Transcript evaluation - Management Class

Strategic Evaluation
C M Clarke-Hill
1
Evaluation - Two Basic Types
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Post Hoc Evaluation - evaluation of a strategy
that has already been in operation. Here we
evaluate the outcomes of the strategy against
the strategic benchmarks we set. The role of
this form of evaluation is to allow for
corrective action. Models widely used are:
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The Balanced Scorecard
The Margin Return Model
Strategic Choice Evaluation - is about
techniques that allow the manger to decide
which of several strategic options to chose
from.
Evaluation Of Strategies
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Evaluation is not just about finding our
preferred strategy. We also need:
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Contingency plans
An understanding of a variety of options - how
might each fit different circumstances
Evaluation should assess consequence of
following a strategy and how sensitive that
strategy is to our assumptions.
Therefore:
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Evaluation must be a continuous part of a
continuous process
Must evaluate low priority options to guard against
future possibilities
Strategy Support Tools
Strategy
Development
Process
Ability to
Formulate
Strategy
Ability to
Deduce
Consequences
of Strategy
Strategy
Support Tool
Models, Computing And
Strategic Choice
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Models should be an aid
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i.e.. do things we are not very good at
Models do not replace managerial creativity
and judgement
• Models help give sharper insight into
consequences of pursing particular strategy
• Choice is based on combination of
quantitative and qualitative information
• Models, of whatever type, should be seen to
generate "opinions" not "answers"
Assumptions Underpinning
Rational Strategy Selection
Criteria
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Organisations are systems driven by rules
producing predictable long term outcomes
These rules establish clear-cut
relationships between cause and effect;
action and outcome
Successful organisations are in a state of
stable equilibrium
Successful organisations exhibit
characteristics of stability, regularity,
predictability and harmony
Evaluation Criteria (According
to Johnson & Scholes)
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Suitability
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Does it fit situation revealed by our
strategic analysis
Feasibility
Will it work in practice?
 Have we got the resources?
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Acceptability
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Will stakeholders like it?
Evaluation Criteria
(According to Lynch)
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Consistency
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Suitability
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Will it work in practice and have we got the resources?
Business Risk
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Is it based upon realistic assumptions?
Feasibility
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Does it fit our business and competitive environment?
Validity
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Is the proposed strategy in line with our mission and
objectives?
Do the potential returns justify the exposure?
Attractiveness to stakeholders
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Will stakeholders like it?
Evaluation Criteria
(According to Thompson)
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Appropriateness
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Feasibility
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Does the proposed strategy deal with the
influencing factors identified in our strategic
analysis?
Does the organisation have the capability to
implement the proposed strategy effectively?
Desirability
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Does the proposed strategy satisfy
stakeholder aspirations and expectations?
Johnson And Scholes, Lynch and
Thompson Compared
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Although using different words (labels/terminology)
approach is essentially similar:
Johnson & Scholes
Lynch
Thompson
Consistency
Suitability
Suitability
Appropriateness
Validity
Feasibility
Feasibility
Feasibility
Business Risk
Acceptability
Attractiveness to
Stakeholders
Desirability
The Johnson & Scholes Framework For
Evaluating and Selecting Strategies
Strategic Analysis
Strategic Options
identifies the
organisation’s circumstances
identifies possibilities
for development
Assessment of Suitability
establish the rationale
screening options
Acceptability
Feasibility
return, risk
stakeholder reactions
Selection of Strategy
planned, enforced,
learning, command
Suitability
Life-cycle Analyses
Positioning
does it fit the stage
we will be in?
is the positioning
viable?
Suitability
is this a
good strategy?
Value Chain Analysis
Business Profile
does it improve value
for money?
Does it exploit core
competences?
will it lead to good
financial performance?
Portfolio Analysis
does it strengthen the
balance of activities?
Criteria for Assessing
Suitability
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Does the proposed strategy exploit
opportunities and avoid threats?
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Does the proposed strategy capitalise
upon our strengths and core competences
whilst avoiding our weaknesses?
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Does the proposed strategy fit our culture
and political context?
Techniques for Assessing
Suitability
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Portfolio / Life-cycles analyses
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assess the position of the organisation and the
product/service in relation to theoretical product and
organisation life-cycles
assess the proposed strategy in terms of the
attractiveness of the proposed market and the current
competitive position of the organisation
Value Chain Analysis
assess the extent to which the value chain needs to be
reconfigured and whether such reconfiguration is
sustainable
Business Profile
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assess the proposed strategy against available research
evidence such as the PIMS database
Undertaking an Initial
Screening of Options
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Gap Analysis
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Decision Trees
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progressive elimination of proposed strategies
assessed against progressively more rigourous criteria
Scenario Planning
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extent to which proposed strategies will meet, exceed or
fail to meet performance objectives
assess the match between proposed strategies and
likely future scenarios
prepare contingency plans
Ranking
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scoring proposed strategies against a range of criteria
to assess best fit
Criteria for Assessing
Acceptability
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Financial Return
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Risk
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do the likely profit and cashflow
outcomes meet expectations?
is the level of exposure satisfactory given
the likely returns?
Stakeholder Reactions
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will stakeholders be motivated to act in a
positive manner towards the proposed
strategy?
Techniques for Assessing Acceptability
Approach
Analysing Return
Profitability analyses
Used to Assess
Examples
Limitations
Financial return of
investments
Return on capital
Payback period
Discounted cashflow
Cost-benefit analysis
Wider cost/benefits
Major infrastructure
(including intangibles) projects
Impact of new
Mergers / takeovers
strategies on
stakeholder value
Apply to discrete
projects
Only tangible costs /
benefits
Difficulties of
quantification
Technical detail often
difficult
Shareholder value
analysis
Analysing Risk
Financial ratio
projections
Sensitivity analysis
Simulation modeling
Stakeholder
reactions
Robustness of
strategy
Test assumptions /
robustness
Aggregate impact of
many factors
Political dimension of
strategy
Breakeven analysis
Impact on gearing
and liquidity
‘What if?’ analysis
Test factors
separately
Quality of data on
causal relationships
Comprehensive
models
Risk analysis
Stakeholder mapping Largely qualitative
Game theory
Criteria for Assessing
Feasibility
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Does the organisation have the
resources necessary to deliver the
proposed strategy successfully?
Can any resource deficiencies be
remedied easily?
Does the organisation have the
competences required to enact the
proposed strategy successfully?
Techniques for Assessing
Feasibility
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Funds Flow Analysis
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Break-even Analysis
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assessing whether the available sources can provide
sufficient funds to enable the proposed strategy to be
implemented successfully
determining the level of performance required to enable
the outcome of the proposed strategy to exactly cover
the costs of enacting the proposed strategy
Resource Deployment Analysis
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understanding the changes and developments needed
in organisational activities to enable the proposed
strategy to be enacted successfully
Thompson’s Criteria for Effective Strategies
Mission &
objectives
Skills & resources
Available & needed
Culture
Effect on strategic
perspective
E-V-R
Congruence
SWOT: Current
Strategic position
Simplicity
Appropriateness
Change demands issues of
Implementation
Strategic needs:
planning gap
Finance & other
resource
availability
Level of return
expected
Feasibility
Desirability
Ability to meet key
success factors
Competitive
Advantage
Synergy
Timing
Risk
Stakeholder needs
& preferences
Selecting Strategies
Acceptability
Suitability
Feasibility
Processes for Selecting Strategies
Approach
Dominant
Processes
Planning
Analytical techniques
Tested against
objectives
Quantified where
possible
Enforced Choice
Learning from
Experience
Command
Elements of Good
Practice
Involve line managers
Analyse ‘holistic’
picture
Build in flexibility
Communication
between analysts and
decision-makers
Bend to
Assess risk
environmental
Prepare
‘pressure
contingencies
Reactive moves in
Processes need
separate parts of the credibility
organisation
Avenues of challenge
Cultural / political
Promote inter-unit
context important
learning
Dominant stakeholder Inform / educate
selects strategy
decision-maker
Need ‘completeness’
Challenges the
paradigm
Dangers
No ownership
Fragmented analysis
Rigidity – lost
opportunities
Decision-makers
disown analysis
‘Victims of
circumstances’
Evaluation not done
Fragmented /
inefficient
Pragmatism
Risk of strategic drift
Incomplete vision
Vision
institutionalised
Criteria For Selecting A Policy
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Goal Consistency Test
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Frame Test
(Suitability)
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Competence Test
(Feasibility)
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Workability Test
(Feasibility)
(Acceptability)
According to Byars but note similarity to Johnson
and Scholes
Methods Of Making The
Choice
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Selection against pre-determined
objectives
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Referral to a higher authority
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Incrementalism
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Using outside agencies
Influences On The Selection
Decision
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Managerial perceptions of external
dependence
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Managerial attitudes towards risk
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Managerial awareness of past
policies
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Managerial power relationships
Making the Choice
Risks
Reactions
Returns
Resources
Revenues
Requirements
The Selection Decision
Judgement
Perception
Research
Sentiment
Analysis
Feelings
Evaluation
Intuition