Module 9 - Strategy Monitoring

MODULE 9: STRATEGY
MONITORING
STRATEGY MONITORING
 It is essential that strategists systematically
review, evaluate, and control the execution of
strategies.
 Present a framework that can guide
managers’ efforts to evaluate strategic-
management activities, to make sure they are
working, and to make timely changes.
 Firms must continually evaluate its strategies
and take prompt corrective actions as

needed.
STRATEGY EVALUATION PROCESS
Three basic activities:
1. Examine the underlying bases of a
firm’s strategy.
2. Compare expected results with
actual results.
3. Take corrective actions to ensure
that performance conforms to plans.
CRITERIA TO EVALUATE STRATEGY
 It is impossible to demonstrate conclusively that a

particular strategy is optimal or that it will work.
One can, however, evaluate it for critical flaws.
 Four Criteria that could be used to evaluate a
strategy:
Consistency, Consonance, Feasibility, Advantage
 Consonance and advantage are mostly based on a
firm’s external assessment.
 Consistency and feasibility are largely based on an
internal assessment.
EVALUATING STRATEGY
EVALUATING STRATEGY
REVIEWING BASES OF STRATEGY
 Reviewing the underlying bases of an organization’s strategy could be approached
by developing a revised EFE (External Factor Evaluation) Matrix and IFE (Internal
Factor Evaluation) Matrix.
 A revised IFE Matrix should focus on changes in the organization’s management,
marketing, finance and accounting, production and operations, research and

development (R&D), and management information systems (MIS) strengths and
weaknesses.
 A revised EFE Matrix should indicate how effective a firm’s strategies have been in
response to key opportunities and threats.

 Need to address such questions as the following:
 1. How have competitors reacted to our strategies?

 2. How have competitors’ strategies changed?
 3. Have major competitors’ strengths and weaknesses changed?
 4. Why are competitors making certain strategic changes?
 5. Why are some competitors’ strategies more successful than others?
 6. How satisfied are our competitors with their present market positions and
profitability?
 7. How far can our major competitors be pushed before retaliating?
 8. How could we more effectively cooperate with our competitors?
Internal Factor Evaluation (IFE) matrix method is a
strategy-formulation tool that can be utilized to
evaluate how a company is performing in regards to
identified internal strengths and weaknesses of a
company.
External Factor Evaluation (EFE) matrix method is a strategic-
management tool often used for assessment of current business
conditions. The EFE matrix is a good tool to visualize and
prioritize the opportunities and threats that a business is facing.
MEASURING ORGANIZATIONAL
PERFORMANCE
 Includes comparing expected results to actual results, investigating
deviations from plans, evaluating individual performance, and examining
progress being made toward meeting stated objectives. (long-term and
annual objectives)
 Criteria for evaluating strategies should be measurable and easily verifiable.
 Criteria that predict results may be more important than those that reveal
what already has happened.
 Example- rather than simply being informed that sales in the last quarter
were 20 percent under what was expected, strategists need to know that
sales in the next quarter may be 20 percent below standard unless some
action is taken to counter the trend.
 Failure to make satisfactory progress toward accomplishing long-term or
annual objectives signals a need for corrective actions.
 Unreasonable policies, unexpected turns in the economy, unreliable suppliers
or distributors, or ineffective strategies, can result in unsatisfactory progress
toward meeting objectives.
 Problems can result from ineffectiveness (not doing the right things) or
inefficiency (poorly doing the right things).
MEASURING ORGANIZATIONAL
PERFORMANCE
 Determining which objectives are most important in the
evaluation of strategies can be difficult.
 Based on both quantitative and qualitative criteria.
 Selecting the exact set of criteria for evaluating strategies
depends on a particular organization’s size, industry,
strategies, and management philosophy.
 Example –A firm pursuing a retrenchment strategy could have a
different set of evaluative criteria from one firm pursuing a
market development strategy.
 Quantitative criteria commonly used to evaluate strategies are
financial ratios.
 Strategists use financial ratios to make critical comparisons:
 1. Compare the firm’s performance over different time periods.
 2. Compare the firm’s performance to competitors.
 3. Compare the firm’s performance to industry averages.
TAKING CORRECTIVE ACTIONS
 Requires making changes to competitively reposition a firm for the
future.
Examples:
 Altering an organization’s structure, replacing some key individuals
 Selling a division, or revising a business mission, revising objectives
 Devising new policies, issuing stock to raise capital, adding salespersons
 Differently allocating resources, developing new performance incentives
 Taking corrective actions does not necessarily mean that existing
strategies will be abandoned or even that new strategies must be

formulated.
 Example- McDonald’s took extensive corrective actions after reported
steep declines in its revenues and profits. McDonald’s enhanced

marketing, simplified menu, and implemented a more locally driven
organizational structure to increase relevance with consumers.”
 In taking corrective actions, McDonald’s fired a CEO, hired another CEO,
shuffled its management ranks, created a new organizational structure,
and revamped its menu.
BALANCED SCORECARD
 A strategy evaluation and control technique.
 Derives its name from the perceived need of firms to “balance”
financial measures that are oftentimes used exclusively in strategy
evaluation and control with nonfinancial measures such as product
quality and customer service.
 An effective Balanced Scorecard contains a carefully chosen
combination of strategic and financial objectives tailored to the
company’s business.
 Has a financial objective to achieve annual growth in earnings per
share of 10 percent or better, as well as a strategic objective to have
at least 30 percent of sales come from products introduced in the
past four years.
 The overall aim of the Balanced Scorecard is to “ balance”
shareholder objectives with customer and operational objectives.
 These sets of objectives interrelate and many even conflict.
 For example, customers want low price and high service, which may
conflict with shareholders’ desire for a high return on their
investment.
BALANCED SCORECARD
 Financial measures and ratios are vitally important but of equal importance
are customer service, employee morale, product quality, pollution
abatement, business ethics, social responsibility, community involvement.
 A Balanced Scorecard for a firm is a listing of all key objectives to work
toward, along with an associated time dimension of when each objective is
to be accomplished, as well as a primary responsibility or contact person,
department, or division for each objective.
 The Balanced Scorecard is an important strategy-evaluation tool that allows
firms to evaluate strategies from four perspectives: financial performance,
customer knowledge, internal business processes, and learning and growth.
1. Is the firm continually improving and creating value along measures such
as innovation, technological leadership, product quality, operational process
efficiencies, and so on?
2. Is the firm sustaining and even improving on its core competencies and
competitive advantages?
3. How satisfied are the firm’s customers?
BALANCED SCORECARD
EFFECTIVE STRATEGIC MANAGEMENT
 Effective formulation is critically important for successful implementation.
 Continual evaluation of strategies is also essential because the world changes
so rapidly that existing strategies can need modifying often.
 Must be a self-reflective learning process that familiarizes managers and
employees in the organization with key strategic issues and feasible
alternatives for resolving those issues.
 A key role of strategists is to facilitate continuous organizational learning and
change.
 Important guideline for effective strategic management is open-mindedness
–willingness and eagerness to consider new information, new viewpoints, new
ideas, and new possibilities; all organizational members must share a spirit of
inquiry and learning.
 No organization has unlimited resources. Therefore, no organization can
pursue all the strategies that potentially could benefit the firm.
 Critical mistake for managers to pursue too many strategies thereby
spreading the firm’s resources so thin that all strategies are jeopardized.
 Strategic decisions require trade-offs such as long-range versus short-range
considerations or maximizing profits versus increasing shareholders’ wealth.
EFFECTIVE STRATEGIC MANAGEMENT

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MODULE 9: STRATEGY

and take prompt corrective actions as

 It is impossible to demonstrate conclusively that a

marketing, finance and accounting, production and operations, research and

response to key opportunities and threats.

 1. How have competitors reacted to our strategies?

 Selling a division, or revising a business mission, revising objectives

 Devising new policies, issuing stock to raise capital, adding salespersons

 Differently allocating resources, developing new performance incentives

 Taking corrective actions does not necessarily mean that existing

strategies will be abandoned or even that new strategies must be

steep declines in its revenues and profits. McDonald’s enhanced

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