Chapter 9 Strategy Review, Evaluation, & Control

1. Chapter 9Strategy Review, Evaluation, & Control Strategic Management: Concepts & Cases 11th Edition Fred David Copyright 2007 Prentice Hall

2. Chapter Outline The Nature of Strategy Evaluation A Strategy-Evaluation Framework The Balanced Scorecard Copyright 2007 Prentice Hall

3. Chapter Outline Published Sources of StrategyEvaluation Information Characteristics of an Effective Evaluation System Contingency Planning Copyright 2007 Prentice Hall

4. Chapter Outline (cont’d) Auditing 21st Century Challenges in Strategic Management Copyright 2007 Prentice Hall

5. Strategy Evaluation Organizations are most vulnerable when they are at the peak of their success -- R.T. Lenz Copyright 2007 Prentice Hall

6. Strategy Review, Evaluation, & Control -- Strategies become obsolete -- Internal environments are dynamic -- External environments are dynamic Copyright 2007 Prentice Hall

7. Strategy Review, Evaluation, & Control • Vital to the organization’s well-being • Alert management to potential/actual problems in a timely fashion • Erroneous strategic decisions can have severe negative impact on organizations Strategy Evaluation Copyright 2007 Prentice Hall

8. Strategy Review, Evaluation, & Control • Examine the underlying bases of a firm’s strategy • Compare expected to actual results • Identify corrective actions to ensure that performance conforms to plans 3 Basic Activities Copyright 2007 Prentice Hall

9. Strategy Review, Evaluation, & Control • Complex & sensitive undertaking • Overemphasis can be costly & counterproductive Strategy Evaluation Copyright 2007 Prentice Hall

10. Strategy Review, Evaluation, & Control • Have assets increased • Increase in profitability • Increase in sales • Increase in productivity • Profit margins, ROI, & EPS ratios increased Appraisal of Strategic Performance Copyright 2007 Prentice Hall

11. Strategy Review, Evaluation, & Control Consistency Rumelt’s4 Criteria Consonance Feasibility Advantage Copyright 2007 Prentice Hall

12. Strategy Review, Evaluation, & Control • Strategy should not present inconsistent goals & policies Consistency Copyright 2007 Prentice Hall

13. Strategy Review, Evaluation, & Control Consistency Rumelt’s4 Criteria Consonance Feasibility Advantage Copyright 2007 Prentice Hall

14. Strategy Review, Evaluation, &Control • Need for strategies to examine sets of trends Consonance Copyright 2007 Prentice Hall

15. Strategy Review, Evaluation, &Control Consistency Rumelt’s4 Criteria Consonance Feasibility Advantage Copyright 2007 Prentice Hall

16. Strategy Review, Evaluation, &Control • Neither overtax resources or create unsolvable sub-problems Feasibility Copyright 2007 Prentice Hall

17. Strategy Review, Evaluation, &Control Consistency Rumelt’s4 Criteria Consonance Feasibility Advantage Copyright 2007 Prentice Hall

18. Strategy Review, Evaluation, & Control • Creation or maintenance of competitive advantage Advantage Copyright 2007 Prentice Hall

19. Strategy Review, Evaluation, & Control • Increase in environment’s complexity • Difficulty predicting future with accuracy • Increasing number of variables Difficulties in Strategy Evaluation Copyright 2007 Prentice Hall

20. Strategy Review, Evaluation, & Control • Rate of obsolescence of plans • Domestic and global events • Decreasing time span for planning certainty Difficulties in Strategy Evaluation Copyright 2007 Prentice Hall

21. Strategy Review, Evaluation, & Control • Initiate managerial questioning • Trigger review of objectives & values • Stimulate creativity in generating alternatives Strategy Evaluation Should -- Copyright 2007 Prentice Hall

22. Strategy Review, Evaluation, & Control • Develop revised EFE Matrix • Develop revised IFE Matrix Review of Underlying Bases of Strategy -- Copyright 2007 Prentice Hall

23. Strategy Review, Evaluation, & Control • Competitors’ reaction to strategy • Competitors’ change in strategy • Competitors’ changes in strengths & weaknesses • Reasons for competitors’ strategic change Review Effectiveness of Strategy -- Copyright 2007 Prentice Hall

24. Strategy Review, Evaluation, & Control • Reasons for competitors’ successful strategies • Competitors’ present market positions & profitability • Potential for competitor retaliation • Potential for cooperation with competitors Review Effectiveness of Strategy -- Copyright 2007 Prentice Hall

25. Strategy Review, Evaluation, & Control • Are strengths still strengths? • Have we added additional strengths? • Are weaknesses still weaknesses? • Have we developed other weaknesses? Monitor Strengths & Weaknesses; Opportunities & Threats Copyright 2007 Prentice Hall

26. Strategy Review, Evaluation, & Control • Are opportunities still opportunities? • Other opportunities develop? • Are threats still threats • Other threats emerged? • Are we vulnerable to hostile takeover? Monitor Strengths & Weaknesses; Opportunities & Threats Copyright 2007 Prentice Hall

27. Copyright 2007 Prentice Hall

28. I.Review Underlying Bases III. Take Corrective Actions II. Measure Firm Performance Evaluation Framework Yes Differences? NO Yes Differences? NO Continue present course Copyright 2007 Prentice Hall

29. Strategy Review, Evaluation, & Control • Compare expected to actual results • Investigate deviations from plan • Evaluate individual performance • Progress toward stated objectives Measuring Organizational Performance Copyright 2007 Prentice Hall

30. Strategy Review, Evaluation, & Control • Financial Ratios • Compare performance over different periods • Compare performance to competitors • Compare performance to industry averages Quantitative Criteria for Strategy Evaluation Copyright 2007 Prentice Hall

31. Strategy Review, Evaluation, & Control • Return on investment (ROI) • Return on equity (ROE) • Profit margin • Market Share Key Financial Ratios Copyright 2007 Prentice Hall

32. Strategy Review, Evaluation, & Control • Debt to equity • Earnings per share (EPS) • Sales growth • Asset growth Key Financial Ratios Copyright 2007 Prentice Hall

33. Strategy Review, Evaluation, & Control • Internal consistency of strategy • Consistency with environment • Appropriateness in view of resources Qualitative Evaluation of Strategy Copyright 2007 Prentice Hall

34. Strategy Review, Evaluation, & Control • Acceptable degree of risk • Appropriate time frame • Workability of the strategy Qualitative Evaluation of Strategy Copyright 2007 Prentice Hall

35. Strategy Review, Evaluation, & Control -- Evaluate strategies from 4 perspectives: 1. Financial performance 2. Customer knowledge 3. Internal business processes 4. Learning & growth Balanced Scorecard Copyright 2007 Prentice Hall

36. Balanced Scorecard Copyright 2007 Prentice Hall

37. Copyright 2007 Prentice Hall

38. Strategy Review, Evaluation, & Control • Economical • Meaningful • Generates useful information • Timely information • Provides accurate picture of events Characteristics of Strategy Evaluation Copyright 2007 Prentice Hall

39. 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 Strategy-Evaluation Assessment Matrix Copyright 2007 Prentice Hall

40. Strategy Review, Evaluation, & Control Alternative plans that can be put into effect if certain key events do not occur as expected Contingency Planning Copyright 2007 Prentice Hall

41. Strategy Review, Evaluation, & Control • Financial audits determine correspondence between assertions based on strategic plan & established criteria • Environmental audits insure sound and safe practices Auditing Copyright 2007 Prentice Hall

42. Strategy Review, Evaluation, & Control 21st Century Challenges in Strategic Management • Process is more an “art” than “science” • Should strategies be visible or hidden from stakeholders • Should process be more top-down or bottom up Copyright 2007 Prentice Hall

43. For Review (Chapter 9) Key Terms & Concepts Advantage Consonance Auditing Contingency Plans Balanced Score Card Corporate Agility Consistency Feasibility Copyright 2007 Prentice Hall

44. For Review (Chapter 9) Key Terms & Concepts Future Shock Revised EFE Matrix Revised IFE Matrix Management by WanderingAround Measuring Organizational Performance Taking Corrective Action Reviewing UnderlyingBases of Strategy Copyright 2007 Prentice Hall