Strategy Review, Evaluation and Control: 1. Examining The Underlying Bases of A Firm's Strategy
Strategy Review, Evaluation and Control: 1. Examining The Underlying Bases of A Firm's Strategy
Strategy Review, Evaluation and Control: 1. Examining The Underlying Bases of A Firm's Strategy
This could be approached through the development of a revised EFE Matrix and
IFE Matrix. This is to monitor the strengths, weaknesses, opportunities, and threats.
This is the final strategy evaluation activity wherein it requires making changes
to reposition a firm for the future competitively. This is necessary to keep an
organization on track towards achieving its objectives.
Named after its creator, Richard Rumelt, the Rumelt evaluation method
attempts to simplify the process using four criteria to assess whether a strategy is
efficient, effective and aligned with a business’s mission and goals[ CITATION Loh19 \l 1033
].
1. Consistency
The first criterion is to review short-term goals, objectives and policies. This is
to make sure each one supports your long-term business strategy.
2. Consonance
Consonance refers to the need for strategists to examine set of trends, as well
as individual trends in evaluating strategies - adaptive response to external
environment.
3. Feasibility
Strategy is reasonable in terms of the organization’s resources: physical
resources, human resources and financial resources.
4. Advantage
The strategy creates or maintains competitive advantage.
II. STRATEGIC EVALUATION FRAMEWORK
As shown in Figure 2, this is the second activity which includes the comparison
of expected and actual progress towards meeting objectives stated by the organization.
Some key financial ratios that are particularly useful as criteria for strategy
evaluation are as follows:
a. Return of Investment
It is used to evaluate the efficiency of an investment or to compare the
efficiencies of several different investments.
b. Return on Equity
It is an indicator of how effective management is at using equity
financing to fund operations and grow the company.
c. Profit margin
Profit margin gauges the degree to which a company or a business
activity makes money, essentially by dividing income by revenues.
d. Profit margin
Profit margin gauges the degree to which a company or a business
activity makes money, essentially by dividing income by revenues.
e. Market Share
This metric is used to give a general idea of the size of a company in
relation to its market and its competitors.
f. Debt to equity
This measures how your organization is funding its growth and how
effectively you are using shareholder investments.
However, the use of quantitative criteria carries with it the following potential
problems: geared to annual objectives, different accounting methods can provide
different results and intuitive judgements are involved. For these and other reasons,
the qualitative criteria in evaluating strategies are also important.
This is the final strategy evaluation activity which requires making changes to
competitively reposition a firm for the future. This action is taken when there are
significant differences that occurred based from the strategy evaluation activities one
and two that were done.
Alteration of an organization’s structure, replacement of key individuals, selling
divisions or revising mission are some examples of changes that may be needed. Other
changes could be the establishment or revision of objectives, policies or different
allocation of resources. However, corrective actions do not necessarily mean that
existing strategies should be abandoned or even new strategies must be
formulated[ CITATION Dav11 \l 1033 ].
- Corrective actions should have a proper time horizon and an appropriate amount
of risk.
1. How well is the firm continually improving and creating value along measures
such as innovation, technological leadership, product quality, operational
process efficiencies, and so on?
2. How well is the firm sustaining and even improving upon its core competencies
and competitive advantages?
3. How satisfied are the firm’s customers?
1. Economical
2. Meaningful
A contingency plan can be referred to as "Plan B" or back up that helps the
organization respond effectively to significant unforeseen events that may or may not
happen. It is also be used as an alternative for action if expected results fail to
materialize.
Planning ways to deal with unfavorable and favorable events before they occur
is a basic premise of good strategic management. Regardless of careful strategy
formulation, implementation, and evaluation, unforeseen circumstances can make
strategies obsolete. To minimize potential threats, developing contingency plans are
added as part of the organizations' strategy evaluation process.
However, the insurance of contingency plans is only required for high-priority
areas. Covering all bases by planning for all possible contingencies is not advisable,
but in any case, contingency plans should be kept as simple as possible.
1. Identify both beneficial (favorable) and unfavorable events that could possibly
derail the strategy or strategies.
2. Specify trigger points. Estimate when contingent events are likely to occur.
3. Assess the impact of each contingent event. Estimate the potential benefit or harm
of each contingent event.
4. Develop contingency plans. Be sure that the contingency plans are compatible with
current strategy and financially feasible.
5. Assess the counter impact of each contingency plan. That is, estimate how much
each contingency plan will capitalize on or cancel out its associated contingent
event.
6. Determine early warning signals for key contingent events. Monitor the early
warning signals.
7. Develop advanced action plans to take advantage of the available lead time.