Strategic Management: Strategy Review and Evaluation

 
Fred R. David
Prentice Hall
 
Ch 9-1
Chapter 9:
Strategy Review, Evaluation and
Control
 
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Fred R. David
 
PowerPoint Slides by
Anthony F. Chelte
Western New England College
Fred R. David
Prentice Hall
Ch 9-2
Chapter Outline
 
The Nature of Strategy Evaluation
 
A Strategy-Evaluation Framework
 
Published Sources of Strategy-
Evaluation Information
Fred R. David
Prentice Hall
Ch 9-3
Chapter Outline
 
Characteristics of an Effective
Evaluation System
 
Contingency Planning
 
Auditing
Fred R. David
Prentice Hall
Ch 9-4
Chapter Outline
 
Using Computers to Evaluate Strategy
 
Guidelines for Effective Strategic
Management
Fred R. David
Prentice Hall
Ch 9-5
Implementing Strategies
Implementing Strategies
 
 
Organizations are most vulnerable when
they are at the peak of their success.
 
-- 
R.T. Lenz
Fred R. David
Prentice Hall
Ch 9-6
 
Systematic Review, Evaluation & Control –
Systematic Review, Evaluation & Control –
 
Strategies become obsolete
Strategies become obsolete
Internal environments are dynamic
Internal environments are dynamic
External environments are dynamic
External environments are dynamic
Strategy Review, Evaluation &
Strategy Review, Evaluation &
Control
Control
Fred R. David
Prentice Hall
Ch 9-7
 
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
Strategy Evaluation
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-8
 
3 Basic Activities –
 
1.
Examining the underlying bases of a firms’
strategy
2.
Comparing expected to actual results
3.
Corrective actions to ensure performance
conforms to plans
Strategy Evaluation
Strategy Evaluation
 
Fred R. David
Prentice Hall
 
Ch 9-9
 
Strategy evaluation –
Strategy evaluation –
 
Complex  and sensitive undertaking
 
Overemphasis can be costly and
counterproductive
Strategy Evaluation
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-10
 
In many organizations, evaluation is an
In many organizations, evaluation is an
appraisal of performance –
appraisal of performance –
 
Have assets increased?
Increase in profitability?
Increase in sales?
Increase in productivity?
Profit margins, ROI and EPS ratios increased?
Strategy Evaluation
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-11
 
Four Criteria (Richard Rummelt):
 
Consistency
Consonance
Feasibility
Advantage
Strategy Evaluation
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-12
 
Consistency
 
Strategy should not present inconsistent
goals and policies.
 
Conflict and interdepartmental bickering
symptomatic of managerial disorder and strategic
inconsistency
Rummelt’s Criteria
Rummelt’s Criteria
Fred R. David
Prentice Hall
Ch 9-13
 
Consonance
 
Need for strategies to examine sets of
trends
 
Adaptive response to external environment
Trends are results of interactions among other
trends
Rummelt’s Criteria
Rummelt’s Criteria
Fred R. David
Prentice Hall
Ch 9-14
 
Feasibility
 
Neither overtax resources or create
unsolvable subproblems
 
Organizations must demonstrate the abilities,
competencies, skills and talents to carry out a
given strategy
Rummelt’s Criteria
Rummelt’s Criteria
Fred R. David
Prentice Hall
Ch 9-15
 
Advantage
 
Creation or maintenance of competitive
advantage
 
Superiority in resources, skills, or position
Rummelt’s Criteria
Rummelt’s Criteria
Fred R. David
Prentice Hall
Ch 9-16
 
Difficulty in strategy evaluation –
 
1.
Increase in environment’s complexity
2.
Difficulty predicting future with accuracy
3.
Increasing number of variables
Strategy Evaluation
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-17
 
Difficulty in strategy evaluation –
 
4.
Rate of obsolescence of plans
5.
Domestic and global events
6.
Decreasing time span for planning
certainty
Strategy Evaluation
Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-18
 
Strategy evaluation should –
 
Initiative managerial questioning
Trigger review of objectives and
values
Stimulate creativity in generating
alternatives
Process of Strategy Evaluation
Process of Strategy Evaluation
Fred R. David
Prentice Hall
Ch 9-19
 
Review of underlying bases of strategy –
 
Develop revised EFE Matrix
 
Develop revised IFE Matrix
Reviewing Bases of Strategy
Reviewing Bases of Strategy
Fred R. David
Prentice Hall
Ch 9-20
 
Review effectiveness of strategy –
 
1.
Competitors’ reaction to strategy
2.
Competitors’ change in strategy
3.
Competitors’ changes in strengths and
weaknesses
4.  Reasons for competitors’ strategic change
Reviewing Bases of Strategy
Reviewing Bases of Strategy
Fred R. David
Prentice Hall
Ch 9-21
 
Review effectiveness of strategy –
 
5.
Reasons for competitors’ successful
strategies
6.
Competitors’ present market positions and
profitability
7.
Potential for competitor retaliation
8.
Potential for cooperation with competitors
Reviewing Bases of Strategy
Reviewing Bases of Strategy
Fred R. David
Prentice Hall
Ch 9-22
 
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?
Reviewing Bases of Strategy
Reviewing Bases of Strategy
Fred R. David
Prentice Hall
Ch 9-23
 
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?
Reviewing Bases of Strategy
Reviewing Bases of Strategy
 
Fred R. David
Prentice Hall
 
Ch 9-24
Evaluation Framework
Evaluation Framework
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Fred R. David
Prentice Hall
 
Ch 9-25
 
Comparing expected to actual results
Investigating deviations from plan
Evaluating individual performance
Progress toward stated objectives
Measuring Organizational
Measuring Organizational
Performance
Performance
Fred R. David
Prentice Hall
Ch 9-26
 
Quantitative criteria for strategy evaluation –
 
Financial Ratios:
Compare performance over different periods
Compare performance to competitors
Compare performance to industry averages
Measuring Organizational
Measuring Organizational
Performance
Performance
Fred R. David
Prentice Hall
Ch 9-27
 
Key Financial Ratios –
 
Return on investment
Return on equity
Profit margin
Market share
Measuring Organizational
Measuring Organizational
Performance
Performance
Fred R. David
Prentice Hall
Ch 9-28
 
Key Financial Ratios –
 
Debt to equity
Earnings per share
Sales growth
Asset growth
Measuring Organizational
Measuring Organizational
Performance
Performance
Fred R. David
Prentice Hall
Ch 9-29
 
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
Measuring Organizational
Measuring Organizational
Performance
Performance
Fred R. David
Prentice Hall
Ch 9-30
 
Basic requirements for effective strategy
evaluation –
 
Economical
Meaningful
Generate useful information
Timely information
Provide a true picture of what is happening
Characteristics of Evaluation
Characteristics of Evaluation
 
Fred R. David
Prentice Hall
 
Ch 9-31
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Kaplan and Norton’s scenario…
Imagine entering the cockpit of a modern jet airplane and seeing only a
single instrument there. How would you feel about boarding the plane after
the following conversation with the pilot?
Q: I am surprised to see you operating the plane with only a single
instrument. What does it measure?
A: Airspeed. I’m really working on airspeed this flight.
Q: That’s good. Airspeed certainly seems important. But what about
altitude? Would not an altimeter be helpful?
A: I worked on the altitude for the last few flights and I have gotten
pretty good on it. Now I have to concentrate on proper airspeed.
Q: But I notice you don’t have a fuel gauge. Wouldn’t that be useful?
A: You are right; fuel is significant, but I can’t concentrate on doing too
many things well at the same time. So on this flight, I’m focusing on
airspeed. Once I get to be excellent at airspeed, as well as altitude, I
intend to concentrate on fuel consumption on the next set of flights.
 
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The analogy with business is not that far
fetched.
 
Focusing on one thing in an 
 
excellent
manner ignoring all others is a disaster
for air flight as well as businesses.
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The purpose of balanced scorecard is
to:
 
“translate strategy into measures that uniquely
communicate your vision to the organization”
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Financial perspective:
 Ultimate results that the business
provide to its shareholders i.e  revenue growth, ROI.
Internal perspective:
 Key Internal Processes i.e quality
levels, productivity, cycle time.
Customer perspective:
 Focus on customer’s needs and
satisfaction i.e Service level, satisfaction ratings, repeat
business.
Innovation and learning perspectives
: Focus on
Organization’s people and infrastructure i.e. employee
satisfaction, market innovation, skill development
 
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A good balanced Scorecard contains
both leading and lagging measures and
indicators. Lagging measures
(outcomes) tell what has happened;
leading measures (performance drivers)
predict what will happen.
Fred R. David
Prentice Hall
Ch 9-37
 
Premise of sound strategic management –
 
Planning to deal with unfavorable and
favorable events before they occur.
Contingency Planning
Contingency Planning
Fred R. David
Prentice Hall
Ch 9-38
 
Contingency Planning –
 
Alternative plans that can be put into effect if
certain key events do not occur as expected
Contingency Planning
Contingency Planning
 
Fred R. David
Prentice Hall
 
Ch 9-39
 
Financial audits to determine
correspondence between assertions
based on strategic plans and established
criteria
 
Environmental audits to insure sound
and safe practices
Auditing
Auditing
Fred R. David
Prentice Hall
Ch 9-40
Key Terms
Key Terms
 
Advantage
Auditing
Consistency
Consonance
Contingency Plans
Corporate Agility
Feasibility
Fred R. David
Prentice Hall
Ch 9-41
Key Terms
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
Ch 9-42
Key Terms
Key Terms
 
Revised EFE Matrix
Revised IFE Matrix
Taking Corrective Actions
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This chapter delves into the critical process of strategy review, evaluation, and control in strategic management. It covers the nature of strategy evaluation, effective evaluation systems, contingency planning, auditing, using computers for evaluation, and guidelines for effective strategic management. Understanding and implementing these concepts is crucial for organizations to adapt and thrive in dynamic environments.


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  1. 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 Ch 9-1 Fred R. David Prentice Hall

  2. Chapter Outline The Nature of Strategy Evaluation A Strategy-Evaluation Framework Published Sources of Strategy- Evaluation Information Ch 9-2 Fred R. David Prentice Hall

  3. Chapter Outline Characteristics of an Effective Evaluation System Contingency Planning Auditing Ch 9-3 Fred R. David Prentice Hall

  4. Chapter Outline Using Computers to Evaluate Strategy Guidelines for Effective Strategic Management Ch 9-4 Fred R. David Prentice Hall

  5. Implementing Strategies Organizations are most vulnerable when they are at the peak of their success. -- R.T. Lenz Ch 9-5 Fred R. David Prentice Hall

  6. Strategy Review, Evaluation & Control Systematic Review, Evaluation & Control Strategies become obsolete Internal environments are dynamic External environments are dynamic Ch 9-6 Fred R. David Prentice Hall

  7. 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 Ch 9-7 Fred R. David Prentice Hall

  8. Strategy Evaluation 3 Basic Activities 1. Examining the underlying bases of a firms strategy 2. Comparing expected to actual results 3. Corrective actions to ensure performance conforms to plans Ch 9-8 Fred R. David Prentice Hall

  9. Strategy Evaluation Strategy evaluation Complex and sensitive undertaking Overemphasis can be costly and counterproductive Ch 9-9 Fred R. David Prentice Hall

  10. 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? Ch 9-10 Fred R. David Prentice Hall

  11. Strategy Evaluation Four Criteria (Richard Rummelt): Consistency Consonance Feasibility Advantage Ch 9-11 Fred R. David Prentice Hall

  12. Rummelts Criteria Consistency Strategy should not present inconsistent goals and policies. Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency Ch 9-12 Fred R. David Prentice Hall

  13. Rummelts Criteria Consonance Need for strategies to examine sets of trends Adaptive response to external environment Trends are results of interactions among other trends Ch 9-13 Fred R. David Prentice Hall

  14. Rummelts Criteria Feasibility Neither overtax resources or create unsolvable subproblems Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy Ch 9-14 Fred R. David Prentice Hall

  15. Rummelts Criteria Advantage Creation or maintenance of competitive advantage Superiority in resources, skills, or position Ch 9-15 Fred R. David Prentice Hall

  16. Strategy Evaluation Difficulty in strategy evaluation 1. Increase in environment s complexity 2. Difficulty predicting future with accuracy 3. Increasing number of variables Ch 9-16 Fred R. David Prentice Hall

  17. Strategy Evaluation Difficulty in strategy evaluation 4. Rate of obsolescence of plans 5. Domestic and global events 6. Decreasing time span for planning certainty Ch 9-17 Fred R. David Prentice Hall

  18. Process of Strategy Evaluation Strategy evaluation should Initiative managerial questioning Trigger review of objectives and values Stimulate creativity in generating alternatives Ch 9-18 Fred R. David Prentice Hall

  19. Reviewing Bases of Strategy Review of underlying bases of strategy Develop revised EFE Matrix Develop revised IFE Matrix Ch 9-19 Fred R. David Prentice Hall

  20. Reviewing Bases of Strategy Review effectiveness of strategy 1. Competitors reaction to strategy 2. Competitors change in strategy 3. Competitors changes in strengths and weaknesses 4. Reasons for competitors strategic change Ch 9-20 Fred R. David Prentice Hall

  21. Reviewing Bases of Strategy Review effectiveness of strategy 5. Reasons for competitors successful strategies 6. Competitors present market positions and profitability 7. Potential for competitor retaliation 8. Potential for cooperation with competitors Ch 9-21 Fred R. David Prentice Hall

  22. 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? Ch 9-22 Fred R. David Prentice Hall

  23. 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? Ch 9-23 Fred R. David Prentice Hall

  24. Evaluation Framework I.Review Underlying Bases Yes Differences? NO III. Take Corrective Actions II. Measure Firm Performance Yes Differences? NO Continue present course Ch 9-24 Fred R. David Prentice Hall

  25. Measuring Organizational Performance Comparing expected to actual results Investigating deviations from plan Evaluating individual performance Progress toward stated objectives Ch 9-25 Fred R. David Prentice Hall

  26. Measuring Organizational Performance Quantitative criteria for strategy evaluation Financial Ratios: Compare performance over different periods Compare performance to competitors Compare performance to industry averages Ch 9-26 Fred R. David Prentice Hall

  27. Measuring Organizational Performance Key Financial Ratios Return on investment Return on equity Profit margin Market share Ch 9-27 Fred R. David Prentice Hall

  28. Measuring Organizational Performance Key Financial Ratios Debt to equity Earnings per share Sales growth Asset growth Ch 9-28 Fred R. David Prentice Hall

  29. 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 Ch 9-29 Fred R. David Prentice Hall

  30. Characteristics of Evaluation Basic requirements for effective strategy evaluation Economical Meaningful Generate useful information Timely information Provide a true picture of what is happening Ch 9-30 Fred R. David Prentice Hall

  31. Strategy-Evaluation Assessment Matrix Have major changes occurred in the firm s internal strategic position? Have major changes occurred in the firm s external strategic position? Has the firm progressed satisfactorily toward achieving its stated objectives? Result No No No Corrective actions Yes Yes Yes Corrective actions Yes Yes No Corrective actions Yes No Yes Corrective actions Yes No No Corrective actions No Yes Yes Corrective actions No Yes No Corrective actions No No Yes Continue course Ch 9-31 Fred R. David Prentice Hall

  32. Balanced Scorecard Kaplan and Norton s scenario Imagine entering the cockpit of a modern jet airplane and seeing only a single instrument there. How would you feel about boarding the plane after the following conversation with the pilot? Q: I am surprised to see you operating the plane with only a single instrument. What does it measure? A: Airspeed. I m really working on airspeed this flight. Q: That s good. Airspeed certainly seems important. But what about altitude? Would not an altimeter be helpful? A: I worked on the altitude for the last few flights and I have gotten pretty good on it. Now I have to concentrate on proper airspeed. Q: But I notice you don t have a fuel gauge. Wouldn t that be useful? A: You are right; fuel is significant, but I can t concentrate on doing too many things well at the same time. So on this flight, I m focusing on airspeed. Once I get to be excellent at airspeed, as well as altitude, I intend to concentrate on fuel consumption on the next set of flights.

  33. Balanced Scorecard The analogy with business is not that far fetched. Focusing on one thing in an excellent manner ignoring all others is a disaster for air flight as well as businesses.

  34. Balanced Scorecard The purpose of balanced scorecard is to: translate strategy into measures that uniquely communicate your vision to the organization

  35. Balanced Scorecard The balanced scorecard consists of four perspectives: Financial perspective: Ultimate results that the business provide to its shareholders i.e revenue growth, ROI. Internal perspective: Key Internal Processes i.e quality levels, productivity, cycle time. Customer perspective: Focus on customer s needs and satisfaction i.e Service level, satisfaction ratings, repeat business. Innovation and learning perspectives: Focus on Organization s people and infrastructure i.e. employee satisfaction, market innovation, skill development

  36. Balanced Scorecard A good balanced Scorecard contains both leading and lagging measures and indicators. Lagging measures (outcomes) tell what has happened; leading measures (performance drivers) predict what will happen.

  37. Contingency Planning Premise of sound strategic management Planning to deal with unfavorable and favorable events before they occur. Ch 9-37 Fred R. David Prentice Hall

  38. Contingency Planning Contingency Planning Alternative plans that can be put into effect if certain key events do not occur as expected Ch 9-38 Fred R. David Prentice Hall

  39. Auditing Financial audits to determine correspondence between assertions based on strategic plans and established criteria Environmental audits to insure sound and safe practices Ch 9-39 Fred R. David Prentice Hall

  40. Key Terms Advantage Auditing Consistency Consonance Contingency Plans Corporate Agility Feasibility Ch 9-40 Fred R. David Prentice Hall

  41. Key Terms Future Shock Management by Wandering Around Measuring Organizational Performance Planning Process Audit (PPA) Reviewing the Underlying Bases of an Organization s Strategy Ch 9-41 Fred R. David Prentice Hall

  42. Key Terms Revised EFE Matrix Revised IFE Matrix Taking Corrective Actions Ch 9-42 Fred R. David Prentice Hall

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