STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION

1. CHAPTER 11 Evaluation & Control STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER

2. Evaluation and Control Evaluation and Control Process

3. Evaluation and Control Corrective Action Questions • Is the deviation a chance fluctuation? • Are the processes being carried out correctly? • Are the processes appropriate to achievement of the desired result? • Who is the best person to take action?

4. Strategic Audit Outline • Current Situation Current Performance Mission-Objectives-Strategies-Policies • Corporate Governance BOD and Management • External Environment (O-T) Societal-Task • Internal Environment (S-W) Structure-Culture-Resources by Functional Area • Analysis of Strategic Factors SWOT-Review of Mission/Objectives • Strategic Alternatives/Recommendations Corporate-Business-Functional • Implementation Programs-Cost-Priorities • Evaluation and Controls Feedback-Standards-Measures

5. Evaluation and Control

6. Evaluation and Control • Evaluating an Implementation Strategy • Problem areas/Corrections • Formulation • Assumptions • Scenarios • Situation or Trend • Execution • Communications • Management Commitment • Lack of Feedback • Functional Strategies • Consistent • Resource Allocation

7. Evaluation and Control • Measuring performance – • The end result of activity

8. Evaluation and Control • Types of Controls – • Behavior controls • How something is done through policies, procedures, rules, SOP’s • Output controls • What is to be accomplished; focus on end result through performance targets • Input controls • Resources – skills, abilities, values, motives

9. Evaluation and Control • Types of Controls – • Behavior controls • ISO 9000 Standards Series - Quality • ISO 14000 Standards Series - Environment

10. Evaluation and Control • Types of Controls – • Output Control • Activity Based Costing (ABC) • Allocation of indirect and fixed costs to individual products or product lines based on value-added activities • Focus on overhead/fixed cost rather than labor

11. Evaluation and Control • Types of Controls – • Input Control • Enterprise Risk Management (ERM) • Identify risks • Rank risks • Measure risks

12. Evaluation and Control • Primary Measures of Performance – • Traditional Financial Measures • Return on investment (ROI) • =Net Income before tax/Total Assets • Earnings per share (EPS) • =Net Income/Number of shares outstanding • Return on equity (ROE) • = Net Income/Total Equity • Operating cash flow • Takes into account cash generated by the company before financing and taxes. • More accurate than EBITDA as it takes into account changes in working capital.

13. Evaluation and Control • Primary Measures of Performance – • Stakeholder Measure

14. Evaluation and Control • Primary Measures of Performance – • Shareholder Measures • Shareholder value – present value of anticipated future steams of cash flows from the business plus the liquidated value of the company

15. Evaluation and Control • Primary Measures of Performance – • Shareholder • Economic value added (EVA) • =after-tax operating income – (investments in assets * weighted cost of capital) • A positive EVA = Generating Economic Value • EVA improves by • Earning more profit w/o using more capital • Using less capital • Investing in high return projects

16. Evaluation and Control • Primary Measures of Performance – • Shareholder • Market value added (MVA) • =(Market Capitalization + Debt) – Invested Capital • MVA greater than zero means that the strategy is creating value.

17. Evaluation and Control • Primary Measures of Performance – • (Key Performance Factors or Critical Success Factors) • Balanced Scorecard Approach • Financial • Customer • Internal business perspective • Innovation and learning • Unique to a company based on their strategy

18. Evaluation and Control • Evaluating Top Management & Board – • Chairman-CEO Feedback Instrument • Company Performance • Leadership of the organization • Team building and management succession • Leadership of external constituencies • Management Audit – Activity or Function • Strategic Audit – SWOT review

19. Evaluation and Control • Divisional & Functional Performance – • Responsibility Centers • Standard cost centers - manufacturing • Revenue centers - sales • Expense centers – Indirect cost/budget based • Profit centers – (Revenue – Expenses) based on Transfer Pricing • Investment centers – ROI measures

20. Evaluation and Control • Using Benchmarking – • Continual process of measuring products, service, and practices against the toughest competitors or those companies recognized as industry leaders • American Productivity & Quality Center

21. Evaluation and Control • International Measurement Issues – • Currency Exchange Rates • Inflation • Tax Laws • International transfer pricing • Repatriation of profit • Piracy

22. Evaluation and Control • Strategic Information Systems – • Enterprise Resource Planning (ERP) • Divisional and functional IS support

23. Evaluation and Control • Problems in Measuring Performance – • “If you can't measure it you can’t control it.” (M Whitman) • Short-term orientation • Goal displacement • Behavior substitution • What you reward is what you get. • Sub-optimization • Unit goals override organization goals.

24. Evaluation and Control • Guidelines for Proper Control – • Minimum amount of information necessary • Meaningful activities and results • Timely • Long and short-term • Pinpointing exceptions • Reward – Not Punishment

25. Evaluation and Control • Strategic Incentive Management – • Weighted-factor method • Factors are weighted based on the SBU environment • Long-term evaluation method • Stock share price based on some index • Strategic funds method • Remove R&D or Strategic investments from the financial performance

26. Evaluation and Control Strategic funds method

27. CHAPTER 11 Evaluation & Control STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER