STRATEGIC MANAGEMENT
Chapter 7
Strategy Review, Evaluation and Control
STRATEGY EVALUATION is simply an appraisal of how well an organization has performed.
Criteria for Evaluating Strategies:
· Consistency:
A strategy should not present inconsistent goals and policies. Organizational conflict and interdepartmental bickering are often symptoms of managerial disorder, but these may also be a sign of strategic inconsistency.
· Consonance:
Consonance refers to the need for strategists to examine sets of trends as well as individual trends in evaluating strategies.
· Feasibility:
The strategy should be within the physical, human, and financial resources of the enterprise. A strategy must neither overtax available resources nor create unsolvable problems.
· Advantage:
A strategy must provide for the creation and/or maintenance of a competitive advantage in a selected area of activity. Competitive advantages normally are the result of superiority in one of three areas: resources, skills, position.
Strategy Evaluation includes three basic activities:
1. Reviewing Bases of Strategy: This activity should focus on changes in the strengths and weaknesses of the organization’s management, marketing, finance/accounting, production/operations, R & D, MIS.
2. Measuring Organizational Performance: This activity includes comparing expected results to actual results, investigating deviations from plans, evaluating individual performance, and examining progress being made toward meeting stated objectives.
3. Taking Corrective Actions: This activity requires making changes to reposition a firm competitively in the future.
Characteristics of an Effective Evaluation System:
1. Economical: Too much information can be just as bad as too little information, and too many controls can do more harm than good.
2. Meaningful: They should specifically relate to a firm’s objective. They should provide managers with useful information about tasks over which they have control and influence.
3. Provide timely information: The time dimension of control must coincide with the time span of the event being measured.
4. Provide true picture of what is happening: They should facilitate action and should be directed to those individuals in the organization ho need to take action based on it. Controls should be action oriented rather than information oriented. For example, in a severe economic downturn, productivity and profitability ratios may drop alarmingly, although employees and managers are actually working harder.
5. Should not dominate decisions: They should foster mutual understanding, trust, and common sense. No department should fail to cooperate with one another in evaluating strategies.
6. Simple: Strategy evaluations should not be too cumbersome, and not too restrictive. Complex systems often confuse people and accomplish little. The test of an effective systems its usefulness, not its complexity.
CONTINGENCY PLANNING
Contingency Plans are alternative plans that can be put into effect if certain key events do not occur as expected. Only high priority areas require the insurance of contingency plans. Strategists cannot and should not try to cover all bases by planning possible contingencies. Contingency plans should be as simple as possible.
Some contingency plans commonly established:
· If a major competitor withdraws from particular markets.
· If our sales objectives are not reached.
· If demand for our products exceed plans.
· If certain disasters occur – such as loss of computer capabilities, hostile takeover attempt, loss of patent protection, destruction of manufacturing facilities.
AUDITING
Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria, and communicating the results to interested users.
Audit is a frequently used tool in strategic evaluation. Audits include the financial, technical, performance, and environmental audits.
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