In the name of Allah the most beneficent and the most merciful

Strategic control

Chapter 6

Presented by:

Attia Sarwar

Presented to:

Madam Humaira Khan

Organizational control and strategic controlWithout an understanding of the broader issues involved in organizational control, it

is impossible to appreciate special issues that arise in strategic control,

A broad view of organizational control

Definition: Control consists of making something happen the way it was

planned to happen.

General characteristic of the process 1: Measuring performance

2: Comparing measured performance

3: Taking corrective action

General model of the control process

Controlling

begins

Measuring performance

CompareMeasurementTo standards

NetworkSituationbegins

Take correctiveAction: change plans, organization, and/or influencing methods

Performance Significantly Different fromstandards

Performance Equivalent to standards

No correctiveAction necessary

Workcontinues

The application of strategic control

Definition of strategic control: Strategic control is a special type of

organizational control that focuses on monitoring and evaluating the strategic management process in order to make sure it is functioning properly.

The purposes of strategic control:There are five main purposes of strategic control:

(1) Achieve organizational goals through monitoring and evaluating.

(2) Assessment of organizational environment.

(3) The establishment of organizational mission and goals.

(4) The development of ways to deal with compaction.

(5) A plan for translating organizational strategy into action.

The process of strategic control

There are three distinct steps to carry out the strategic control:

Step1: Measure organizational performance For effective strategic management process the manager should take

measures that reflect current organizational performance. In order to understand how manager can take these measurements there are three steps.

1: strategic audits:

2: strategic audit measurement methods:

i: strategic audits: Strategic audit is an examination and evaluation

of areas affected by the operation of a strategic management process within an organization.

ii: strategic audit measurement method:

For measuring organizational performance there are two methods:

(1) Qualitative

(2) Quantitative

(1) Qualitative organizational measurement:These measurements are organizational assessments resulting in data that

are subjectively summarized and organized before any conclusions are drawn on which to base strategic control action.

Some managers believe that these are best arrived by answering a series of critical questions, Like:

1: Is organizational strategy is internally consistent?

2: Is organizational strategy consistent with its environment?

3: Is organizational strategy appropriate given organizational resources?

4: Is organizational strategy too risky?

5: Is the time horizon of the strategy appropriate?

(2)Quantitative organizational measurement:

These measurements are organizational assessments resulting in data that are Numererically summarized and organized before any conclusions are drawn on which to base strategic control action.

Three examples of such a measurement are:

1: Return on investment (ROI): It is obtained by dividing net income by total assets.

net income

total assetsROI

The result indicates the relationship between the amount of income generated and the amount of assets needed to operate the organization

2: Z score:

This common quantitative measure results from an analysis that numerically weights and sums five measures to arrive at an overall score. The score becomes a basis for classifying firms as “healthy” ones that are not likely to go bankrupt or as “risk” ones that are likely to go bankrupt.

Formula:

Z= 1.2 X1 + 1.4 X2 + 1.3 X3 + 0.6 X4 + 1.0 X5

Z is an index of overall corporate health.

X1= Working capital

Total assets

This is a measure of the net liquid assets of the firm relative to the total capitalization

X2=Retained earning

Total assets

This is a measure of cumulative profitability over time.

X3= EBIT

Total assets

It is the a measure of the true productivity of the firm's assets, abstracting from any tax or leverage factors.

X4=Market value of equity

Book value ofTotal liabilities

The measure shows how much the firm's assets can decline in value before the liabilities exceed the assets and the firm become insolvent.

X4= Sales

Total assets

3: Stakeholders audit:

Stakeholders are people interested in a corporation's activities because they are significantly affected by accomplishment of the organization's objectives. The organizational Stakeholders include:

(a) Stakeholders in the appreciation of stock and dividends:

(b) Unions interested in favourable wage rates and benefit packages:

(c) Creditors interested in the organization's ability to pay its debts:

(d) Suppliers interested in retaining the organization as a customer:

(e) Governments, who see organizations as taxpayers contributing to the costs of running a society:

(f) Social interest groups, such as customer advocates and environmentalists.

The capital turnover ratio is a standard financial ratio illustrating the sales generating ability of the firm's assets.

Step2: Compare organizational performanceto Goals & Standards

After measurement of organizational performance it should be compared with two established benchmarks

• Organizational Goals• Standards

Standards are developed to reflect organizational goals

Eight Types of standards

1. Profitability standards

2. Productivity standards

3. Product Leadership standards

4. Market Position standards

5. Personal Development standards

6. Employee Attitude standards

7. Public Responsibility standards

8. Standards Reflecting balance between short range and long range goals

Step3: Take Necessary Corrective Action

Corrective Action is defined as a change management makes in the way an organization functions in Order to ensure that the

organization can more effectively and efficiently reach organizational goals and perform up to standards that have

been established

INFORMATION

Importance of Information in Strategic Control

Without information action taken to exert strategic control will be highly subjective and have little chance of consistency improving organizational performance.

Information System

• MIS (Management Information System)• MDSS (Management Decision Support System)

Feedback

Environmentalanalysis

Internal External

EstablishingOrganizationaldirectionMissionobjective

Strategy formulation

Strategy Implementation

StrategicControl

Relationship between the strategic management process and the strategic control

Strategic control

begins

Change go into

effect

MeasureOrganizationalperformance

Compare OrganizationalPerformance toGoals and standards

Organizational Goals and standards Are reached

Organizational Goals and standards Are not reached

No correctiveAction necessary

Take corrective Action

Status que

continues

MIS (Management Information System)

MIS is a formally organization network that’s a normally computer assisted and is established within an organization to provide managers with information to help there decision making.

• The MIS and Management LevelsThe MIS should be flexible enough to provide various management level with the information that carrying out these activities requires.

• Symptoms of an INADEQUATE MISWhen MIS is not operating effectively and efficiently after discovering the symptoms the management must takes step to solve whatever problems plague the MIS. Once these problems are eliminated the symptoms of trouble should disappear.

These kinds of symptoms can also betray an MIS that is operating improperly Organizational Symptoms Psychological symptoms Report Content Symptoms

DirectingNeeds

Prioritiesindicators

Analyzing Pertinence

Reliability and validityTransformation To Intelligence

Collecting Sources

Factors being Investigated system

DisseminationWho receives what, When

:distortion problems

Feedback and Adaptive

Restructuring

Use

Major steps in operating an MIS

MDSS (Management Decision Support System)

MDSS is an interdependent set of decision aids that helps managers make relatively under unstructured perhaps nonrecurring decisions

TOP Management and Strategic ControlTo maintain strategic momentum or leap to new strategy ,top management must ensure the following

• Appropriate behavior within the organization is encouraged through the used of organizational incentives

• Organizational structure contributes to attainment the objective

• Values and norms existing within the organizational culture are consistent with the objective being pursued.

• The information support needed to reach the objective is available.

Organizational Structure

ValueSystem/Norms

InformationSystem

Incentives

Strategic Control

NewStrategic Adopted

Present Strategy

maintained

Influences

Thank you