actions Continue course
*If there is excess capacity fixed costs must be spread over fewer units thereby making the units cost more
*If there is insufficient capacity the company must incur additional costs to generate more capacity
Company A
Selling Price Direct Mat. Direct Labor Var. Overhead Rs20.00 Rs2.00 Rs1.00 Rs1.00
Company B
Rs20.00 Rs2.00 Rs6.00 Rs1.00
Required: Compute the gross margins on the product of each company. Assume an annual volume of production and sales of 100,000 units; then 200,000 units.
Solution:
(100,000 Units) Cost: Variable Costs/Unit Rs4.00 Rs9.00 Company A Company B
Fixed Cost/Unit Total Cost/Unit Selling Price Total Gross Margin (200,000 Units) The only Change is Fixed costs per unit Total Gross Margin
Rs7.50 Rs1,700,000
Rs3.00 Rs1,600,000
Cost-Volume-Profit Analysis
Revenue Line
$
Fixed Costs & Total Costs Line
of Pr
ea Ar it
Contribution Margin
ss o
e Ar
Activity Level
n n
Process is more an art than science Should strategies be visible or hidden from stakeholders- Highly debatable Should process be more top-down or bottom up