CHAPTER 11 Evaluation
& Control
STRATEGIC MANAGEMENT & BUSINESS POLICY
10TH EDITION
THOMAS L. WHEELEN
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J. DAVID HUNGER
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Evaluation and Control
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Evaluation and Control
Evaluation and Control Information –
–Performance data
–Activity reports
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Evaluation and Control
Measuring performance –
–The end result of activity
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Evaluation and Control
Types of Controls –
–Behavior controls
•How something is done through policies,
procedures, rules, SOP’s
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Evaluation and Control
Types of Controls –
–Output controls
•What is to be accomplished; focus on end
result through performance targets
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Evaluation and Control
Types of Controls –
–Input controls
•Resources – skills, abilities, values, motives
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Evaluation and Control
Types of Controls –
–Behavior controls
•ISO 9000 Standards Series
•ISO 14000 Standards Series
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Evaluation and Control
Types of Controls –
–Activity Based Costing (ABC)
•Allocation of indirect and fixed costs to
individual products or product lines
•Based on value-added activities
•More accurate charge of costs
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Evaluation and Control
Types of Controls –
–Enterprise Risk Management (ERM)
•Identify risks
•Rank risks
•Measure risks
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Evaluation and Control
Primary Measures of Performance –
–Traditional Financial Measures
•Return on investment (ROI)
•Earnings per share (EPS)
•Return on equity (ROE)
•Operating cash flow
•Free cash flow
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Evaluation and Control
Primary Measures of Performance –
–Shareholder
•Shareholder value
•Economic value added (EVA)
•Market value added (MVA)
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Evaluation and Control
Primary Measures of Performance –
–Balanced Scorecard Approach
•Financial
•Customer
•Internal business perspective
•Innovation and learning
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Evaluation and Control
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Evaluation and Control
Evaluating Top Management & Board –
–Chairman-CEO Feedback Instrument
–Management Audit
–Strategic Audit
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Evaluation and Control
Divisional & Functional Performance –
–Responsibility Centers
•Standard cost centers
•Revenue centers
•Expense centers profit centers
•Investment centers
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Evaluation and Control
Using Benchmarking –
–Continual process of measuring products,
service, and practices against the toughest
competitors or those companies recognized
as industry leaders
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Evaluation and Control
International Measurement Issues –
–International transfer pricing
–Repatriation of profit
–piracy
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Evaluation and Control
Strategic Information Systems –
–Enterprise Resource Planning (ERP)
–Divisional and functional IS support
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Evaluation and Control
Problems in Measuring Performance –
–Short-term orientation
–Goal displacement
•Behavior substitution
•Suboptimization
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Evaluation and Control
Guidelines for Proper Control –
–Minimum amount of information necessary
–Meaningful activities and results
–Timely
–Long and short-term
–Pinpointing exceptions
–Meeting/exceeding standards
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Evaluation and Control
Strategic Incentive Management –
–Weighted-factor method
–Long-term evaluation method
–Strategic funds method
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