Chapter 9
Strategy Review, Evaluation, & Control
Strategic
Management:
Concepts & Cases
11th Edition
Fred David
Copyright 2007 Prentice Hall
Ch 9-1
Chapter Outline
The Nature of Strategy Evaluation
A Strategy-Evaluation Framework
The Balanced Scorecard
Copyright 2007 Prentice Hall
Ch 9-2
Chapter Outline
Published Sources of Strategy
Evaluation Information
Characteristics of an Effective
Evaluation System
Contingency Planning
Copyright 2007 Prentice Hall
Ch 9-3
Chapter Outline (cont’d)
Auditing
21st Century Challenges in
Strategic Management
Copyright 2007 Prentice Hall
Ch 9-4
Strategy Evaluation
Organizations are most vulnerable when
they are at the peak of their success -R.T. Lenz
Copyright 2007 Prentice Hall
Ch 9-5
Strategy Review, Evaluation,
& Control
-- Strategies become obsolete
-- Internal environments are dynamic
-- External environments are dynamic
Copyright 2007 Prentice Hall
Ch 9-6
Strategy Review, Evaluation,
& Control
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
Copyright 2007 Prentice Hall
Ch 9-7
Strategy Review, Evaluation,
& Control
3 Basic Activities
1.
2.
3.
Examine the underlying bases of a firm’s
strategy
Compare expected to actual results
Identify corrective actions to ensure that
performance conforms to plans
Copyright 2007 Prentice Hall
Ch 9-8
Strategy Review, Evaluation,
& Control
Strategy Evaluation

Complex & sensitive undertaking

Overemphasis can be costly &
counterproductive
Copyright 2007 Prentice Hall
Ch 9-9
Strategy Review, Evaluation,
& Control
Appraisal of Strategic Performance





Have assets increased
Increase in profitability
Increase in sales
Increase in productivity
Profit margins, ROI, & EPS ratios increased
Copyright 2007 Prentice Hall
Ch 9-10
Strategy Review, Evaluation,
& Control
Consistency
Rumelt’s
4 Criteria
Consonance
Feasibility
Advantage
Copyright 2007 Prentice Hall
Ch 9-11
Strategy Review, Evaluation,
& Control
Consistency

Strategy should not present inconsistent
goals & policies
Copyright 2007 Prentice Hall
Ch 9-12
Strategy Review, Evaluation,
& Control
Consistency
Rumelt’s
4 Criteria
Consonance
Feasibility
Advantage
Copyright 2007 Prentice Hall
Ch 9-13
Strategy Review, Evaluation,
& Control
Consonance

Need for strategies to examine sets of trends
Copyright 2007 Prentice Hall
Ch 9-14
Strategy Review, Evaluation,
& Control
Consistency
Rumelt’s
4 Criteria
Consonance
Feasibility
Advantage
Copyright 2007 Prentice Hall
Ch 9-15
Strategy Review, Evaluation,
& Control
Feasibility

Neither overtax resources or create
unsolvable sub-problems
Copyright 2007 Prentice Hall
Ch 9-16
Strategy Review, Evaluation,
& Control
Consistency
Rumelt’s
4 Criteria
Consonance
Feasibility
Advantage
Copyright 2007 Prentice Hall
Ch 9-17
Strategy Review, Evaluation,
& Control
Advantage

Creation or maintenance of competitive
advantage
Copyright 2007 Prentice Hall
Ch 9-18
Strategy Review, Evaluation,
& Control
Difficulties in Strategy Evaluation
1.
2.
3.
Increase in environment’s complexity
Difficulty predicting future with accuracy
Increasing number of variables
Copyright 2007 Prentice Hall
Ch 9-19
Strategy Review, Evaluation,
& Control
Difficulties in Strategy Evaluation
4.
5.
6.
Rate of obsolescence of plans
Domestic and global events
Decreasing time span for planning certainty
Copyright 2007 Prentice Hall
Ch 9-20
Strategy Review, Evaluation,
& Control
Strategy Evaluation Should -


Initiate managerial questioning
Trigger review of objectives & values
Stimulate creativity in generating
alternatives
Copyright 2007 Prentice Hall
Ch 9-21
Strategy Review, Evaluation,
& Control
Review of Underlying Bases of Strategy -
Develop revised EFE Matrix

Develop revised IFE Matrix
Copyright 2007 Prentice Hall
Ch 9-22
Strategy Review, Evaluation,
& Control
Review Effectiveness of Strategy -1.
2.
3.
4.
Competitors’ reaction to strategy
Competitors’ change in strategy
Competitors’ changes in strengths &
weaknesses
Reasons for competitors’ strategic change
Copyright 2007 Prentice Hall
Ch 9-23
Strategy Review, Evaluation,
& Control
Review Effectiveness of Strategy -5.
6.
7.
8.
Reasons for competitors’ successful
strategies
Competitors’ present market positions &
profitability
Potential for competitor retaliation
Potential for cooperation with competitors
Copyright 2007 Prentice Hall
Ch 9-24
Strategy Review, Evaluation,
& Control
Monitor Strengths & Weaknesses;
Opportunities & Threats




Are strengths still strengths?
Have we added additional strengths?
Are weaknesses still weaknesses?
Have we developed other weaknesses?
Copyright 2007 Prentice Hall
Ch 9-25
Strategy Review, Evaluation,
& Control
Monitor Strengths & Weaknesses;
Opportunities & Threats





Are opportunities still opportunities?
Other opportunities develop?
Are threats still threats
Other threats emerged?
Are we vulnerable to hostile takeover?
Copyright 2007 Prentice Hall
Ch 9-26
Copyright 2007 Prentice Hall
Ch 9-27
Evaluation Framework
I. Review Underlying Bases
Differences?
Yes
NO
II. Measure Firm Performance
Differences?
III.
Take
Corrective
Actions
Yes
NO
Continue
present
course
Copyright 2007
Prentice
Hall
Ch 9-28
Strategy Review, Evaluation,
& Control
Measuring Organizational Performance




Compare expected to actual results
Investigate deviations from plan
Evaluate individual performance
Progress toward stated objectives
Copyright 2007 Prentice Hall
Ch 9-29
Strategy Review, Evaluation,
& Control
Quantitative Criteria for Strategy Evaluation
Financial Ratios




Compare performance over different periods
Compare performance to competitors
Compare performance to industry averages
Copyright 2007 Prentice Hall
Ch 9-30
Strategy Review, Evaluation,
& Control
Key Financial Ratios




Return on investment (ROI)
Return on equity (ROE)
Profit margin
Market Share
Copyright 2007 Prentice Hall
Ch 9-31
Strategy Review, Evaluation,
& Control
Key Financial Ratios




Debt to equity
Earnings per share (EPS)
Sales growth
Asset growth
Copyright 2007 Prentice Hall
Ch 9-32
Strategy Review, Evaluation,
& Control
Qualitative Evaluation of Strategy



Internal consistency of strategy
Consistency with environment
Appropriateness in view of resources
Copyright 2007 Prentice Hall
Ch 9-33
Strategy Review, Evaluation,
& Control
Qualitative Evaluation of Strategy



Acceptable degree of risk
Appropriate time frame
Workability of the strategy
Copyright 2007 Prentice Hall
Ch 9-34
Strategy Review, Evaluation,
& Control
Balanced Scorecard
-- Evaluate strategies from 4 perspectives:
1. Financial performance
2. Customer knowledge
3. Internal business processes
4. Learning & growth
Copyright 2007 Prentice Hall
Ch 9-35
Balanced Scorecard
Area of Objectives
Measure or Target
Time Expectation
Primary Responsibility
Customers
1
2
Managers/Employees
1
2
Operations/Processes
1
2
Community/Social Responsibility
1
2
Business Ethics/Natural Environment
1
2
Financial
1
2
Copyright 2007 Prentice Hall
Ch 9-36
Copyright 2007 Prentice Hall
Ch 9-37
Strategy Review, Evaluation,
& Control
Characteristics of Strategy Evaluation





Economical
Meaningful
Generates useful information
Timely information
Provides accurate picture of events
Copyright 2007 Prentice Hall
Ch 9-38
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
No
Corrective actions
Yes
No
Yes
Corrective actions
Yes
No
No
Corrective actions
No
Yes
Yes
Corrective actions
No
Yes
No
Corrective actions
No
No
Yes
Continue course
Copyright 2007 Prentice Hall
Has the firm
progressed
satisfactorily toward
achieving its stated
objectives?
Result
Ch 9-39
Strategy Review, Evaluation,
& Control
Contingency Planning
Alternative plans that can be put into effect if
certain key events do not occur as expected
Copyright 2007 Prentice Hall
Ch 9-40
Strategy Review, Evaluation,
& Control
Auditing

Financial audits determine correspondence
between assertions based on strategic plan
& established criteria

Environmental audits insure sound and safe
practices
Copyright 2007 Prentice Hall
Ch 9-41
Strategy Review, Evaluation,
& Control
21st Century Challenges in
Strategic Management



Process is more an “art” than “science”
Should strategies be visible or hidden from
stakeholders
Should process be more top-down or bottom
up
Copyright 2007 Prentice Hall
Ch 9-42
For Review (Chapter 9)
Key Terms & Concepts
Advantage
Consonance
Auditing
Contingency Plans
Balanced Score Card
Corporate Agility
Consistency
Feasibility
Copyright 2007 Prentice Hall
Ch 9-43
For Review (Chapter 9)
Key Terms & Concepts
Future Shock
Revised EFE Matrix
Management by Wandering
Around
Revised IFE Matrix
Measuring
Organizational Performance
Taking Corrective Action
Reviewing Underlying
Bases of Strategy
Copyright 2007 Prentice Hall
Ch 9-44