REVIEW, EVALUATION AND CONTROL OF THE STRATEGY PDF

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Contains information on the nature of the evaluation of the strategy, reviewing the basics of strategy, performance measurement of a company, the s remedial actions, sources publics information strategy evaluation, characteristics l system effective evaluation, contingency planning and audits....

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REVIEW, EVALUATION AND CONTROL OF THE STRATEGY

The strategic management process generates decisions that produce significant long-term consequences. Erroneous strategic decisions impose harsh punishments that are very difficult, if not impossible, to reverse; therefore, most strategists agree that the evaluation of the strategy is vital for the well-being of a company; Timely assessments warn management of real problems or potential problems before a situation becomes critical. The evaluation of the strategy includes three basic activities: 1) 2) 3)

examining the underlying bases of a company's strategy the comparison of expected results with actual results taking corrective measures to ensure that the performance matches the plans.

Adequate and timely feedback is the key to the effective evaluation of the strategy. The evaluation of the strategy is not better than the information on which it operates, and the pressure on the part of the high-level managers makes it possible for managers at lower levels to arrange the figures according to what they consider to be satisfactory. The evaluation of the strategy is a complex and sensitive undertaking, and the fact that giving too much importance to the evaluation of the strategies is costly and counterproductive.Nobody likes to be evaluated too much! The more managers try to evaluate the behavior of others, the less control they have. However, poor or excessive evaluation creates even worse problems. Strategic evaluation is essential to ensure that the established objectives are achieved. In many companies, the evaluation of the strategy is only an assessment of the performance of a company. Have the assets of the company increased? Has there been an increase in profitability? Have sales increased? Have productivity levels increased? Have the levels of profit margin, return on investment and earnings per share increased? Some companies argue that their strategy must have been correct if the answers to these types of questions are affirmative. Well, the strategy or strategies may have been correct, but this type of reasoning is wrong because the evaluation of the strategy must have a long-term as well as a short-term focus. Strategies often do not affect short-term operating results until it is too late to make the necessary changes. It is impossible to demonstrate conclusively that a particular strategy is optimal, nor to guarantee that it will work; however, it is feasible to evaluate it for important errors. Richard Rumelt offered four criteria to evaluate a strategy: congruence, concordance, viability and advantage. The congruence and the advantage are based mainly on the external evaluation of a company, while the agreement and feasibility are based mainly on an internal evaluation. The evaluation of the strategy is important because companies face dynamic environments where external and internal factors often change quickly and

drastically. Today's success does not guarantee tomorrow's success! A company should never be pleased with success, because countless companies have prospered a year just to struggle to survive the following year. The evaluation of the strategy becomes increasingly difficult over time for many reasons. Domestic and world economies were more stable in previous years, product life cycles were longer, product development cycles were longer, technological progress was slower, changes occurred less frequently, there were fewer competitors , companies were weak and there were more regulated industries. Among other reasons why the evaluation of the strategy is more difficult at present are the following trends: 1. A drastic increase in the complexity of the environment. 2. The increasing difficulty of predicting the future with accuracy. 3. The largest number of variables. 4. The rapid rate of obsolescence even of the best plans. 5. The increase in the number of domestic and global events that affect companies. 6. The decreasing time to carry out the planning with a certain degree of certainty. A fundamental problem faced by managers today is how to effectively control employees in light of the current demands of companies regarding a greater flexibility, innovation, creativity and initiative on the part of employees. How do managers guarantee that employees who receive authority and act in an entrepreneurial manner do not risk the welfare of the company?Remember that Kidder, Peabody & Company lost $ 350 million when one of its vendors allegedly registered fictitious profits; Sears, Roebuck and Company had to pay $ 60 million of their profits after admitting that their automotive service companies made unnecessary repairs. The costs for companies like these in terms of damaged reputations, fines, missed opportunities and the diversion of management's efforts are enormous. When employees with authority are responsible and pressured to achieve specific goals, in addition to having great freedom of action to achieve them, inappropriate behavior may occur;For example, Nordstrom, the elegant clothing store recognized for its extraordinary customer service, was subject to legal demands and fines when employees registered fewer work hours to increase their sales per hour, the company's main performance criteria. Nordstrom's customer service and utilities showed an improvement until the inappropriate behavior was reported, at which time severe penalties were imposed on the company. The process of evaluation of the strategies The evaluation of the strategy is necessary for companies of all sizes and types. The evaluation of the strategy should initiate the questioning of management on expectations and assumptions, start a review of objectives and values and stimulate creativity in the generation of alternatives and the formulation of evaluation criteria.Regardless of the size of the company, a certain amount of direction walking around at all levels is basic to the effective evaluation of the strategy. The evaluation activities of the strategy must be

carried out continuously, rather than at the end of specific periods of time or just after the problems occur; for example, waiting until the end of the year could result in a company closing the barn door after the horses have escaped. The evaluation of the strategies in a continuous rather than periodic way allows to establish and supervise in an efficient way reference points of the progress. Some strategies require years for their implementation; as a result, the results may not be apparent for years. Successful strategists combine patience with a desire to take corrective action in a timely manner when necessary. There always comes a time when a company needs to take corrective action. Centuries ago, a writer (perhaps Solomon) made the following observations about the change:               

Everything has its time. Time to be born and time to die. Planting time and time to start the planting. Time to kill and time to heal. Time to destroy and time to build. Time to cry and time to laugh. Time to lament and time to dance. Time to spread stones and time to gather stones. Time to embrace and time to abstain from embracing. Time to search and time to lose. Time to save and time to discard. Time to break and time to sew. Silence time and talk time. Time to love and time to hate. Time of war and time of peace.

The managers and employees of the company must always be aware of the progress made towards the achievement of the company's objectives. As the critical success factors change, the members of the company must participate in determining the appropriate corrective measures. If the assumptions and expectations deviate significantly from the forecasts, then the company must renew the activities of formulating the strategy, perhaps sooner than planned. In the evaluation of the strategy, as in the formulation and implementation of the strategy, people make a difference. Through participation in the process of evaluating strategies, managers and employees are committed to keeping the company in constant direction towards the achievement of the objectives. A scheme for the evaluation of the strategy T he evaluation activities of the strategy in terms of the key questions that should be asked, alternative answers to these questions and appropriate steps to take a business. Note that corrective measures are almost always necessary except when 1) the external and internal factors have not changed significantly; and 2) the company progresses satisfactorily towards the achievement of the established objectives. Review of the bases of the strategy

L to review the underlying basis of the strategy of a company could be carried out by developing a matrix EFE and EFI revised matrix. A revised EFI matrix should focus on changes in the company's strengths and weaknesses in the areas of management, marketing, finance and accounting, production and operations, R & D, and management information systems. A revised EFE matrix should indicate how effective a company's strategies have been in responding to key opportunities and threats. This analysis could also address questions such as the following: 1. How have the competitors reacted to our strategies? 2. How have the strategies of the competitors changed? 3. Have the strengths and weaknesses of our main competitors changed? 4. Why do competitors make certain strategic changes? 5. Why are the strategies of some competitors more successful than those of others? 6. How satisfied are our competitors with their current market positions and profitability? 7. How much can our main competitors be pressured before counterattacking? 8. How can we cooperate more effectively with our competitors? Numerous external and internal factors prevent companies from achieving their annual and long-term objectives. Among external factors, the actions of competitors, changes in demand, changes in technology, economic changes, demographic changes and government actions prevent compliance with the objectives. Among the internal factors are the selection of ineffective strategies or the deficiency of the implementation activities. The objectives could have been very optimistic; therefore, failure to achieve objectives may not be the result of unsatisfactory work by managers and employees. All members of the company should know this to encourage them to support the strategy evaluation activities. Companies need to know urgently and as soon as possible when the strategies are ineffective. Sometimes, managers and employees in contact with clients discover this long before the strategists. External opportunities and threats, as well as internal strengths and weaknesses, which represent the foundations of present strategies, should be monitored for changes. Actually, the question is not whether these factors will change, but rather when they will change and in what way. Some key questions that must be addressed in the evaluation of strategies are presented below: 1. 2. 3. 4. 5. 6. 7. 8.

Are our internal strengths still strengths? Have we added other internal strengths? If so, what are they? Are our internal weaknesses still weaknesses? Do we have other internal weaknesses? If so, what are they? Are our external opportunities still opportunities? Are there other external opportunities now? If so, what are they? Are our external threats still threats? Are there other external threats now? If so, what are they?

9.

Are we vulnerable to a hostile takeover?

Measuring the performance of the company Another important activity of evaluation of the strategy is the measurement of the performance of the company. This activity includes the comparison of the expected results with the actual results, the investigation of the deviations of the plans, the evaluation of the individual performance and the examination of the progress towards the fulfillment of the established objectives.Both long-term and short-term objectives are frequently used in this process. The criteria for the evaluation of the strategies must be quantifiable and easily verifiable. The criteria that predict results are more important than those that reveal what has already happened; for example, rather than just receiving information that sales in the last quarter were 20% lower than expected, strategists need to know that sales in the next quarter will be 20% below the norm unless Take some measures to counteract the trend. In reality, effective control requires an accurate forecast. The impossibility of progressing satisfactorily towards the achievement of annual or long-term objectives indicates the need to take corrective measures. Many factors, such as unreasonable policies, unexpected changes in the economy, unreliable suppliers or distributors or ineffective strategies, lead to unsatisfactory progress towards the achievement of objectives. Problems arise because of inefficiency (not doing the right things) or inefficiency (doing things right in a poor way) . Determining which objectives are more important in the evaluation of strategies is difficult. The evaluation of the strategy is based on both quantitative and qualitative criteria. The selection of the exact set of criteria to evaluate the strategies depends on the size, industry, strategies and management philosophy of a particular company; For example, a company that follows a cost-cutting strategy could have a completely different set of evaluation criteria than a company that uses a market development strategy. The quantitative criteria that are commonly used to evaluate strategies are the financial reasons that strategists use to make three important comparisons: one) the comparison of the performance of the company in different periods two) comparing the performance of the company with the performance of competitors 3) the comparison of the performance of the company with the industrial averages. Some key financial reasons that are particularly useful as criteria for the evaluation of the strategy are the following: 1. Return on investment (RSI). 2. Return on stockholders' equity (RSC). 3. Profit margin. 4. Participation in the market. 5. Debt and net worth of capital. 6. Profits per share. 7. Sales growth 8. Growth of assets.

However, there are some potential problems related to the use of quantitative criteria for the evaluation of strategies. First, most quantitative criteria are linked to annual objectives rather than long-term objectives. Second, different accounting methods provide diverse results on many quantitative criteria. Third, intuitive judgments almost always participate in obtaining quantitative criteria; For these and other reasons, qualitative criteria are also important in the evaluation of strategies. Human factors such as absenteeism and turnover rates, poor quality and quantity of production measures, or employee dissatisfaction are underlying causes of declining performance. Factors related to marketing, finance and accounting, R & D or management information systems also cause financial problems. Seymour Tilles identified six qualitative questions that are useful in the evaluation of strategies: 1. 2. 3. 4. 5. 6.

Is the strategy congruent within the company? Is the strategy congruent with the environment? Is the strategy appropriate in view of the available resources? Does the strategy imply an acceptable degree of risk? Does the strategy have an adequate time program? Is the strategy viable?

Some additional key questions that reveal the need for qualitative or intuitive judgments in the evaluation of the strategy are the following: 1. How good is the balance of the company's investments between high risk and low risk projects? 2. How good is the balance of the company's investments between long-term and short-term projects? 3. How good is the balance of the company's investments between slow-growing markets and fast-growing markets? 4. How good is the balance of the company's investments between different divisions? 5. To what extent are the company's strategy alternatives responsible to society? 6. What are the relationships between the key internal and external strategic factors of the company? 7. How are the main competitors likely to respond to certain strategies? Application of corrective measures The final activity of evaluation of the strategy, the taking of corrective measures requires the realization of changes to reposition the company in a competitive way for the future. Examples of changes that may be necessary include changing the organizational structure, replacing one or more key individuals, selling a division or reviewing the company's mission. Other changes could include the establishment or revision of objectives, the design of new policies, the issuance of shares to obtain capital, the hiring of additional vendors, the distribution of resources in a different way or the design of new performance incentives. The taking of corrective measures does not necessarily mean that the existing ones will be abandoned, not even that new strategies will be formulated:

The possibilities and probabilities of performing incorrect or inadequate actions increase geometrically with an arithmetic increase of the personnel. Any person who runs a company in general must supervise the actions of the participants, as well as the results they have achieved. If the results or actions do not agree with the pre-conceived or planned achievements, then corrective measures are required. No company has the possibility of surviving if it remains isolated; no company escapes change. The taking of corrective measures is necessary to keep a company in the road towards the achievement of the established objectives. Alvin Toffler, in his thought-provoking books, Future Shock and The Third Wave, argued that business environments become so dynamic and complex that they threaten people and businesses with a future shock, which occurs when nature, Types and speed of changes exceed the ability and ability of an individual or company to adapt successfully to changing circumstances. Brown and Agnew called this concept corporate agility. The taking of corrective measures increases the anxiety of managers and employees. The research suggests that participation in the evaluation activities of the strategy is one of the best ways to overcome the resistance to change of individuals. According to Erez and Kanfer, people accept changes better when they have a cognitive understanding of the changes, a sense of control of the situation and an awareness that the necessary steps will be taken to implement the changes. The evaluation of the strategy leads to changes in the formulation or implementation of the strategy, to changes in both the formulation and the implementation or no change at all.Strategists will have to review strategies and implementation methods sooner or later. Hussey and Langham offered the following reflection on the taking of corrective measures: Resistance to change is often based on emotions and is not easy to overcome through rational arguments. Resistance is based on feelings such as the loss of prestige, the implicit criticism of present competition, the fear of failing in the new situation, the irritation of not being consulted, the lack of understanding of the need for change or the insecurity to change the fixed and well-known methods; therefore, it is necessary to overcome this resistance through the creation of situations of participation and a complete explanation when changes are foreseen. Corrective measures should place a company in a better position to take advantage of its internal strengths and key external opportunities; avoid, reduce or mitigate external threats and improve internal weaknesses. Corrective measures must have an appropriate time margin and an adequate amount of risk, must be consistent within the company and responsible to society and, perhaps most important, must strengthen the competitive position of a company in its basic industry. The continuous evaluation of the strategy keeps the strategists close to the activity of a company and provides the necessary information to implement an

effective strategic management system. Carter Bayles described the benefits of evaluating...