1.Introduction

Strategy evaluation is that phase of the strategic management process in which

top management try to assure that the strategy formulated is being properly

implemented and is meeting its objectives of the enterprise.  A follow through

on strategy and at implementation requires a control system and effective

information system, which provides managers with accurate and complete

feedback in real-time so that they can act on the data.

Control and evaluation process help strategic managers monitor the progress of

a plan. Strategy evaluation is simply an appraisal of how well an organization

has performed. Adequate and timely feedback is the cornerstone of effective

strategy.

Strategy evaluation is becoming increasingly difficult withthe passage of time

for many reasons:

a dramatic increase in the environment’s complexity

the increasing difficulty of predicting the future with accuracy

the increasing number of variable

 the rapid rate of obsolescence of even the best plans

the increase in the number of both domestic and world events

affecting organization

the decreasing time span for which planning can be done with any

degree of uncertainty.

Strategic evaluation and control is related to that aspect of strategic

management through which an organisation ensures whether it is achieving its

objectives Contemplated in the strategic action. If not, what corrective actions

are required for strategic effectiveness.

2.Definitions of 'Strategic Evaluation and Control'

Glueck and Jauch have defined strategic evaluation as follows:

“Evaluation of strategy is that phase of the strategic management process in

which the top managers determine whether their strategic choice as

implemented is meeting the objectives of the enterprise.

There are two aspects in this phase of strategic management: evaluation which

emphasizes measurement of results of a strategic action and control which

emphasizes on taking necessary actions in the light of gap that exists

betweenintended results and actual results in the strategic action. However,

because of on-going nature of strategic evaluation and control process both

these are intertwined. In practice, the term control is used in a broad sense

which includes evaluativeaspect too because unless the results of an action are

known, control actions cannot be taken.

3.Strategic and Operational Control:A Control

Before we proceed further.it is worthwhile to make a comparison of strategic

and operational control because the emphasis in both differs though an

integrated control system may contain both. Strategic control is the process of

taking into account the changing assumptions both external and internal to the

organisation on which a strategy is based, continually evaluatingthe strategy as

it is being implemented and taking corrective actions to adjust strategy

according to changing conditions or taking necessary actions to realign

strategy implementation. Forstrategic evaluation and control following

questions are relevant:

1. Are the premises made during the strategy formulationprocess proving to be

correct?

2. Is the strategy being implemented properly?

Strategic control and operational control both differ from each other in terms

of their aim main concern focus time horizon, and techniques used.2

Differences between the two are presented .

4.Role of Stratagic Evaluation and Control

Strategic evaluation and control, though very important phaseof strategic

management, is often overlooked by strategists onthe premise that once they

have formulated a strategy andimplemented, their role in strategic management

is over. Theyremain mired with daily control reports, which can be takeneven

at lower levels. This approach may be all right when there

is not high stake involved in a strategy but fatal when the stakeis high. Without

strategic evaluation and control, strategistshave no means to measure whether

the chosen strategy isworking properly or not. When strategic evaluation and

controlis undertaken properly, it contributes in three specific areas:

1. Measurement of organisational progress,

2. Feedback for future actions, and

3. Linking performance and rewards.

Measurement of Organisational ProgressEvaluation and control measures

organisational progresstowards achievement of its objectives. When a strategy

ischosen, it specifies the likely outcomes, which are relevant forachieving

organisational objectives. The strategy is not an end initself; it is a means for

achieving something valuable toorganisational success. Therefore, measuring

this success as aresult of strategy implementation is a prime concern for every

strategist. This measurement should be undertaken during theprocess of

strategy implementation as well as after implementationto ensure the progress

as quickly as possible so thatremedial actions are taken at appropriate time.

Feedback for Future ActionStrategic management being a continuous process

with noapparent beginning and end, evaluation and control provides

clues for recycling various actions, which are relevant forachieving

organisational objectives. This is possible only whenstrategic planning and

control are well integrated. How controlas a feedback mechanism helps in

future course of action maybe seen from FigureThus, control activities are

undertaken in the light of criteria setby a strategic plan. But at the same time,

control providesinputs either for adjusting the same strategic plan or

takingfuture strategic plans. This is the way organizations progressover the

period of time. They take a strategic action, implementit, and find its results. If

the results are in tune with what wereintended the similar types of strategic

actions are taken infuture. Thus, there is a chain of strategic plan actions

andcontrol.Figure: Strategic Planning and Control RelationshipLinking

Performance and RewardThis is the most crucial aspect of strategic evaluation

andcontrol but many organizations fail in linking performance andreward. This

happens not only at the level of different organizationsbut even for a country

as a whole. For example, Abegglenhas observed that “the dispersion of part of

the rewards by theorganizations without regard to performances is more

comtionsbut even for a country as a whole. For example, Abegglenhas

observed that “the dispersion of part of the rewards by the

organizations without regard to performances is more commonin the less

modem parts of the country than in the moreadvance ones, and in less

developed than in more developedcountries. It is one of the reasons why

organisational control isless effective in less developed countries. Thus;

linking performanceand reward is a big issue. If taken objectively,

evaluationand control provides inputs for relating performance andreward.

This linking is vital for motivating organizational personnel more so in an era

when there is not only fight formarket share but for human talent too. A

performance-basedmotivation system works better than the one, which

considersfactors other than performance.

5. Techniques of Strategic of Evaluation and Control

Financial Performance Control

Financial performance control, or simply referred to as financial control, is

relevant for those aspects of business operations whose outcomes are

expressed in monetary terms. Financial control is exercised at operative level

as well as at overall organisation level though techniques involved are

different.

Financial control techniques are grouped into three categories from strategic

management point of view:

1. Budgetary control,

2. Financial ratio analysis, and

3. Return on investment

Budgetary Control

Budgetary control is derived from the concept and use of budgets. Budget is

the financial expression of various organisational operations and the way in

which budgets are prepared as tools for planning. Thus,budgetary control is a

system which uses budgets as a means forplanning and controlling entire

aspects of organizational activities or parts thereof. Terry has defined

budgetary control asfollows:

“Budgetary control is a process of comparing the actual resultswith the

corresponding budget data in order to approveaccomplishments or to remedy

differences by either adjustingthe budget estimates or correcting the cause of

the difference.”Some people treat budgetary control only as a technique of

costcontrol. For example, Brown and Howard have definedbudgetary control

as follows:

“Budgetary control is a system of controlling costs whichincludes the

preparation of budgets, coordinating the departmentsand establishing

responsibility, comparing actualperformance with budgeted and acting upon

results to achievemaximum profitability.”

However, the scope of budgetary control extends beyond costcontrol with the

introduction of several types of budgeting.

Features of Budgetary Control

1. Budgetary control establishes a plan or target of performancewhich becomes

the basis of measuring progression ofactivities in the organisation.

2. It tries to measure the outcomes of activities in quantifiedterms so that

actual performance can be compared withbudgeted performance.

control activities are undertaken. Thus, managers can keep awatch whether

their efforts are proceeding in the rightdirection.

2. Budgetary control pinpoints any deviation between budgetedstandards and

actual achievement. This is communicated veryquickly and managers can take

suitable actions to overcomethe deviations so as to achieve organisational

objectives.

3. Budgetary control system also points out the reasons whichmay be

responsible for deviation between budget and actual.Thus, it provides direction

for necessary control actions.Thus, it can be seen that with the constant help of

the budgetarycontrol system, attempts can be made to keep

performanceparallel with the estimated one.Budgetary Control as an aid to

CoordinationBudgetary control system provides aid in coordination in the

organization. It helps to achieve coordination in the followingways:

1. Budgetary control system promotes cooperation amongvarious sub-units in

the organisation. Since it is aninstrument of planning, it brings activities of

variousdepartments under overall perspective. This inspires teamspirit and

promotes cooperation. For example, the wellplannedsales and production

budgets lead to betterpurchasing and the labour requirement for

timelyrecruitment by personnel department, etc.

2. The system encourages exchange of information amongvarious units of the

organisation. The preparation of specificfunctional budget inevitably needs the

free flow ofinformation among the various departments of theorganisation.

This free flow of information helps inachieving coordination.

3. The system promotes balanced activities in the organisation.Volume of each

activity depends upon the objectives of theorganisation. Therefore, each

activity should be performed inproportion to other activities. Thus, estimates

of operationslike sales, production, purchasing, etc., can be well

checkedagainst each other and likewise, the activities can beprogrammed.

Thus, budgetary control system is a vital and important devicefor planning,

controlling and coordinating the activities in anorganisation thereby

contributes to attain higher standard ofperformance and efficiency.

Problems in Budgetary ControlThough budgetary control helps a lot the

managers in planning,controlling and coordinating the activities of an

organisation, itis not a foolproof system. It has its own limitations. Therefore,

managers should be well aware about these problems so as totake adequate

precautions to minimize the impact of these.Problems in budgetary control

system emerge from twosources: problems because of planning limitations

andoperational problems.

Planning Problems

As seen earlier, planning activity has its own limitations. Sincebudget is an

outcome of planning activity, it cannot remain free Budgetary ControlFor

control purposes, variance analysis is made. Factors forvariance between

budgeted and actual are identified. For takingfurther course of action, various

factors have been divided intotwo parts: controllable and non-controllable.

Controllablefactors are like utilization of plant capacity, unit consumption

ratios of various raw materials, utilization of auxiliary materials,labour

utilization, etc. Uncontrollable factors are like price ofraw materials, price of

the final products, etc. Budget deviationsare calculated every month and for

some sections every day.Deviations due to controllable factors are

communicated torespective personnel for corrective actions. In case of

deviationsdue to uncontrollable factors, these are communicated to thechief

executive who in consultation with marketing peopledecides about a change in

product mix specially if the deviationis due to price of final products. Usually

a deviation below 5 percent is ignored.

Financial Ratio Analysis

Financial ratio analysis identifies the relationship between twofinancial

variables in order to derive meaningful conclusionabout their behaviour.

Metcalf and Titard have defined financialratio analysis as “a process of

evaluating relationship betweencomponent parts of financial statements to

obtain a betterunderstanding of a firm’s position and performance. The type

of relationship to be investigated depends on the objective andpurpose of

evaluation. In the case of measurement of overallperformance, generally, four

groups of ratios are considered:liquidity ratios, activity ratios, leverage ratios,

and profitabilityratios. A brief description of these ratios is presented here.

Liquidity Ratios

Liquidity ratios indicate the organization’s ability to pay its shortterm debts.

These ratios are generally expressed in two forms:current ratio and quick ratio.

Current ratio shows the relationshipbetween current assets and current

liabilities. This indicatesthe extent to which current assets are adequate to pay

currentliabilities. Quick ratio indicates the relationship between liquidassets

(cash in hand and with bank and short-term debtors) andcurrent liabilities. It

helps in identifying the organization’s abilityto pay its current liabilities

without considering inventory inhand.

Activity Ratios

Activity ratios show how funds of the organisation are beingused. These ratios

are in the form of inventory turnover ratio,receivable turnover ratio, and assets

turnover ratio. Inventoryturnover ratio indicates the number of times inventory

isreplaced during the year and shows how effectively inventoryhas been

managed. Receivable turnover ratio shows howpromptly the organisation is

able to collect dues from itsdebtors. Assets turnover ratio indicates how

effectively assetshave been used to generate sales.

Leverage Ratios

Leverage ratios indicate the relative amount of funds in thebusiness supplied

by creditrs/financiers and shareholders/owners. These ratios are in the form of

debt-equity ratio, debttotalcapital ratio, and interest coverage ratio.

Debt-equity ratio

indicates the proportion of debt in relation to equity andindicates the financial

strength of the organization. Debt-totalcapital ratio shows the proportion of

debt to total capitalemployed. This also indicates the financial strength.

Interestcoverage ratio shows the interest burden being borne by

theorganisation in relation to its profit.

Profitability Ratios

Profitability ratios show the ability of an organisation to earnprofit in relation

to its sales and/ or investment. Profitabilityratios are expressed in terms of

profit margin as well as returnon investment. Profit margin, either net profit or

gross profit, isexpressed in the form of relationship between profit and

salesand indicates the degree of profitability of the business. Returnon

investment is measured by relating profit to investment.Return on investment

is the most comprehensive technique forcontrolling overall performance.

Therefore, somewhat moreelaborate discussion is presented.

Return on Investment

The efficiency of an organisation is judged by the amount ofprofit it earns in

relation to the size of its investment, popularlyknown as ‘return on investment’

(ROI). This approach hasbeen an important part of the control system of Du

PontCompany, U.S.A., since 1919, though it was actually devised

byDonaldson Brown in 1914. Since its successful operation in DuPont, a larger

number of companies have adopted it as their keymeasure of overall

performance.

This technique does not emphasize absolute profit for judgingthe efficiency of

an organisation as a whole or a division thereof,rather the amount of profit is

related with the amount offacilities or capital invested in the organisation or

the division.

The goal of a business, accordingly, is not to optimize profit,but to optimize

returns on capital invested for businesspurposes. This standard recognizes the

fundamental fact thatcapital is a critical factor in almost any business and its

scarcityputs limit on progress.

The system of control through return on investment can beseen from Figure as

operating in Du Pont Company.

Figure: Relationship of factors affecting return on investmentThe rate of return

is calculated by dividing the profit by totalinvestment. It can be computed in

respect of historical data soas to reveal the rate of return realized or it may be

applied tobudgeted data to give a projected rate of return. In the Du

Pontsystem, the investment includes total fixed and current assetswithout

reducing liabilities or reserves. The basis is that such areduction would result

in fluctuations in operating investmentsas liabilities or reserves fluctuate,

which would distort the rateof investment and render it meaningless.

On the other hand, many business organizations adopt adifferent view of

investment. Accordingly, the amount of theinvestment should be taken by

deducting depreciation from theassets. The argument is simple. Depreciation

reserves representa write-off of initial investment and that funds made

availablethrough such charges are reinvested in other fixed assets or usedas

working capital. The argument seems to be realistic as it putsheavier burden on

return on new assets, as compared to oldand obsolete assets. Moreover, the

amount of investment thuscalculated is further reduced by the amount of

current liabilities.

Advantages

The return on investment is an integral part of the productivityand efficiency

accounting. It gives following advantages:

1. It provides success to budgetary planning and control byputting restraint on

the managers’ demand forhigher allocation of resources for theirdepartments

even if these are not actually needed.Thus, the resource allocation in an

organisation ismade on more rational basis.

2. This system is helpful in authoritydecentralization. Each manager, in charge

of adepartment or section, is responsible for earningcertain rate of return, but

enjoys completefreedom in running his department. Suchautonomy gives

additional incentive to managersfor higher efficiency.

3. It can be treated as a total control system inthe sense that rate of return

reflects the objectiveof the organisation. If this rate is satisfactory,other control

systems like budgetary, costing,ratios, reports may be taken as satisfactory.

Limitations

There are some limitations of the rate of returnas a control tool:

1. The use of rate of return is associated withthe fixation of a standard rate of

return againstwhich the actual is compared. What should bethis standard return

is often questionable. Comparisons ofrates of return are hardly enough because

they do not tellwhat the optimum rate of return should be.

2. Another problem comes in the way of valuation ofinvestment. The question

is at what cost the assets shouldbe valued: at original cost, depreciated cost, or

replacementcost. In an inflationary economy, the problem of priceadjustment

becomes more acute, whatever basis of valuationis adopted.

3. The rate of return on investment sometimes hampersdiversification if it has

no flexibility. This is because of thefact that the rate of return is determined by

the amount ofrisk; higher the risk, higher the desirable rate of return.

4. Many times, the return on investment is followed sorigorously that

expenditure such as research anddevelopment, which can contribute to the

profitability in thelong run, are curtailed to show impressive results in terms

ofrate of return. This practice, however, is detrimental to theorganisation in the

long run.

5. As is the case with any system of control based on financialdata, return on

investment can lead to excessive emphasis onfinancial factors. This

emphasizes that capital is the onlyscarce resource in the organisation leaving

aside the role andavailability of competent managers, good industrial relations

and good public relations. It provides success to budgetary planning and

control byputting restraint on the managers’ demand forhigher allocation of

resources for theirdepartments even if these are not actually needed.

Thus, the resource allocation in an organisation ismade on more rational basis.

3. This system is helpful in authoritydecentralization. Each manager, in charge

of adepartment or section, is responsible for earningcertain rate of return, but

enjoys completefreedom in running his department. Suchautonomy gives

additional incentive to managersfor higher efficiency.

4. It can be treated as a total control system inthe sense that rate of return

reflects the objectiveof the organisation. If this rate is satisfactory,other control

systems like budgetary, costing,ratios, reports may be taken as satisfactory.

These are as follows:

1. Net income contribution-earning enough to provide for thepresent and future

costs of the organization’s continuedexistence but limited to legitimate socially

desirable profit;

2. Human resource contribution-development of system ofhuman resource

accounting to measure the impact of theorganisational decisions on human

asset value.

3. Creation of jobs and providing employment opportunitiesto backward and

socially handicapped population,contributing towards educational

development, relief ofpeople in distress caused by natural calamities, rural

enlistment, etc.

4. Environmental contribution-environmental improvementthrough pollution

abatement, conservation of scarce naturalresources, maintenance of ecological

balance, and so on.

5. Product or service contribution-ensuring quality, durability,safety and

serviceability of products; customer satisfaction,truthfulness in advertising,

etc. Social indicators approach measures social performance of anorganisation

in the context of various factors. Many organizationsfollow this approach

because it indicates the areas in whichthey have to work. However, one basic

problem in thisapproach is the determination of expectations of

variousindicators and the way it can be fulfilled.

Problems in Social Audit

The idea of social responsibility of which social audit is a meansof

measurement is quite valid in business world and it has beenrecognized that

business organizations have to fulfill their socialobligations in their own long-

term interests. Social audit isequally logical. Social audit, however, presents

numerousproblems. These problems are of two types: determining scope

for social audit and measurement problem.

1. Scope of the Social Audit

There may be various alternatives.First, all social activities being performed by

an organisation maybe taken for reporting. However, if the social audit is

tocatalogue all such activities, verify the costs involved and evaluatethe

benefits produced, it is very impractical to carry on the socialaudit and

information may be too massive to be useful. Theactivities may be too large

because it is very difficult to say whichactivities are not social. Thus, various

activities, which anorganisationperforms, are social from one point of

viewbecause these provide some social benefits besides benefitingthe

organisation as well. Second, the various activities of clearsocial utility

without prospect of profit may be taken intoconsideration. However, if only

such activities are taken intoaccount, the scope of social audit will be too

limited todemonstrate the extent to which the organization’s socialperformance

is fulfilled. The scope of social audit may bedetermined keeping in view the

information requirements ofvarious groups, such as, employees, customers,

shareholders,general public and those who influence the shaping of

publicopinions.

2. Measurement Problems

Another major problem in social audit is related to the determinationof

yardsticks for measuring the costs andaccomplishments of activities included

in the social audit.Though costs can be measured easily, these are not the true

reflection of social responsibility. These may not be the resultof social

involvement. The measurement of benefits is muchmore difficult because of

lack of objective quantification of theoutcome of any social activity.

Moreover, how much an activityis benefiting to the society and to the

organisation concerned isdifficult to measure. It happens that an activity may

contributeto both the society and the organisation.

Social Audit Report

In spite of the various problems involved in social audit, theorganizations may

think of it because a time may come whensocial audit, like financial audit,

becomes compulsory. Thevalidity of social audit report may be determined on

the basisof well-established financial audit report, that is, uses to

whichinformation will be put should govern both the conceptual andprocedural

bases on which information is prepared anddisseminated. Corson and Steiner

have emphasized that asocial audit report should contain (i) an enumeration of

socialexpectations and the organization’s responses, (ii) a statementof

corporation’s social objectives and the priorities attached tospecific activities,

(iii) a description of the corporation’s goals ineach program area of the

activities it will conduct, (iv) astatement indicating the resources committed to

achieveobjectives and goals, and {v} a statement of the accomplishmentsand

progress made in achieving each objective and goal.14In India, The Tata Iron

and Steel Company Limited (TISCO)conducted a social audit in 1979-80

Exhibit presents majorreferences and findings of social audit committee.

Exhibit: Social audit in TISCO

In October 1979, TISCO appointed a social audit committeeconsisting of

Justice S.P. Kotval as chairman and Prof. RainKothari and Prof. P.G.

Mavalankar as members to “examineand report whether, and the extent to

which the company hasfulfilled the objectives contained in Clause 3A of its

Articles ofAssociation regarding its social and moral responsibilities to the

consumers, employees, shareholders, society and the localcommunity.” The

committee submitted its report on July 9,1980, which was subsequently

published by the company. Thereport contained ten chapters which included

various aspects ofsocial and moral obligations being discharged by theSocial

Audit Committee Report Tisco, Mumbai, August 1980Some of the major

findings of the committee were as follows:

1. In respect to city development, TISCO has taken variousmeasures such as

housing, water supplies, sewerage, healthand conservancy, medical services,

etc.

2. In respect to workers, the company provided various facilitiessuch as

housing, health services, transportation, schools, andfacilities for cultural and

social activities.

3. The company has adopted adequate pollution controlmeasures in its mines

and plants.

4. The company has maintained harmonious employeremployeerelations and

not a single day was lost due to strikeor lockout.

5. In respect to consumers, the company adhered to supply ofits products as

determined by the Government and tookample measures to ensure high

quality.

6. In respect to shareholders, the company paid fair amount ofdividend

regularly. The dividend rate was reduced only underthe scheme of restriction

on dividend payment adopted byGovernment of India.

7. The company has undertaken various schemes forcommunity development

and social welfare services.

8. The company has undertaken various programs for ruraldevelopment.

In general, the committee members felt satisfied by themeasures adopted by

the company on those issues, which werereferred to the committee. The

committee observed that “weare satisfied that the social performance of the

company is ofhigh order and in its magnitude, is perhaps unequalled in India.

We are satisfied that the company has amply fulfilled theobjectives contained

in Clause 3A of its Articles of Associationregarding its social and moral

responsibilities to the consum employees, shareholders, the local community

and society.”

6. Reasons for Failure of Strategic Evaluation and Control

There are several reasons why a strategy may not produce desired results. The

external factors may not be in tune with the strategy. Competitors may also

spring surprises occasionally with unexpected moves that may create major

gaps in the strategy. Having spent time, effort and money while formulating

strategies, it is, therefore, not advisable to leave the implementation of strategy

to chance. Managers need to constantly monitor everything, introduce checks

and balances and carry out mid-course corrections at an early stage while

implementing the strategies. SEC helps an organization in several ways.

Feed Forward Control

Feed forward control involves evolution of inputs and takingcorrective action

before a particular sequence of operation completed. Thus, it attempts to

remove the limitations of timelag in taking corrective action. Feed forward

control monitorsinputs into a process determine whether the inputs are

asplanned. If inputs are not as planned corrective action is takento adjust the

inputs according to the plan so that the desiredresults are achieved within the

planned inputs. It is just likehunting a duck. A hunter will always aim ahead of

a duck’sflight compensate for the time lag between a shot and a hopedforhit.

To be effective, feed forward control should meet thefollowing requirements:

1. Thorough and careful analysis of the planning and controlsystem must be

made, and the more important inputvariables identified.

2. A model of the system should be developed.

3. The model should be reviewed regularly to see whether theinput variables

identified and their relationship still representrealities.

4. Data on input variables must be regularly collected and putinto the system.

5. The variations of actual input data from planned inputsmust be regularly

assessed, and their impact on expectedresults is evaluated.

6. Action must be taken to show people problems and themeasure required to

solve them.

Concurrent Control

Concurrent control is exercised during the operation of aprogram. It provides

measures for taking corrective action ormaking adjustments while the program

is still in operation andbefore any ma damage is done. In the organisational

context,many control activities are based on this type of control, forexample,

quality control during the operation, or safety check in

a factory, Here, the focus is on the process itself. Data providedby this control

system is used to adjust the process. Manystrategic controls fall in this

category.

Feedback Control

Feedback control is based on the measurement of the results ofan action. Based

on this measurement, if any deviation is foundbetween performance standards

and actual performance, thecorrective action is undertaken as shown in Figure.

The controlaims at future action of the similar nature so that there isconformity

between standards and actual. This is requiredbecause, sometimes, feed

forward or concurrent control is notpossible to apply, for example, many

personal characteristics ofan individual which go into behavioral processes are

notmeasurable, hence feed forward control is difficult to apply. Inthe business

organizations, top management control is mostly .

7.Barriers in Strategic Evaluation and Control

Strategic evaluation and control being an appraisal process forthe organisation

as a whole and people who are involved instrategic management processeither

at the stage of strategyformulation or strategy implementation or both, is not

freefrom certain barriers and problems. These barriers and problemscenter

around two factors: motivational and operational.Let us see what these

problems are and how these problemsmay be overcome.

Motivational Problems

The first problem in strategic evaluation is the motivation ofmanagers

(strategists) to evaluate whether they have chosencorrect strategy after its

results are available. Often two problem;are involved in motivation to evaluate

the strategy: psychologicalproblem and lack of direct relationship between

performanceand rewards.

1. Psychological Barriers

Managers are seldom motivated to evaluate their strategiesbecause of the

psychological barriers of accepting their mistakes.Top management formulates

the strategy, which is veryconscious about its sense of achievement. It hardly

appreciatesany mistake it may community at the level of strategy

formulation.Even if something goes wrong at the level of strategy

formulation, it may put the blame on the operating managementand tries to

find out the faults at the level of strategyimplementation. This over-conscious

approach of top managementmay prevent the objective review of whether

correctstrategy has been chosen and implemented. This may resultinto delay in

taking correct alterative action and bringing theorganisation back at

satisfactory level. This happens more in thecase of retrenchment strategy,

particularly divestment strategywhere a particular business has failed because

of strategicmistake and in order to save the organisation from furtherdamage,

the business has to be sold. 2. Lack of Direct Relationship between

Performanceand RewardsAnother problem in motivation to review strategy is’

the lack ofdirect relationship between performance achievement andincentives.

It is true that performance achievement itself is asource of motivation but this

cannot always happen. Such asituation hardly motivates the managers to

review their strategycorrectly. This happens more in the case of family-

managedbusinesses Where professional managers are treated as outsidersand

top positions, particularly at the board level, are reserved forinsiders. Naturally

very bright managers are not’ motivated toreview correctness or otherwise of

their strategy. The familymanagers of such organizations are even more prone

topsychological problem of not reviewing their strategy and admittheir

mistakes.

Thus, what is required for motivating managers to evaluatetheir performance

and strategy is the right type of motivationalclimate in the organisation.

Linking performance and rewards asclosely as possible can set this climate.

This linking is requirednot only for the top level but for the lower down in the

organisation too. Many forward-looking companies though fewin .number,

have taken this step when they have adopted thepolicy of taking board

members from outside their families andfriend groups. These companies have

taken this- step not onlyto satisfy the requirements of financial institutions of

broadbasing the directorship but they have taken this step tomotivate their top

level managers. Naturally top managers insuch companies can take any step to

fulfill the organizational requirements including the evaluation of their

strategy.

Operational Problems

Even if managers agree to evaluate the strategy, the problem ofstrategic

evaluation is not over, though a beginning has beenmade. This is so because

strategic evaluation is a nebulousprocess; many factors are not as clear as the

managers would likethese to be. These factors are in the areas of determination

ofevaluative criteria, performance measurement, andtaking suitable corrective

actions. All these areinvolved in strategic evaluation and control.However,

nebulousness nature is not unique tostrategic evaluation and control only but it

isunique to the entire strategic management process.

We shall make an attempt later in this chapter as tohow these operational

problems may be overcome.

PARTICIPANTS OF STRATEGIC EVALUATION AND CONTROL

Participants in Strategic Evaluation andControlSince strategic evaluation and

control is a part of strategicmanagement process, all those persons who

participate instrategy formulation and implementation should also participate

in strategic evaluation except those who act in advisorycapacity Board of

directors, chief executive, other managers,corporate, planning staff,

consultants participate in strategicmanagen1ent process. Out of these corporate

planning staffand consultants act either advisors or facilitators Thus,

threegroups of personnel are actively involved in strategic evaluationand

control though their areas of evaluation and control differ.In some cases,

outside agencies like financial institutions orgovernment, mostly to the case of

public sector enterprises alsoparticipate in strategic evaluation and control

either throughtheir participation in board of directors or having power

tointerfere with management practices. However, the role offinancial

institutions in strategic evaluation and control is quitelimited excel through

their nominee’s on board of directors. Inthe case of public sector enterprises,

the role of government instrategic evaluation is perform’” through nomination

of boardmembers and through controlling ministries of particularenterprises. In

some specific situations, authorities may beconstituted at above the board level

to evaluate the performanceof group companies. For example, Tata Group has

set upGroup Executive Office (GEO) and Business Review

Committees(BRCs) to review the performance of group companiesnumbering

about one hundred. If we exclude these case, therole of board of directors,

chief executive, and other managersin strategic evaluation and control is quite

significant.

Role of Board of Directors

Board of directors of a company, being the trustee of shareholders’property, is

directly answerable to-4hem. Thus, boardshould be directly involved in

strategic evaluation and control.However, since board does not participate in

day-to-daymanagement process, it evaluates the performance of thecompany

concerned after certain intervals in its meetings.Therefore, the role of board of

directors is limited to evaluatingand controlling those aspects of the

organisational functioning,which have long-term implications. Such aspects

are overallfinancial performance, overall social concern and performance,and

certain key management practices having significant impacton organization’s

long-term survival Generally, the evaluationand control information used by

the board is concise butcomprehensive as compared to control reports used at

lower levels.

Role of Chief Executive

The chief executive of an organisation is responsible for overallperformance.

Therefore, his role is quite crucial in strategicevaluatioI1- and control. Though

he is not involved inevaluation of routine performance, which is left to other

managers, he focalizes his attention on critical variationsbetween planned and

actual. Generally, he applies the principleof management by exception, which

is a system of identificationand communication of that signal which is critical

andneeds the attention of a high-level manager. Depending on thesize of the

organisation, the chief executive’s role varies in thecontext of evaluation and

control on day-to-day basis. In asmaller organisation, the chief executive may,

perhaps, beinterested in daily production and cost figures, but in a

largeorganisation, these become unimportant for him from hiscontrol point of

view. Thus, in a large organisation, the chiefexecutive is more involved on

controlling through return oninvestment, value added, and other indicators,

which measureperformance of overall organisation.

Role of Other Managers

Besides board of directors and chief executive, other managersare also

involved in strategic evaluation and control. These arefinance managers, SBU

managers, and middle-level managers.

Their role in strategic evaluation and control is as follows:

1. Finance managers are primarily concerned with finding outdeviations

between planned and actual performanceexpressed in monetary terms. These

are done throughfinancial analysis, budgeting, etc.

2. SBU managers are responsible for overall evaluation andcontrol of their

respective strategic business units. In fact,they are the chief executives of their

own SBUs except thatthey report to the chief executive of the organisation

fromwhom they seek directions.

3. Middle-level managers, mostly functional managers and subunitmanagers

are responsible for evaluation and control oftheir respective functions and sub-

units. These managers aremore concerned with day-to-day operational control

andprepare reports to be used by higher-level managers. Forexample_ a

production manager is more interested incontrolling production volume,

production cost, productquality, etc.

Role of Organisational Systems inEvaluation

Strategic evaluation operates in the context of variousorganisational systems.

An organisation develops varioussystems which help in integrating various

parts of the -organisation. The major organisational systems are: information

system, planning system, motivation system, appraisalsystem, and

development system. All these systems play theirrole in strategic evaluation

and control some of these systemsare closely and directly related and some are

indirectly related toevaluation and control. For example, information system is

closely linked to evaluation as it provides clue as to how theorganisation is

progressing. Development system, on the otherhand, is not closely linked to

evaluation system but is under takenas a post-control action. In the light of

this, let us see

8.Structural Mechanisms to Implement Strategy

Information System

Evaluation and control action is guided by adequate informationfrom the

beginning to the end. Management informationand management control

systems are closely interrelated; theinformation system is designed on. the

basis of control system.Every manager in the organisation must have adequate

information about his performance, standards, and how he iscontributing to the

achievement of organisational objectives.

There must be a system of information tailored to the specificmanagement

needs at every level, both in terms of adequacyand timeliness.Control system

ensures that every manager gets adequateinformation. The criterion for

adequacy of information to amanager is his responsibility and authority that is

in the contextof his responsibility and authority, what type of information

the manager needs. This can be determined on the basis ofcareful analysis of

the manager’s functions. If the manager isnot using any information for taking

certain action, theinformation may be meant of informing him only and not

falling within his information requirement Thus, an effectivecontrol system

ensures the flow of the information that isrequired by an executive, nothing

more or less. There is anotheraspect of information for control and other

function, that is,the timeliness information. Ideally speaking, the manager

should be supplied information when he needs it for takingaction. For

correcting the deviation, timely action is require bythe manager concerned. For

this purpose one must have theinformation at proper time and covering the

functioning of aperiod, which is subject to control. The control system

functions effectively on the basis of the information, which issupplied in the

organisation. -However, the information is usedas a guide and on this basis

identifies what action can be taken.

Planning System

Planning is the basis for control in the sense that it provides theentire spectrum

on which control function is based. In fact,these two terms are often used

together in the designation ofthe department, which carries production

planning, schedulingand routing. It emphasizes that there is a plan, which

directs thebehaviour and activities in the organisation. Control measures

thesebehaviour and activities and suggests measures to removedeviation, if

any. Control further implies the existence of certaingoals and standards. The

planning process provides thesegoals. Control is the result of particular plans,

goals, or policies.Thus, planning offers and affects control. Not only that, the

planning is also affected by control in the sense that many ofthe information

provided by control is used for planning andpreplanning. Thus, there is a

reciprocal relationship betweenplanning and control, as discussed earlier in

this chapter.

Since planning and control systems are closely interlinked, thereshould be

proper integration of the two. This integration canbe achieved by developing

consistency of strategic objectives andperformance measures. Prescribing

performance measures,which are strategically important, is quite significant

becauseoften it is said ‘what you measure is what you get’. In developing

performance measures, two considerations must be takeninto account. First,

the performance measures should focus onwhether short-term profitability, or

growth and technologicalascendancy, or logistic efficiency, or some other

objectives shouldbe of primary concern. Second, the measures should relate to

the managerial domain of each of the managers, as each ofthem is responsible

to exercise control in his own domain.

Motivation System

Motivation system is not only related to evaluation and controlsystem but to

the entire organisational processes. As we haveseen earlier in this chapter, lack

of motivation on the part ofmanagers is a significant barrier in the process of

evaluation andcontrol. Since the basic objective of evaluation and control is

toensure that organisational objectives are achieved, “motivation

plays a central role in this process. It energizes managers andother employees

in the organisation to perform better which isthe key for organisational

success.

Appraisal System

Appraisal or performance appraisal system involves systematicevaluation of

the individual with regard to his performance onthe job and his potential for

development. While evaluating anindividual, not only his performance is taken

into considerationbut also his abilities and potential for better performance.

Thus,appraisal system provides feedback for control system abouthow

individuals are performing.

Development System

As discussed in Chapter 15, development system is concernedwith developing

personnel to perform better in their presentpositions and likely future positions

that they are expected tooccupy. Thus, development system aims at increasing

organisational capability through people to achieve betterresults. These results,

then, become the basic for evaluation andcontrol.

9. Stages of ControlDepending on the stages at which control is exercised, it may beof three types:

1 Control of inputs that are required in an action, known asfeed forward

control

2 Ccontrol at different stages of action process, known asconcurrent, real-time,

or steering control; and

3 Post action control based on feedback from the completedaction, known as

feedback control. Control at various stagesof action is presented in Figure

Figure: Stages of control

Feed Forward Control

Feed forward control involves evolution of inputs and takingcorrective action

before a particular sequence of operation _completed. Thus, it attempts to

remove the limitations of timelag in taking corrective action. Feed forward

control monitorsinputs into a process determine whether the inputs are as

planned. If inputs are not as planned corrective action is takento adjust the

inputs according to the plan so that the desiredresults are achieved within the

planned inputs. It is just likehunting a duck. A hunter will always aim ahead of

a duck’sflight compensate for the time lag between a shot and a hopedfor

hit. To be effective, feed forward control should meet thefollowing

requirements:

1. Thorough and careful analysis of the planning and controlsystem must be

made, and the more important inputvariables identified.

2. A model of the system should be developed.

3. The model should be reviewed regularly to see whether theinput variables

identified and their relationship still representrealities.

4. Data on input variables must be regularly collected and putinto the system.

5. The variations of actual input data from planned inputsmust be regularly

assessed, and their impact on expectedresults is evaluated.

6. Action must be taken to show people problems and themeasure required to

solve them.

Concurrent Control

Concurrent control is exercised during the operation of aprogram. It provides

measures for taking corrective action ormaking adjustments while the program

is still in operation andbefore any ma damage is done. In the organisational

context,many control activities are based on this type of control, forexample,

quality control during the operation, or safety check in

a factory, Here, the focus is on the process itself. Data providedby this control

system is used to adjust the process. Manystrategic controls fall in this

category.

Feedback Control

Feedback control is based on the measurement of the results ofan action. Based

on this measurement, if any deviation is foundbetween performance standards

and actual performance, thecorrective action is undertaken as shown in Figure.

The controlaims at future action of the similar nature so that there is

conformity between standards and actual. This is requiredbecause, sometimes,

feed forward or concurrent control is notpossible to apply, for example, many

personal characteristics ofan individual which go into behavioral processes are

notmeasurable, hence feed forward control is difficult to apply. Inthe business

organizations, top management control is mostlybased on feedback. To Intake

feedback control effective, it isessential that corrective action is taken as soon-

as possible.

10. CASE STUDY

Wal-Mart Stores, Inc.: Under Attack (2006)

I.CASEABSTRACT 

Wal-Mart Stores, Inc. was not only the largest retail organization by sales

volume in the U.S. in 2006, but also the largest company in the world.   As of  

January 31, 2006, Wal-Mart Stores, Inc. was structured into three business

units, Wal-Mart Stores USA, SAM’S CLUB, and Wal-Mart International.  

The Wal-Mart Stores unit had 3,289 locations and included the company’s

Supercenters, discount stores, and Neighborhood Markets in the U.S., as well

as Walmart.com.   The SAM’S CLUB unit had 567 locations and included the

warehouse membership clubs in the U.S. plus samsclub.com.   Wal-Mart

International had 2,285 locations in 10 countries. Sales and profits for the year

ending January 31, 2006 were a record high $312.4 billion and $11.2 billion,

respectively.   Earnings per share jumped from $2.41 in 2005 to $2.68 in 2006.

  Wal-Mart’s management faced significant challenges in 2006 – challenges

that could significantly affect the achievement of its growth objectives.   The

company was being condemned for business practices ranging from low pay

and stingy healthcare benefits to exporting jobs and destroying small

businesses.   Wal-Mart was also the subject of litigation, including a class

action discrimination suit.   The company’s second highest executive had been

forced to leave the company after being convicted of fraud and tax evasion. In

addition, filmmaker Robert Greenwald premiered a scathing documentary in

2005 titled, Wal-Mart: The High Cost of Low Prices.

Of special concern to management was the behavior of the company’s stock.  

Contrary to the upward direction of the firm’s sales and profits, the price of

Wal-Mart’s stock had fallen from $56.98 in January, 2002 to $46.11 in

January, 2006 and to $45.06 in March, 2006.   Even though the board of

directors had both repurchased stock and continually raised dividends, the

stock had failed to respond.

Conclusion

Evaluation and control play a central role in the strategic management process

to assess how well things are going at every phase of the process and to take

whatever action is necessary to improve performance. We evaluate to know

how good our strategic plans are and how well they are implemented. The

information we get from evaluation enables us to exercise better control over

the strategic management process.

We evaluate and control for three good reasons: to ensure that the

organisationis headed in the right direction, to provide guidance on how good

performance can beachieved, and to inspire confidence in the organisation’s

ability to produce desired results.

How the evaluation and control process works is quite straightforward: set

performance objectives, compare actual performance against objectives, take

whatever action is necessary to improve performance. By setting performance

objectives the organisation is forced to constantly re-examine its targets

(usually the strategic goals and objectives) and ensure they have measurable,

realistic outcomes. Performance objectives should be set in those areas most

critical to success, and the level of performance set should constantly be

examined to ensure that it remains realistic and in tune with present and

anticipated conditions. Evaluation and control do not merely look at the

implementation process, they should also be used to assess the validity of the

strategic plan itself.

Bibliography

Books/Articles

Michael Vaz : Strategic Management (M.com –I )

Anita Bobade : Strategic Management (TYBBI /SYBMS )

Chisnall, Peter: Strategic Business Marketing, 1995.

McGraw-Hill, NY. Day, Georges: Strategic Marketing Planning, 1994

Jain, SubhashC.:International Marketing Management, 1993.

Jain, Subhash C.: Marketing Planning & Strategy, 1997.

Lambin, Jean-Jacques: Strategic Marketing Management, 1996.

Murray, Johan &O'Driscoll, Aidan: Strategy and Process in Marketing, 1996.

Weitz, Barton A. &Wensley, Robin: Readings in Strategic Marketing, 1997

Wilson, Richard & Gilligan, Colin: Strategic Marketing Management, 1992.

Webliography

http://www.investopedia.com/terms/d/strategic.asp#ixzz276fG1EHt

http://www.investorwords.com/1504/strategic.html#ixzz276fni79e