Transcript Lecture-30.pptx

Business Policy and Strategy
Lecture-30
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Recap
IMPLEMENTING STRATEGIES: MANAGEMENT AND OPERATIONS ISSUES
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Management Perspectives
1.
ANNUAL OBJECTIVES
2.
POLICIES
3.
RESOURCE ALLOCATION
4.
MANAGING CONFLICT
5.
MATCHING STRATEGY WITH STRUCTURE
6.
RESTRUCTURING, REENGINEERING, AND E-ENGINEERING
7.
LINKING PERFORMANCE AND PAY TO STRATEGIES
8.
MANAGING RESISTANCE TO CHANGE
9.
MANAGING THE NATURAL ENVIRONMENT
10.
CREATING A STRATEGY-SUPPORTIVE CULTURE
11.
PRODUCTION/OPERATIONS CONCERNS
12.
HUMAN RESOURCE CONCERNS
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Today’s Lecture
STRATEGY REVIEW, EVALUATION, AND CONTROL
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The Nature of Strategy Evaluation
A Strategy-Evaluation Framework
The Balanced Scorecard
Published Sources of Strategy-Evaluation Information
Characteristics of an Effective Evaluation System
Contingency Planning
Auditing
21st Century Challenges in Strategic Management
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CHAPTER OBJECTIVES
After studying this chapter, you should be able to do the following:
1. Describe a practical framework for evaluating strategies.
2. Explain why strategy evaluation is complex, sensitive, and yet
essential for organizational success.
3. Discuss the importance of contingency planning in strategy
evaluation.
4. Discuss the role of auditing in strategy evaluation.
5. Explain how computers can aid in evaluating strategies.
6. Discuss the Balanced Scorecard.
7. Discuss three 21st century challenges in strategic management.
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Importance of Strategy Evaluation
Organizations are most vulnerable, when they are at the peak of their
success --R.T. Lenz
Strategy Review
-- Strategies become obsolete
-- Internal environments are dynamic
-- External environments are dynamic
Strategy Evaluation
• 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
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Importance of Strategy Evaluation
• It is impossible to demonstrate conclusively that a particular strategy is
optimal, but it can be evaluated for critical flaws. There are four
criteria to use in evaluating a strategy:
a. consistency
b. consonance
c. feasibility
d. Advantage
• These trends make strategy evaluation difficult:
a. dramatic increase in environmental complexity
b. difficult in predicting future
c. increasing number of variables
d. rapid rate of obsolescence
e. increase in the number of world events affecting the organization
f. decreasing time spans for planning
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The Process of Evaluating Strategies
1. Strategy evaluation is necessary for all sizes and kinds of
organizations. Strategy evaluation should initiate managerial
questioning of expectations and assumptions, trigger a review of
objectives and values, and stimulate creativity in generating
alternatives and formulating criteria of evaluation.
2. Evaluating strategies on a continuous rather than a periodic basis
allows benchmarks of progress to be established and more
effectively monitored.
3. Managers and employees of the firm should continually be aware of
progress being made toward achieving the firm's objectives. As
critical success factors change, organizational members should be
involved in determining appropriate corrective actions.
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Strategy Evaluation, Review & Control
Consistency
Rummelt’s
4 Criteria
Consonance
Feasibility
Advantage
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• Consistency: Strategy should not present
inconsistent goals & policies
• Consonance: Need for strategies to examine
sets of trends
• Feasibility:
Neither overtax resources or
create unsolvable sub-problems
• Advantage: Creation or maintenance of
competitive advantage
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Difficulties in Strategy Evaluation
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Increase in environment’s complexity
Difficulty predicting future with accuracy
Increasing number of variables
Rate of obsolescence of plans
Domestic and global events
Decreasing time span for planning certainty
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STRATEGY-EVALUATION FRAMEWORK
• Review of underlying bases of strategy
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Develop revised EFE Matrix
Develop revised IFE Matrix
• Review effectiveness of strategy
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Competitors’ reaction to strategy
Competitors’ change in strategy
Competitors’ changes in strengths & weaknesses
Reasons for competitors’ strategic change
Reasons for competitors’ successful strategies
Competitors’ present market positions & profitability
Potential for competitor retaliation
Potential for cooperation with competitors
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Monitor Strengths & Weaknesses; Opportunities & Threats
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Are strengths still strengths?
Have we added additional strengths?
Are weaknesses still weaknesses?
Have we developed other weaknesses?
Are opportunities still opportunities?
Other opportunities develop?
Are threats still threats
Other threats emerged?
Are we vulnerable to hostile takeover?
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Evaluation Framework
I. Review Underlying Bases
Differences?
Yes
NO
II. Measure Firm Performance
Differences?
III.
Take
Corrective
Actions
Yes
NO
Continue present course
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Measuring Organizational Performance
Measuring Organizational Performance
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Compare expected to actual results
Investigate deviations from plan
Evaluate individual performance
Progress toward stated objectives
Quantitative Criteria for Strategy Evaluation
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Compare performance over different periods
Compare performance to competitors
Compare performance to industry averages
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Key Financial Ratios
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Return on investment (ROI)
Return on equity (ROE)
Profit margin
Market Share
Debt to equity
Earnings per share (EPS)
Sales growth
Asset growth
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Qualitative Evaluation of Strategy
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Internal consistency of strategy
Consistency with environment
Appropriateness in view of resources
Acceptable degree of risk
Appropriate time frame
Workability of the strategy
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Balanced Scorecard
Evaluate strategies from 4 perspectives:
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Financial performance
Customer knowledge
Internal business processes
Learning & growth
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Balanced Scorecard
Area of Objectives
Measure or Target
Time Expectation
Primary Responsibility
Customers
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2
Managers/Employees
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Operations/Processes
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2
Community/Social Responsibility
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2
Business Ethics/Natural Environment
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2
Financial
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2
Ch 9-18
Strategy-Evaluation Assessment Matrix
Have major
changes
occurred in the
firm’s internal
strategic
position?
Have major
changes
occurred in the
firm’s external
strategic
position?
No
No
No
Corrective actions
Yes
Yes
Yes
Corrective actions
Yes
Yes
Yes
No
No
Yes
Corrective actions
Corrective actions
Yes
No
No
Corrective actions
No
Yes
Yes
Corrective actions
No
No
Yes
No
No
Yes
Corrective actions
Continue course
Has the firm progressed
satisfactorily toward
achieving its stated
objectives?
Result
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• Contingency Planning:
Alternative plans that can be put
into effect if certain key events do not occur as expected
21st Century Challenges in Strategic Management
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Process is more an “art” than “science”
Should strategies be visible or hidden from stakeholders
Should process be more top-down or bottom up
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Summary
– The Nature of Strategy Evaluation
– A Strategy-Evaluation Framework
– The Balanced Scorecard
– Published Sources of Strategy-Evaluation
Information
– Characteristics of an Effective Evaluation System
– Contingency Planning
– Auditing
– 21st Century Challenges in Strategic Management
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Next Chapter
• Revision from lecture 1-17
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