Makerere University Business SchoolStrategic Management Course

STRATEGY EVALUATION

& CONTROL

Strategic evaluation is the strategic management process phase in which managers provide assurance that the chosen strategy is implemented and is meeting business objectives.

By this time, plans are already specified, activities assigned, resources provided, policies in place and leadership system and style formed.

There is a need for: An evaluation and control system, A reward system and An effective information system

Introduction

Introduction – Cont. The evaluation system

Helps to recycle feedback into new strategic planning

Double-checks strategic choice for appropriateness & consistency with the environment

Need for evaluation of consistency in application to lower organisation levels

Questions answered by C & E

Are decisions consistent with policy? Are there sufficient resources? Is the environment still as

anticipated? To what extent are targets being met? Are the plans still relevant or should

they be changed?

C & E Process The organisation structure and

style provide the main mechanism. There are 4 inter-related activities

in the evaluation process:1. Establishing targets, standards &

implementation plans.2. Measuring actual performance3. Analysing deviations4. Determining necessary

modifications

Evaluation should take place at different organisation levels – review levels

The corporate level executive Evaluates overall corporate strategy Monitors SBU evaluation

The budget is a useful control tool It inter-connects financial elements of

the plan The budget, however, lacks non-

financial and other assumptions for strategic control.

The role of a strategist

A controller may be appointed near the top position in a staff position In charge of strategy information system

but without line responsibility Line managers must, therefore,

maintain authority over control Other evaluation and control set-ups:

Internal audit committees Executive committees at board level External auditors

These evaluate and control top management.

The strategist – Cont.

Top managers must be motivated to evaluate

Unwillingness to evaluate is a common cause of strategy failure

Failure experience may increase motivation to evaluate

Performance reward for achievement of objectives also increases motivation to evaluate.

Motivation to evaluate

Top management rewards in many firms, are done irrespective of strategy evaluation Executives make proposals to the board for

themselves These include salary changes and promotions

Strategic demands should guide the reward system.

Performance measures should be established in time before the actual implementation

Rewards should then be based on these standards after the actual performance.

The Reward System

Performance rewarded should be in the manager’s discretion Significant environmental effects on

performance should not have a big impact on the manager’s penalty

Career development should also be considered There is need for rotations Enough time should be allowed to

individuals Rewards and penalties should consider

performance of predecessors

Reward system - Cont.

It is often difficult to tie cause-effect relationships of strategic unit performance

In case of failure, there is room for Everyone to defend oneself Presenting results as successful – e.g.

short-term results, promise for long-term success.

Top management tends to Claim responsibility for good performance

Blame subordinates when there is strategic failure

Dysfunctional evaluation behaviour

There are 3 major areas where managers make decisions:

Criteria for evaluation Feedback system and control

areas Outcomes of strategic evaluation

Control & Evaluation Areas

Evaluation can be based on objective or subjective factors

Criteria depend on the evaluation purpose and situation

Quantitative factors (supported by some qualitative factors) are more relevant for the past and present

Qualitative factors are more relevant for testing whether the strategy will be applicable or not.

Criteria for evaluation

Performance is compared with Historical results and Competitors Standard numbers / ratios

Such factors include Profitability results e.g. net profit Investment performance indicators

e.g. dividend rates, earnings per share, return on capital,

Market performance e.g. market share, sales growth

Quantitative criteria

There are challenges in Selection of which factors to use Set tolerance limits

The guide should come from key success factors for strategy success

Quantitative criteria – Cont.

Subjective assessment should supplement quantitative performance measures

More appropriate to the entire organisation strategy evaluation especially before a major change of direction

There are 3 broad qualitative criteria categories

Consistency, appropriateness and workability

Qualitative Criteria

Consistency with: Objectives Environmental assumptions Internal conditions

Appropriateness with respect to: Resource capabilities Risk preference Time horizon

Consistency & Appropriateness

Addresses Feasibility Stimulation – managers’

commitment, consensus among executives, personal aspirations among executives.

Workability

Timing of measurement What feedback to provide

Measuring Feedback

Use of timely information to Determine causes of deviations Take corrective action Reward performance

Evaluation & Corrective action

Reading Assignment In Bakunda & Ngoma, read about

1. Why managers spend more time on strategic panning and less on control.

2. Types of control Strategic plan control, Annual plan control and Profitability and efficiency controls