strategy evaluation
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COMPREHENSIVE STRATEGIC-MANAGEMENT MODEL
Develop Vision and
Mission StatementsCHAPTER 2
Perform External
AuditCHAPTER 3
Perform Internal
AuditCHAPTER 4
Establish Long-term ObjectivesCHAPTER 5
Generate, Evaluate,
and Select Strategies
CHAPTER 6
Implement Strategies –
Management Issues
CHAPTER 7
Implement Strategies – Marketing,
Finance, Accounting,
R&D, and MIS Issues
CHAPTER 8
Measure and Evaluate
Performance
CHAPTER 9
Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 3 (June 1988): 40.
Chapter 10: Business Ethics, Social Responsibility, and Environmental Sustainability
Chapter 11: Global/International Issues
STRATEGY FORMULATION
STRATEGY IMPLEMENTATION
STRATEGY EVALUATION
The Nature of Strategy Evaluation
Evaluation and Control ensures that a company is achieving what it set out to accomplish by comparing performance with desired results and taking corrective action as needed
Strategic-Management process result
Erroneous strategic decisions
Timely evaluations
Strategy Evaluation- Adequate and timely feedback
- Complex and sensitive undertaking
- Essential to ensure that stated objectives are being achieved.
Too little or no evaluation can create even worse problem.
- An appraisal of how well an organization has performed.
Evaluation and Control Process
Determine what to measure
Establish standards of performance
Measure performance
Take corrective
action
Does performance
match standards?
STOP
YES
NO
Evaluating an Implemented StrategyISSUE CONCLUSIONS
Were strategies poorly executed?
Were strategies and their requirements communicated
effectively?Poor communication.
Were the underlying assumptions and premises
valid?
Were the alternative scenarios defined and
assessed?
Were the current situation and important trends properly diagnosed?
Did the existing strategies produce the desired
results?
Did management commit to and follow through with the strategies?
Were results monitored and strategies revised as needed?
Was strategy formulation adversely affected?
Were supporting functional strategies consistent with the
business unit strategies?
Were resource allocations sufficient and consistent with the selected
strategies?
Weak commitment of operating management.
Failure to establish proper feedback mechanism.
Invalid planning bases: incorrect strategy
formulation.
Inconsistent functional plans.
Incorrect assessment of resource requirements.
Successful strategy and results.
YES
YES
NONO
NO
YES
YES
YES
NO
YES
YES
NO
YES
NO
NO
YES
NO
NO
NO
Rumelt’s Criteria for Evaluating StrategiesCONSISTENCY CONSONANCE FEASIBILITY ADVANTAGE
• If managerial problems continue despite changes in personnel and if they tend to be issue-based rather than people-based, then strategies may be inconsistent.
• If success for one organizational department means, or is interpreted to mean, failure for another department, then strategies maybe inconsistent.
• If policy problems and issues continue to be brought to the top for resolution, then strategies may be inconsistent.
Rumelt’s Criteria for Evaluating StrategiesCONSISTENCY CONSONANCE FEASIBILITY ADVANTAGE
A strategy must represent an adaptive response to the external environment and to the critical changes occurring within it. One difficulty in matching a firm’s key internal and external factors in the formulation of strategy is that most trends are the result of interactions among other trends.
For example, the day-care explosion came about as a combined result of many trends that included a rise in the average level of education, increased inflation, and an increase in women in the workforce. Although single economic or demographic trends might appear steady for many years, there are waves of change going on at the interaction level.
Rumelt’s Criteria for Evaluating StrategiesCONSISTENCY CONSONANCE FEASIBILITY ADVANTAGE
The financial resources of a business are the easiest to quantify and are normally the first limitation against which strategy is evaluated. It is sometimesforgotten, however, that innovative approaches to financing are often possible.
A less quantifiable, but actually more rigid, limitation on strategic choice is that imposed by individual and organizational capabilities. In evaluating a strategy, it is important to examine whether an organization has demonstrated in the pastthat it possesses the abilities, competencies, skills, and talents needed to carry out a given strategy.
Rumelt’s Criteria for Evaluating StrategiesCONSISTENCY CONSONANCE FEASIBILITY ADVANTAGE
Competitive advantages normally are the result of superiority in one of three areas: (1) resources, (2) skills, or (3) position.
Positional advantage tends to be self-sustaining as long as the key internal and environmental factors that underlie it remain stable. This is why entrenched firms can be almost impossible to unseat, even if their raw skill levels are only average. Although not all positional advantages are associated with size, it is true that larger organizations tend to operate in markets and use procedures that turn their size into advantage, while smaller firms seek product/market positions that exploit other types of advantage. The principal characteristic of good position is that it permits the firm to obtain advantage from policies that would not similarly benefit rivals without the same position.
REASONS WHY STRATEGY EVALUATION IS DIFFICULT TODAY1.A dramatic increase in the
environment’s complexity2.The increasing difficulty of predicting
the future with accuracy3.The increasing number of variables4.The rapid rate of obsolescence of even
the best plans5.The increase in the number of both
domestic and world events affecting organizations
6.The decreasing time span for which planning can be done with any degree of certainty
PROCESS OF EVALUATING STRATEGIES
- Should initiate managerial questioning of expectations and assumptions
- Should trigger a review of objectives and values
- Should stimulate creativity in generating alternatives and criteria of evaluation
BENEFITS OF STRATEGY EVALUATION
Evaluation activities may renew confidence in the current business strategy or point to the need for actions to correct some weaknesses, such as erosion of product superiority or technological edge. In many cases, the benefits of strategy evaluation are much more far-reaching, for the outcome of the process may be a fundamentally new strategy that will lead, even in a business that is already turning a respectable profit, to substantially increased earnings. It is this possibility that justifies strategy evaluation, for the payoff can be very large.
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