UNIT-5-Strategy Evaluation & Control

SUBJECT: STRATEGIC MANAGEMENT

Strategy Evaluation & Control Process:
The Strategy Evaluation & Control Process is a critical phase in strategic
management that involves assessing and monitoring the effectiveness of the
implemented strategy. This process helps ensure that the organization stays on
track towards achieving its strategic objectives. Here are the key steps involved:
1. Establishing Performance Standards: This step involves setting specific,
measurable, achievable, relevant, and time-bound (SMART) performance
standards or targets against which the organization’s actual performance will
be compared.
2. Measuring Performance: Once the performance standards are established,
the organization collects relevant data to measure actual performance. This
can include financial metrics, customer satisfaction scores, market share,
operational efficiency, and other key performance indicators (KPIs).
3. Comparing Actual Performance with Standards: This step involves
comparing the actual performance data with the established performance
standards. This helps identify any deviations or variances that may indicate
whether the organization is on track or facing challenges.
4. Analyzing Deviations: If there are significant deviations between actual
performance and the established standards, it’s important to conduct a
thorough analysis to understand the root causes. This may involve
investigating internal and external factors that contribute to the variances.
5. Taking Corrective Actions: Based on the analysis of deviations, the
organization may need to implement corrective actions. These actions can
include adjusting strategies, reallocating resources, making process
improvements, or revising objectives.
6. Reassessing and Adapting Strategies: If the analysis reveals that the
current strategy is not effective or needs adjustments, the organization may
need to revisit and adapt its strategic approach.
7. Feedback and Learning: The evaluation process provides valuable
feedback that can be used to improve future strategic planning and
implementation efforts. It’s an opportunity for organizational learning and
continuous improvement.
Measuring Performance:
Measuring performance involves quantifying the results and outcomes of
organizational activities. It provides a clear understanding of how well the
organization is achieving its objectives. Here are some common methods and
considerations for measuring performance:
1. Key Performance Indicators (KPIs): These are specific, quantifiable
metrics that are directly linked to the organization’s goals and objectives. KPIs
vary depending on the industry and organizational priorities but may include
metrics like revenue growth, customer retention rates, and employee
productivity.
2. Financial Metrics: These include indicators like revenue, profit margins,
return on investment (ROI), cash flow, and other financial ratios. Financial
metrics are crucial for assessing the financial health and sustainability of the
organization.
3. Customer Satisfaction and Feedback: Surveys, feedback forms, and Net
Promoter Scores (NPS) are used to gauge customer satisfaction and gather
insights into customer preferences and needs.
4. Employee Performance Metrics: These can include measures such as
employee productivity, absenteeism rates, employee turnover, and
performance appraisals. Employee performance directly impacts
organizational success.
5. Operational Efficiency Metrics: These assess how efficiently resources are
utilized in producing goods or delivering services. This can include metrics
related to production output, supply chain efficiency, and process cycle times.
6. Market Share and Competitive Positioning: Understanding the
organization’s market share compared to competitors provides insights into
its competitive strength and market presence.
7. Compliance and Regulatory Measures: Ensuring that the organization
complies with relevant laws, regulations, and industry standards is crucial for
maintaining legal and ethical standing.
8. Social and Environmental Impact Metrics: For socially responsible
organizations, measuring and reporting on social and environmental
performance indicators is important for demonstrating corporate social
responsibility.
Measuring performance is essential for tracking progress towards organizational
goals, identifying areas for improvement, and making informed decisions. It provides
the data and insights needed to evaluate the effectiveness of strategies and
initiatives.
Types of Controls:
Controls in organizational management refer to mechanisms and processes put in
place to ensure that activities are carried out as planned and that goals and
objectives are achieved effectively and efficiently. There are various types of
controls, including:
1. Preventive Controls: These are designed to prevent errors or problems from
occurring in the first place. They aim to identify and eliminate potential risks
before they can impact operations. Examples include training programs,
policies, procedures, and physical security measures.
2. Detective Controls: These are focused on identifying errors or problems
after they have occurred. They help in identifying deviations from planned
performance. Examples include audits, performance reports, and regular
financial statements.
3. Corrective Controls: Once a problem is identified, corrective controls are
put in place to rectify the situation and bring operations back on track.
Corrective actions may involve process redesign, retraining, or process
improvements.
4. Directive Controls: These controls guide employees and processes towards
achieving specific objectives. They provide clear instructions on how tasks
should be performed. Directives may be in the form of policies, guidelines, or
standard operating procedures.
5. Feedback Controls: These controls use feedback from monitoring and
measuring activities to make necessary adjustments. They involve comparing
actual performance with planned performance and taking corrective actions
based on the results.
6. Concurrent Controls: These controls are implemented in real-time as
activities are being carried out. They monitor ongoing processes to ensure
they conform to established standards. Examples include quality checks
during production.
7. Feedforward Controls: These controls are implemented before a task or
activity begins. They are proactive in nature and involve forecasting potential
issues and taking measures to prevent them from occurring.
Activity-Based Costing (ABC):
Activity-Based Costing is a method of allocating costs to products or services based
on the activities that are involved in producing them. Unlike traditional costing
methods that allocate costs based on a single factor like direct labor or machine
hours, ABC identifies and assigns costs to specific activities.
Key steps in Activity-Based Costing:
1. Identifying Activities: This involves identifying all the activities that
contribute to the production of a product or the delivery of a service. Activities
can be categorized as unit-level, batch-level, product-level, or facility-level.
2. Assigning Costs to Activities: Once activities are identified, costs are
allocated to each activity based on their consumption of resources. This
includes direct and indirect costs associated with each activity.
3. Determining Cost Drivers: Cost drivers are the factors that cause costs to
be incurred in relation to a particular activity. These could be factors like the
number of setups, machine hours, or number of orders.
4. Calculating Activity Rates: Activity rates are determined by dividing the
total cost of each activity by the total number of cost drivers associated with
that activity.
5. Assigning Costs to Products or Services: Finally, costs are allocated to
specific products or services based on the usage of each activity. This
provides a more accurate understanding of the true cost of producing each
product or delivering each service.
Activity-Based Costing helps organizations understand the true cost drivers of their
products or services, which can lead to more informed pricing decisions and
improved cost management.
Enterprise Risk Management (ERM):
Enterprise Risk Management is a comprehensive approach to identifying, assessing,
and managing risks across an entire organization. It involves considering risks in a
holistic manner, rather than in isolated silos or departments. ERM aims to align risk
management with the organization’s strategic objectives and business activities. Key
elements of ERM include:
1. Risk Identification: Identifying and categorizing potential risks that may
impact the organization’s ability to achieve its objectives. Risks can be
strategic, financial, operational, compliance-related, or related to external
factors.
2. Risk Assessment and Evaluation: Evaluating the potential impact and
likelihood of each identified risk. This helps prioritize risks and determine the
level of attention and resources needed for mitigation.
3. Risk Response and Mitigation: Developing strategies and actions to
address identified risks. This can include risk avoidance, risk reduction, risk
transfer, or risk acceptance.
4. Monitoring and Reporting: Continuously monitoring the risk landscape and
providing regular reports to key stakeholders. This includes tracking key risk
indicators (KRIs) and assessing the effectiveness of risk management
strategies.
5. Integration with Strategic Planning: Aligning risk management efforts
with the organization’s strategic goals and objectives. This ensures that risk
considerations are integrated into decision-making processes.
6. Compliance and Governance: Ensuring that risk management practices
align with regulatory requirements and industry standards. This involves
establishing governance structures and compliance frameworks.
7. Crisis Management and Business Continuity Planning: Developing plans
and procedures to respond to and recover from major disruptions or crises.
ERM helps organizations proactively identify and address risks, enhancing their
ability to seize opportunities and achieve their strategic objectives while minimizing
potential negative impacts. It provides a structured framework for managing risks in
a coordinated and strategic manner.
The primary measures of corporate performance are key metrics and indicators used
to assess the overall effectiveness and success of a corporation in achieving its
strategic objectives. These measures provide insights into various aspects of the
organization’s financial, operational, and market performance. Here are some of the
primary measures of corporate performance:
1. Revenue and Sales Growth: This measures the increase in sales and
revenue over a specific period. It indicates the organization’s ability to
generate income from its products or services.
2. Profitability Metrics:
 Gross Profit Margin: It represents the percentage of revenue
retained after accounting for the cost of goods sold (COGS). It
measures the efficiency of the production process.
 Operating Profit Margin: This measures the percentage of revenue
retained after accounting for operating expenses. It reflects the
organization’s operational efficiency.
 Net Profit Margin: It represents the percentage of revenue retained
after all expenses, including taxes and interest. It indicates the overall
profitability of the organization.
3. Return on Investment (ROI): This measures the return on an investment
relative to its cost. It’s a critical measure of the efficiency of capital allocation.
4. Return on Equity (ROE): This measures the return generated on
shareholders’ equity investment. It indicates how effectively the company is
using its equity to generate profits.
5. Earnings Per Share (EPS): This is a measure of the company’s profitability
on a per-share basis, which is important for shareholders.
6. Cash Flow Metrics:
 Operating Cash Flow: This measures the amount of cash generated
from the core operations of the business. It is essential for maintaining
liquidity.
 Free Cash Flow: It represents the cash flow available after capital
expenditures and is a key indicator of a company’s financial health.
7. Market Performance Metrics:
 Market Capitalization: This measures the total value of a company’s
outstanding shares of stock, which reflects the market’s valuation of
the company.
 Price-to-Earnings (P/E) Ratio: It compares the current market price
per share to earnings per share and indicates how much investors are
willing to pay for each dollar of earnings.
8. Customer Satisfaction and Retention: These measures assess customer
satisfaction levels and the ability of the company to retain its customer base.
Satisfied customers are more likely to be repeat buyers.
9. Employee Productivity and Engagement:
 Productivity Metrics: These measures include indicators like revenue
per employee, units produced per hour, or sales per square foot,
indicating how efficiently employees contribute to the organization’s
output.
 Employee Engagement Scores: These measure the level of
employee commitment, satisfaction, and motivation, which can impact
productivity and overall performance.
10. Market Share: This indicates the company’s share of the total market for its
products or services. It’s a key measure of competitiveness and can indicate
growth potential.
11. Environmental, Social, and Governance (ESG) Metrics: These measures
assess the company’s performance in areas related to sustainability, social
responsibility, and governance practices.
12. Innovation and Research & Development (R&D) Metrics: These assess
the company’s ability to innovate, develop new products, and stay
competitive in the market.
These measures collectively provide a comprehensive view of a company’s
performance, helping stakeholders (including shareholders, investors, management,
and analysts) to evaluate its effectiveness in achieving its strategic goals and
objectives. Keep in mind that the importance of specific measures may vary
depending on the industry and the company’s strategic priorities.
Balance Scorecard
The balanced scorecard is a strategic management framework that provides a
comprehensive view of an organization’s performance by looking beyond financial
metrics to include other key performance indicators (KPIs) related to the
organization’s mission, vision, and strategy. The balanced scorecard provides a
balanced view of an organization’s performance by including metrics related to four
different perspectives:

Financial Perspective: This perspective focuses on financial metrics, such as

revenue growth, profitability, and return on investment (ROI), which are essential for
the organization’s success and sustainability.

Customer Perspective: This perspective focuses on metrics related to customer

satisfaction, such as customer retention, customer loyalty, and customer satisfaction
scores, which are important for ensuring customer satisfaction and loyalty.

Internal Business Processes Perspective: This perspective focuses on metrics

related to internal business processes, such as process efficiency, product quality,
and innovation, which are critical for improving operational efficiency and
effectiveness.
Learning and Growth Perspective: This perspective focuses on metrics related to
employee skills and capabilities, such as employee training, employee engagement,
and employee satisfaction, which are important for building a high-performing and
engaged workforce
The balanced scorecard approach enables organizations to align their strategy and
performance metrics, and to monitor and evaluate their performance in a
comprehensive and integrated manner. By using a balanced scorecard,
organizations can ensure that they are measuring and monitoring the right things,
and can make data-driven decisions that drive their strategic objectives and overall
success.

Benchmarking:
Benchmarking is a strategic management tool that involves comparing an
organization’s processes, performance, or practices with those of its peers, industry
leaders, or best-in-class companies. The goal of benchmarking is to identify areas for
improvement and to adopt best practices to enhance performance. There are
different types of benchmarking:
1. Internal Benchmarking: This involves comparing performance and practices
within different departments or units within the same organization.
2. Competitive Benchmarking: This involves comparing an organization’s
performance with its direct competitors in the same industry.
3. Functional Benchmarking: This involves comparing specific business
functions or processes (e.g., supply chain management) with those of other
organizations, even if they are in different industries.
4. Generic Benchmarking: This involves comparing processes or practices with
organizations that are not necessarily in the same industry, but excel in a
specific area.
Problems in Measuring Performance:
1. Lack of Clear Objectives: If objectives are not well-defined and specific, it
becomes challenging to measure performance accurately.
2. Subjectivity and Bias: Subjective assessments, personal biases, or
conflicting opinions can lead to inaccurate performance evaluations.
3. Incomplete Data or Inaccurate Metrics: Inadequate or incorrect data can
result in misleading performance measurements.
4. Changing External Factors: External factors such as economic conditions,
market trends, or regulatory changes can significantly impact performance,
making it difficult to isolate internal contributions.
5. Time Lag in Reporting: Delayed reporting of performance data can lead to
outdated or less relevant information for decision-making.
6. Overemphasis on Financial Metrics: Over-reliance on financial metrics
may not capture important non-financial aspects of performance like
customer satisfaction or employee morale.
7. Difficulty in Measuring Intangible Assets: Measuring the value and
impact of intangible assets such as brand reputation, intellectual property,
and organizational culture can be challenging.
8. Inconsistent Measurement Standards: Different departments or units
within an organization may use different standards or methods for measuring
performance, leading to inconsistencies.
Guidelines for Proper Control:
1. Establish Clear Objectives: Define specific, measurable, achievable,
relevant, and time-bound (SMART) objectives to provide a clear direction for
performance measurement.
2. Use a Mix of Metrics: Incorporate a balanced set of both financial and non-
financial metrics to provide a comprehensive view of performance.
3. Regular and Timely Reporting: Ensure that performance data is collected
and reported on a regular basis to provide up-to-date information for decision-
making.
4. Benchmarking and Best Practices: Use benchmarking to compare
performance with industry leaders and adopt best practices.
5. Objective Measurement Standards: Ensure that measurement standards
are consistent across different departments and units within the organization.
6. Training and Communication: Provide training on performance
measurement methods and ensure that all relevant stakeholders understand
the metrics being used.
7. Feedback and Continuous Improvement: Use performance data to
provide feedback to employees and teams, and use it as a basis for
continuous improvement efforts.
8. Flexibility and Adaptability: Be open to adjusting performance measures
as needed in response to changes in the internal and external environment.
9. Incorporate Stakeholder Perspectives: Consider the perspectives and
feedback of various stakeholders, including customers, employees, and
shareholders, in performance measurement.
By following these guidelines, organizations can enhance their ability to measure
performance accurately and use the data to drive improvements and achieve
strategic goals.

1.
 Value Chain Analysis: Evaluate the activities and processes that
create value for the organization.
2. SWOT Analysis:
 Identify the corporation’s Strengths, Weaknesses, Opportunities, and
Threats. This helps in understanding its competitive position.
3. Competitive Advantage Assessment:
 Determine if the corporation has a sustainable competitive advantage,
and if so, how it is being leveraged.
4. Strategic Goals and Objectives Evaluation:
 Assess the clarity, relevance, and achievability of the corporation’s
strategic goals and objectives.
5. Strategy Formulation and Implementation:
 Analyze how well the strategy has been formulated and whether it is
being effectively implemented.
6. Performance Measurement and Control:
 Evaluate the metrics and measures used to track progress and ensure
accountability.
7. Corporate Governance and Ethical Considerations:
 Assess the organization’s adherence to ethical standards and the
effectiveness of its governance structures.
8. Risk Management:
 Evaluate how risks are identified, assessed, and managed within the
organization.
11. Financial Analysis:
 Review financial statements and performance indicators to assess the
financial health and sustainability of the corporation.
12. Innovation and R&D Assessment:
 Evaluate the organization’s efforts in innovation, research and development,
and technology adoption.
Strategy Evaluation & Control: Nature and Importance:
Nature:
1. Ongoing Process: Strategy evaluation and control is not a one-time event,
but an ongoing process that involves continuous monitoring and assessment
of the strategic direction.
2. Feedback Loop: It provides a feedback loop that allows organizations to
adjust their strategies based on performance outcomes and changing internal
and external conditions.
3. Multifaceted Approach: It encompasses various tools and techniques,
including financial metrics, KPIs, balanced scorecards, market research, and
performance reviews.
4. Adaptive and Flexible: It must be adaptive and flexible to respond to
dynamic market conditions, emerging opportunities, and unforeseen
challenges.
Importance:
1. Ensures Goal Alignment: It helps ensure that organizational activities and
initiatives are aligned with the overall strategic goals and objectives.
2. Performance Assessment: It provides a systematic framework for assessing
the effectiveness of the strategy in achieving desired outcomes.
3. Identifies Deviations and Challenges: It helps identify any deviations from
the planned performance and allows for early detection of challenges or
roadblocks.
4. Facilitates Learning and Improvement: Through the evaluation process,
organizations learn from their experiences and can make improvements in
future strategic initiatives.
5. Enhances Accountability: It establishes accountability by setting clear
performance standards and expectations, ensuring that responsible parties
are held to account for results.
6. Optimizes Resource Allocation: By identifying underperforming areas or
initiatives, it allows for the reallocation of resources to more productive and
high-impact activities.
7. Safeguards Against Strategic Drift: It helps prevent strategic drift, which
occurs when an organization’s strategy becomes outdated or no longer
aligned with its environment.
8. Supports Decision-Making: It provides valuable information for making
informed decisions about adjustments to the strategy, resource allocation,
and future planning.
Organizational systems and techniques of strategic evaluation and control are crucial
for ensuring that a company’s strategic objectives are met effectively and efficiently.
These processes help in monitoring progress, identifying deviations from plans, and
making necessary adjustments to achieve long-term goals. Here are some key
organizational systems and techniques:
1. Key Performance Indicators (KPIs):
 KPIs are quantifiable measures used to evaluate the success of an
organization or a particular activity. They are aligned with the
organization’s strategic objectives and provide a clear indication of
progress.
2. Balanced Scorecard:
 The Balanced Scorecard is a strategic planning and management
system that aligns an organization’s activities with its vision and
strategy. It typically includes financial, customer, internal process, and
learning & growth perspectives.
3. SWOT Analysis:
 SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
It’s a framework for analyzing the internal and external factors that can
impact the organization’s performance. This analysis helps in
formulating and adjusting strategies.
4. Budgeting and Financial Controls:
 Establishing budgets and financial controls ensures that resources are
allocated and utilized in a way that supports the strategic goals of the
organization. It involves setting financial targets, monitoring expenses,
and analyzing variances.
5. Strategic Information Systems:
 Information systems play a critical role in gathering, processing, and
disseminating information necessary for strategic decision-making. This
includes Enterprise Resource Planning (ERP) systems, Customer
Relationship Management (CRM) systems, and Business Intelligence
(BI) tools.
6. Performance Reviews and Appraisals:
 Regular performance reviews and appraisals provide a structured way
to evaluate individual and team performance against established goals.
This helps in identifying areas that need improvement and recognizing
achievements.
7. Project Management and Milestones:
 Effective project management involves setting specific milestones and
tracking progress toward them. This ensures that projects are on
schedule and aligned with the overall strategic plan.
8. Market Research and Competitive Analysis:
 Continuous market research and analysis help in understanding
customer needs, market trends, and the competitive landscape. This
information is crucial for making informed strategic decisions.
9. Scenario Planning:
 Scenario planning involves creating alternative future scenarios and
assessing the potential impact on the organization. This helps in
preparing for uncertainties and adapting to changing circumstances.
10. Feedback Loops and Continuous Improvement:
 Establishing feedback mechanisms allows for ongoing evaluation and
adjustment of strategies based on real-time information. This promotes
a culture of continuous improvement.
11. Risk Management and Contingency Planning:
 Identifying and managing risks is essential for effective strategic
control. This involves assessing potential risks, developing mitigation
strategies, and having contingency plans in place.
12. Crisis Management and Response Plans:
 Having a well-defined crisis management plan ensures that the
organization can respond effectively in the face of unexpected events
that could potentially disrupt operations or impact the achievement of
strategic objectives.
By implementing these organizational systems and techniques, a company can
enhance its ability to evaluate and control its strategic initiatives, ultimately leading
to improved performance and achievement of long-term goals.