Strategy evaluation & control

• trategy Evaluation is as significant as strategy formulation because it

throws light on the efficiency and effectiveness of the
comprehensive plans in achieving the desired results. The managers
can also assess the appropriateness of the current strategy in
todays dynamic world with socio-economic, political and
technological innovations. Strategic Evaluation is the final phase
of strategic management.
• The significance of strategy evaluation lies in its capacity to co-
ordinate the task performed by managers, groups, departments
etc, through control of performance. Strategic Evaluation is
significant because of various factors such as - developing inputs for
new strategic planning, the urge for feedback, appraisal and reward,
development of the strategic management process, judging the
validity of strategic choice etc.
•
The process of Strategy Evaluation
• Fixing benchmark of performance - While fixing the benchmark, strategists encounter questions
such as - what benchmarks to set, how to set them and how to express them. In order to determine
the benchmark performance to be set, it is essential to discover the special requirements for
performing the main task. The performance indicator that best identify and express the special
requirements might then be determined to be used for evaluation. The organization can use both
quantitative and qualitative criteria for comprehensive assessment of performance. Quantitative
criteria includes determination of net profit, ROI, earning per share, cost of production, rate of
employee turnover etc. Among the Qualitative factors are subjective evaluation of factors such as -
skills and competencies, risk taking potential, flexibility etc.
• Measurement of performance - The standard performance is a bench mark with which the actual
performance is to be compared. The reporting and communication system help in measuring the
performance. If appropriate means are available for measuring the performance and if the
standards are set in the right manner, strategy evaluation becomes easier. But various factors such
as managers contribution are difficult to measure. Similarly divisional performance is sometimes
difficult to measure as compared to individual performance. Thus, variable objectives must be
created against which measurement of performance can be done. The measurement must be done
at right time else evaluation will not meet its purpose. For measuring the performance, financial
statements like - balance sheet, profit and loss account must be prepared on an annual basis
• Analyzing Variance - While measuring the actual performance and comparing it
with standard performance there may be variances which must be analyzed. The
strategists must mention the degree of tolerance limits between which the
variance between actual and standard performance may be accepted. The positive
deviation indicates a better performance but it is quite unusual exceeding the
target always. The negative deviation is an issue of concern because it indicates a
shortfall in performance. Thus in this case the strategists must discover the causes
of deviation and must take corrective action to overcome it.
• Taking Corrective Action - Once the deviation in performance is identified, it is
essential to plan for a corrective action. If the performance is consistently less than
the desired performance, the strategists must carry a detailed analysis of the
factors responsible for such performance. If the strategists discover that the
organizational potential does not match with the performance requirements, then
the standards must be lowered. Another rare and drastic corrective action is
reformulating the strategy which requires going back to the process of strategic
management, reframing of plans according to new resource allocation trend and
consequent means going to the beginning point of strategic management process.
 Strategic control
• It is concerned with tracking the strategy as it
being implemented, directing problems or
changes in underlying premises and making
necessary adjustments.
• There are two types of control namely-
strategic control and operational control
• Strategic control is again classified as premise
control, implementation control, strategic
surveillance and special alert control
• Premise control : strategies are often concerned with
premises, ie assumptions or predicted conditions. Strategy
may be based on certain premises related to the industry
and other environmental factors like government policies
and regulations, socio demographic factors, economic
conditions etc..changes in the vital premises may
necessitate changes in strategy
• Implementation control : the lessons of the first phases of
the implementation could be helpful in the implementation
of the subsequent phases. Implementation control is
designed to assess whether the overall strategy should be
changed in the light of unfolding results and events
associated with incremental steps and actions that
implement the overall strategy
• Strategic surveillance : it is designed to monitor a
broad range of events inside and outside the company
that are likely to threaten the course of the firms
strategy. It is therefore necessary that the company
exercise surveillance for timely detection of such
developments and corrective action
• Special alert control: sudden and unexpected
developments like alliance between competitors,
political coup , a major competitive move by
competitor etc…could have serious impact on a firms
strategy
 Operational control
• Operational control system guide, monitor and
evaluate progress in meeting annual objectives. While
strategic control attempt to steer the company over an
extended time period, operational control provides
post action evaluation and control over short time
period which may be one month to one year. The
operational control system involves following steps,
» Establishing criteria and standards
» Measuring and comparing performance
» Performance gap analysis
» Taking corrective measures
• Establishing criteria and standards: criteria
and standards provides the basics for
evaluation. Selection of criteria for evaluation
depends on a number of a factors such as the
purpose of evaluation, the accuracy required,
the critical importance of the variable
evaluated, the strategy, the internal and
external environment, management
philosophy etc..
• Measuring and comparing performance: the actual
performance is measured and compared with
standards to identify the shortfall if any.
• Performance gap analysis: the difference between the
actual performance of a given organizational unit and
the planned performance of the unit. If there is any
performance gap it is necessary to identify the reason
for the gap to determine the appropriate corrective
measure
• Corrective measures : corrective measure will depend
on the reasons for the gap, the extent of the gap, etc…
 Types of operational control
• Budgeting : A budget is a statement of planned or
estimated expenditure or receipts in respect of a
specific purpose or function over a specific period of
time. Budget itself will not control anything but they
set standards
• Scheduling: it is very important planning tool for
allocating the use of a time constrained resources or
arranging the sequence of interdependent activities
• Key success factors: critical factors which contributes to
success such as productivity, quality, employee morale
and market share.
 Essential feature for effective
evaluation and control system
• Objective based(pg128 francis)
• Economic
• Objectivity
• Pervasiveness
• Simplicity
• Communication and invlovement
• Congruence
• operational
 Principles of Strategy Evaluation

• Now that we have explained how strategy evaluation occurs, the next step is to
understand some basic principles to consider while developing a strategy. There
are four terms to study: consistency, consonance, advantage, and feasibility.
• Consistency has to do with whether the way the business operates matches the
objectives the business strives for. When a business sets objectives or goals, they
can evaluate their daily operations to see if it has met these goals.
• Consonance refers to how well the business reacts to the change of surroundings.
If consumers' preferences change, or a competitive business is built next door, a
business needs to be able to adapt and still be successful.
• Advantage has to do with whether the business is competitive. If a consumer
purchases products at their business instead of at another store, the business can
remain competitive.
• Feasibility is concerned with whether the business has the resources and tools to
function. As times change and technology grows, a company needs to have the
resources to still remain successful.
•
• The main evaluation methods include:
• consultation
• literature review (prospective evaluation synthesis)
• evaluative review of lessons from other existing programmes
• evaluative goal and objective setting critique
• evaluative implementation (programme) logic critique
• formative evaluation workshops for centrally funded community programmes
• evaluation hui
• stakeholder workshops
• pretesting for programme resource development
• piloting
• archival, administrative /routine records collection
• evaluation specific records collection
• observation and environmental audit
• participant observation
• photos, video and audio
• document analysis
• interviews: key informant / participant
• surveys, questionnaires, feedback sheets
• focus groups
• These methods of collecting data can then be subject to various methods of analysis:
• expert assessment
• statistical analysis
• qualitative analysis
• economic evaluation.
7’s Model
7 S model
 7 S model
• The 7S model, developed by Mckinsey
Consulting, can describe how affectively one can
organise a company, holistically. It is based
around seven key elements of any organisation,
with the view that in order for it to operate
successfully, all the elements in this model must
align synergistically together.
• The factors are split into two groups: hard or soft.
• The hard elements are those that can physically
be seen when in place, whereas the soft are more
intangible and cannot readily be seen.
• Structure: The line of
reporting, task allocation, coordination and supervision levels
• Strategy: The top level plan top create competitive advantage
• Systems: The supporting systems and process of the firm, like
Information systems, financial reporting, payment systems,
resource allocation etc
• Shared Values: These are the core values of the company and form
the underpinning culture and how the business behaves and is
perceived to behave in the wider context of the
community
• Style: the overarching style of leadership adopted within the
organisation
• Staff: the number and types of employees within the organisation
• Skills: the skills and competencies of the employees
 What is 7-S Model?

• The Seven-Ss is a framework for analyzing

organizations and their effectiveness. It looks
at the seven key elements that make the
organizations → successful, or not: strategy;
structure; systems; style; skills; staff; and
shared values.
• Consultants at McKinsey & Company
developed the 7S model in the late 1970s to
help managers address the difficulties
of organizational change. The model shows
that organizational immune systems and the
many interconnected variables involved make
change complex, and that an effective change
effort must address many of these issues
simultaneously.
• The 7-S diagram illustrates the multiplicity
interconnectedness of elements that define
an organization's ability to change. The theory
helped to change manager's thinking about
how companies could be improved. It says
that it is not just a matter of devising a new
strategy and following it through. Nor is it a
matter of setting up new systems and letting
them → generate improvements.
• To be effective, your organization must have a
high degree of fit, or internal alignment among all
the seven Ss. Each S must be consistent with and
reinforce the other Ss. All Ss are interrelated, so a
change in one has a ripple effect on all the others.
It is impossible to make progress on one without
making progress on all. Thus, to improve your
organization, you have to master systems
thinking and pay attention to all of the seven
elements at the same time. There is no starting
point or implied hierarchy – different factors may
drive the business in any one organization.
• The model is most often used as an organizational
analysis tool to assess and monitor changes in the
internal situation of an organization.
• The model is based on the theory that, for an
organization to perform well, these seven elements
need to be aligned and mutually reinforcing. So, the
model can be used to help identify what needs to be
realigned to improve performance, or to maintain
alignment (and performance) during other types of
change.
• Whatever the type of change – restructuring, new
processes, organizational merger, new systems, change
of leadership, and so on – the model can be used to
understand how the organizational elements are
interrelated, and so ensure that the wider impact of
changes made in one area is taken into consideration.
• Shared Values
• Shared values are commonly held beliefs, mindsets,
and assumptions that shape how an organization
behaves – its → corporate culture. Shared values are
what engender trust. They are an interconnecting
center of the 7Ss model. Values are the identity by
which a company is known throughout its business
areas, what the organization stands for and what it
believes in, it central beliefs and → attitudes. These
values must be explicitly stated as both corporate
objectives and individual values.
• Structure
• Structure is the organizational chart and associated
information that shows who reports to whom and how
tasks are both divided up and integrated. In other
words, structures describe the hierarchy of authority
and accountability in an organization, the way the
organization's units relate to each other: centralized,
functional divisions (top-down); decentralized (the
trend in larger organizations); matrix, network, holding,
etc. These relationships are frequently diagrammed in
organizational charts. Most organizations use some mix
of structures – pyramidal, matrix or networked ones –
to accomplish their goals.
• Strategy
• → Strategy are plans an organization
formulates to reach identified → goals, and a
set of decisions and actions aimed at gaining
a sustainable advantage over
the → competition
• Systems
• Systems define the flow of activities involved
in the daily operation of business, including its
core processes and its support systems. They
refer to the procedures, processes and
routines that are used to manage the
organization and characterize how important
work is to be done...
• Style
• "Style" refers to the → cultural style of the
organization, how key managers behave in
achieving the organization's goals, how
managers collectively spend their time and
attention, and how they use symbolic
behavior. How management acts is more
important that → what management says.
• Staff
"Staff" refers to the number and types of
personnel within the organization and how
companies develop employees and shape basic
values.

• Skills
"Skills" refer to the
dominant distinctive → capabilities and → comp
etencies of the personnel or of the organization
as a whole.
• The hard elements are those that can physically be seen when in
place, whereas the soft are more intangible and cannot readily be
seen.

• Hard Elements
Strategy - Purpose of the business and the way the organization seeks
to enhance its competitive advantage.
Structure - Division of activities; integration and coordination
mechanisms.
Systems - Formal procedures for measurement, reward and resource
allocation.
• Soft Elements
Shared Values
Skills - The organization's core competencies and distinctive
capabilities.
Staff - Organization's human resources, demographic, educational and
attitudinal characteristics.
Style - Typical behaviour patterns of key groups, such as managers, and
other professionals.
• Its Uses
• The change agent’s task therefore, is to understand the goal of the
organisation and optimise each of the seven factors in line with the
corporate goals.
• The framework can be used to understand where gaps may appear
in the organisation, which is creating imbalance and what areas of
the business to align and improve to increase performance. It can
be used as a tool in a variety of corporate situations, like:
• Understanding a system change and the affects to the organisation
as a whole
• Planning for a process change – A smaller change will result in a
new balance of the 7S Model
• Creating Strategic and fundamental culture change
• Align departments and processes during acquisition/merger
• You can use the 7S model to help analyze the current
situation, a proposed future goal and then identify
gaps and inconsistencies between them. It’s then a
question of adjusting and tuning the elements to
ensure that your organisation works effectively and
well towards achieving that end goal
• Examine the likely effects of future changes within a
company
• Align departments and processes during a merger or
acquisition
• Determine how best to implement a proposed strategy
• 1. The DuPont System was developed by DuPont
Corporation to dissect a firm’s financial statement, so as to
assess its financial condition.
• 2. It merges the Income Statement and Balance Sheet into
two summary measures of profitability: Return On Total
Assets (ROA) and Return On Equity (ROE). The top portion
focuses on Income Statement & bottom on balance sheet.
• 3. Its allow us to break ROE into 3 components:
• · as a Profit on Sales,
• · as an efficiency of asset-use, and
• · finally on use-of-leverage
• By breaking it into 3 components, we can obtain a very
detailed analysis of the financial health of the company.
 DuPont System
•
A system of analysis has been developed that
focuses the attention on all three critical
elements of the financial condition of a company:
the operating management, management of
assets and the capital structure. This analysis
technique is called the "DuPont Formula". The
DuPont Formula shows the interrelationship
between key financial ratios. It can be presented
in several ways.
 DuPont Analysis
• The Dupont analysis also called the Dupont model is a financial ratio
based on the return on equity ratio that is used to analyze a
company's ability to increase its return on equity. In other words,
this model breaks down the return on equity ratio to explain how
companies can increase their return for investors.
• The Dupont analysis looks at three main components of the ROE
ratio.
• Profit Margin
• Total Asset Turnover
• Financial Leverage
• Based on these three performances measures the model concludes
that a company can raise its ROE by maintaining a high profit
margin, increasing asset turnover, or leveraging assets more
effectively.
• BENEFIT OF USING THE DUPONT MODEL
• The DuPoint system enables management to look
at both ROA & ROE to provide a clearer picture of
management effectiveness
• It reconciles both ROA and ROE meaning that:
• · If ROA is sound and debt levels are reasonable,
a strong ROE is a solid signal that managers are
doing a good job of generating returns from
shareholders’ investments,
• · ROE is a “hint” that management is giving
shareholders more for their money. On the other
hand, if ROA is low or the company is carrying a
lot of debt, a high ROE can give investors a false
impression about the company’s fortunes
 Importance of Dupont Analysis
• Any decision affecting the product prices, per unit costs,
volume or efficiency has an impact on the profit margin or
turnover ratios. Similarly
• any decision affecting the amount and ratio of debt or
equity used will affect the financial structure and the
overall cost of capital of a company.
• Therefore, these financial concepts are very important to
evaluate as every business is competing for limited capital
resources. Understanding the interrelationships among the
various ratios such as turnover ratios, leverage, and
profitability ratios helps companies to put their money
areas where the risk adjusted return is the maximum.
•
• DU Pont Analysis
• The Du Pont Company of the US pioneered a system of financial analysis, which has received widespread recognition and
acceptance. This system of analysis considers important interrelationships between different elements based on the
information found in the financial statements.
• The Du Pont analysis can be depicted via the following chart:
•
• At the apex of the Du Pont chart is the Return On Total Assets (ROTA), defined as the product of the Net Profit Margin (NPM)
and the Total Assets Turnover Ratio (TATR). As a formula this can be shown as follows:
• (Net profit/Total asset)= (Net profit/Net sales)*(Net sales/Total assets)
• (ROTA) (NPM) (TATR)
• Such decomposition helps in understanding how the return on total assets is influenced by the net profit margin and the
total assets turnover ratio.
• The left side of the Du Pont chart shows details underlying the net profit margin ratio. A detailed examination of this side
presents areas where cost reductions may be effected to improve the net profit margin.
• The right side of the chart highlights the determinants of total assets turnover ratio. If this study is supplemented by the
study of other ratios such as inventory, debtors, fixed asset turnover ratios, a deeper insight into efficiencies and
inefficiencies of asset utilisation can be sought.
• The basic Du Pont analysis can be extended to explore the determinants of the Return On Equity (ROE).
• Return on equity= Asset turnover * Net profit margin*leverage
• (Net profit/Equity)= (Net profit/Sales)*(Sales/Total assets)*(Total assets/Equity)
• (ROE) (NPM) (TATR) 1/(1-DR)
• Where DR is the debt ratio= debt (D)/assets (A)
• Breaking ROE into these three parts allows evaluation of how well one can manage the company’s assets, expenses, and
debt. A manager has basically three ways of improving operating performance in terms of ROA and ROE. These are:
• Increase capital asset turnover
• Increase operating profit margins
• Change financial leverage
• Each of these primary drivers is impacted by the specific decisions on cost control, efficiency productivity, marketing choices
etc.
Michael Porter's approach to strategic
management.
• The Porter's Five Forces tool is a simple but powerful tool for
understanding where power lies in a business situation. This is
useful, because it helps you understand both the strength of your
current competitive position, and the strength of a position you're
considering moving into.
• With a clear understanding of where power lies, you can take fair
advantage of a situation of strength, improve a situation of
weakness, and avoid taking wrong steps. This makes it an important
part of your planning toolkit.
• Conventionally, the tool is used to identify whether new products,
services or businesses have the potential to be profitable. However
it can be very illuminating when used to understand the balance of
power in other situations.
•
• Five Forces Analysis assumes that there are five important forces that determine competitive power in a
business situation. These are:
• Supplier Power: Here you assess how easy it is for suppliers to drive up prices. This is driven by the
number of suppliers of each key input, the uniqueness of their product or service, their strength and
control over you, the cost of switching from one to another, and so on. The fewer the supplier choices
you have, and the more you need suppliers' help, the more powerful your suppliers are.
• Buyer Power: Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven
by the number of buyers, the importance of each individual buyer to your business, the cost to them of
switching from your products and services to those of someone else, and so on. If you deal with few,
powerful buyers, then they are often able to dictate terms to you.
• Competitive Rivalry: What is important here is the number and capability of your competitors. If you
have many competitors, and they offer equally attractive products and services, then you'll most likely
have little power in the situation, because suppliers and buyers will go elsewhere if they don't get a
good deal from you. On the other hand, if no-one else can do what you do, then you can often have
tremendous strength.
• Threat of Substitution: This is affected by the ability of your customers to find a different way of doing
what you do – for example, if you supply a unique software product that automates an important
process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy
and substitution is viable, then this weakens your power.
• Threat of New Entry: Power is also affected by the ability of people to enter your market. If it costs little
in time or money to enter your market and compete effectively, if there are few economies of scale in
place, or if you have little protection for your key technologies, then new competitors can quickly enter
your market and weaken your position. If you have strong and durable barriers to entry, then you can
preserve a favorable position and take fair advantage of it.
• Key Points
• Porter's Five Forces Analysis is an important tool for assessing the potential for profitability in an
industry. With a little adaptation, it is also useful as a way of assessing the balance of power in
more general situations.
• It works by looking at the strength of five important forces that affect competition:
• Supplier Power: The power of suppliers to drive up the prices of your inputs.
• Buyer Power: The power of your customers to drive down your prices.
• Competitive Rivalry: The strength of competition in the industry.
• The Threat of Substitution: The extent to which different products and services can be used in
place of your own.
• The Threat of New Entry: The ease with which new competitors can enter the market if they see
that you are making good profits (and then drive your prices down).
• By thinking about how each force affects you, and by identifying the strength and direction of each
force, you can quickly assess the strength of your position and your ability to make a sustained
profit in the industry.
• You can then look at how you can affect each of the forces to move the balance of power more in
your favor.