Fred R. David

Prentice Hall

Ch 9-1

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

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

Organizations are most vulnerable when

they are at the peak of their success.

-- R.T. Lenz

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Prentice Hall

Ch 9-6

Systematic Review, Evaluation & Control –

– Strategies become obsolete

– Internal environments are dynamic

– External environments are dynamic

Strategy Review, Evaluation &

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

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

Fred R. David

Prentice Hall

Ch 9-9

Strategy evaluation –

– Complex and sensitive undertaking

– Overemphasis can be costly and

counterproductive

Strategy Evaluation

Fred R. David

Prentice Hall

Ch 9-10

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?

Strategy Evaluation

Fred R. David

Prentice Hall

Ch 9-11

Four Criteria (Richard Rummelt):

• Consistency

• Consonance

• Feasibility

• Advantage

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

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

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

Fred R. David

Prentice Hall

Ch 9-15

Advantage

– Creation or maintenance of competitive

advantage

• Superiority in resources, skills, or position

Rummelt’s Criteria

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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

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

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

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Prentice Hall

Ch 9-19

Review of underlying bases of strategy –

– Develop revised EFE Matrix

– Develop revised IFE Matrix

Reviewing Bases of Strategy

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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

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

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

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

Fred R. David

Prentice Hall

Ch 9-24

Evaluation FrameworkI. Review Underlying Bases

Continue present course

II. Measure Firm Performance

III.

Take

Corrective

Actions

Differences?

Differences?

Yes

NO

Yes

NO

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Prentice Hall

Ch 9-25

• Comparing expected to actual results

• Investigating deviations from plan

• Evaluating individual performance

• Progress toward stated objectives

Measuring Organizational

Performance

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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

Performance

Fred R. David

Prentice Hall

Ch 9-27

Key Financial Ratios –

– Return on investment

– Return on equity

– Profit margin

– Market share

Measuring Organizational

Performance

Fred R. David

Prentice Hall

Ch 9-28

Key Financial Ratios –

– Debt to equity

– Earnings per share

– Sales growth

– Asset growth

Measuring Organizational

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

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

Fred R. David

Prentice Hall

Ch 9-31

Strategy-Evaluation Assessment Matrix

Continue courseYesNoNo

Corrective actionsNoYesNo

Corrective actionsYesYesNo

Corrective actionsNoNoYes

Corrective actionsYesNoYes

Corrective actionsNoYesYes

Corrective actionsYesYesYes

Corrective actionsNoNoNo

Result

Has the firm progressed

satisfactorily toward achieving its stated

objectives?

Have major changes

occurred in the firm’s external strategic position?

Have major changes

occurred in the firm’s internal strategic position?

Fred R. David

Prentice Hall

Ch 9-32

Premise of sound strategic management –

– Planning to deal with unfavorable and

favorable events before they occur.

Contingency Planning

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Prentice Hall

Ch 9-33

Contingency Planning –

– Alternative plans that can be put into effect if

certain key events do not occur as expected

Contingency Planning

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Prentice Hall

Ch 9-34

• Financial audits to determine

correspondence between assertions

based on strategic plans and established

criteria

• Environmental audits to insure sound

and safe practices

Auditing

Fred R. David

Prentice Hall

Ch 9-35

Key Terms

• Advantage

• Auditing

• Consistency

• Consonance

• Contingency Plans

• Corporate Agility

• Feasibility

Fred R. David

Prentice Hall

Ch 9-36

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 9-37

Key Terms

• Revised EFE Matrix

• Revised IFE Matrix

• Taking Corrective Actions