ISL457U-STRATEGIC MANAGEMENT
Chapter 8: Strategic Evaluation and Control
Introduction
The process of strategic management includes three main stages or sub-processes; namely, strategy, strategy implementation and strategic evaluation and control. the process of evaluation and control could provide valuable information for both formulation and implementation processes. For this reason, evaluation and control is a critical process.
Nature of Strategic Evaluation and Control
Strategic evaluation and control can be defined as the process of determining the effectiveness of a given strategy in achieving organizational objectives and taking corrective action wherever required to continually ensure its effectiveness. In strategic evaluation and control processes, organizational activities and the achieved performance results are monitored with the purpose of comparing the latter with the performance standards or the desired performance. The outcome of these processes is then used to take corrective action to ensure the effectiveness of organizational activities and strategies.
The purpose of strategic evaluation is to continually assess how good the formulated strategies are and how well they are being implemented.
The purposes of strategic control are,
a) Monitoring the progress of strategic actions taken towards the implementation of strategies, b) Controlling resources, c) Analyzing the deviations from standards and goals, d) Providing feedback for modifications or corrective actions.
Strategic evaluation refers to the process of continually assessing how good the formulated strategies are and how well they are being implemented. Strategic control is the process of monitoring the progress of strategic actions, controlling resources that flow into the organization, analyzing the deviations from the desired goals or performance standards, and providing the feedback for modifications or corrective actions. The link between the two concepts is that strategic evaluation facilitates, or makes it possible to exercise, strategic control. Strategic evaluation alone would not be very useful without strategic control.
The process of strategic evaluation and control offers various benefits to managers. Evaluation and control:
1. Make it possible for top managers to control the performance of organizational subunits and coordinate various tasks performed within the organization. 2. Help top managers to determine if the strategic choice made during the formulation phase is still relevant to organizational objectives.
3. Help top managers to assess whether the decisions they made during the course of strategy implementation are consistent with the requirements of that strategy. 4. Provide feedback on the current performance of strategies being implemented. 5. Enable top managers to make a solid assessment of what kind of corrective actions need to be taken if implemented strategies are not likely to generate the desired or established outcomes.
The process of strategic evaluation and control is conducted through the participation of various entities, including the government, financial institutions that lend capital to the firm, firm’s shareholders, its board of directors and its top-level managers.
There are many difficulties in the process of strategic evaluation and control. These obstacles are related to the amount of control to exert, measurement difficulties, resistance to evaluation and control, short-term orientation in measuring results, and using efficiency or effectiveness as the measurement criteria.
Types of Control
Control can be defined as “the management function that involves monitoring activities to ensure that they are being accomplished as planned and correcting any significant deviations There are many types of control mechanisms. One way to classify controls is classifying them by their timing, by their purpose or focus and by the time horizon they cover. Timing of control is about “when the control is exercised”. These types of control are called feedforward control, concurrent control, and feedback control.
Focus of control refers to “what to be controlled”. Control can be exerted over human resources (input control), the actions or behaviors of organizational members (behavior control), or the end results or actual performance results (output control).
In terms of time horizon covered, controls can be classified as operational control and strategic control. Operational control provides post-action evaluation and control over short periods. Strategic control looks at the whole strategy process, from implementation to completion, and analyzes how effective the strategy is and where changes need to be made to improve it.
Process of Evaluation and Control
The process of evaluation and control involves four steps:
1. Setting performance standards, 2. Measuring actual performance, 3. Identifying deviations from standards set in the first step, 4. Taking corrective action.
Strategic Control
Strategic controls are used to assess the changing environment proactively and continually in order to
uncover events that may significantly affect the course of a firm’s strategy. Strategic controls can be classified as
a) Premise control helps managers to assess if the planning assumptions and projections are still valid. The purpose of premise control is to evaluate if the key assumptions and projections made during strategy formulation have remained the same over the course of time and determine the impact of those assumptions and projections that have changed on firm’s strategies. Premise control helps managers to avoid continuing with a strategy based on invalid assumptions and take timely corrective actions. b) Implementation control helps managers to assess how well strategic plans are being implemented. The purpose of implementation control is to evaluate how well strategic plans are being implemented and understand if any aspect of implementation needs to be changed. c) Strategic surveillance is used in order to monitor a broad range of events inside and outside the company that are likely to threaten the course of a firm’s strategy. The purpose of strategic surveillance is to monitor various events in the internal and external environment of a firm with the purpose of identifying factors that are likely to threaten its strategy. d) Special alert control is used in order to reassess firm’s strategy when a sudden, unexpected event occurs. The purpose of special alert control is to reconsider a firm’s strategy fully and rapidly when a sudden, unexpected development occurs and create rapid-response ability to meet unexpected changes and crises.
Techniques for Strategic Evaluation and Control
Strategic control and operational control can be implemented with various techniques. These techniques can be classified into two main categories: strategic control techniques and operational control techniques.
Evaluation Techniques for Strategic Control
Strategic control is to continually assess the changing environment to observe or uncover events that may significantly affect the course of an organization’s strategy. Strategic momentum control and strategic leap control are the two main types of strategic control techniques that can be used for this purpose. While strategic momentum control is more appropriate for stable environments, strategic leap control is more suitable for turbulent environments.
Strategic momentum control is about maintaining or strengthening a firm’s existing momentum and modifying its direction. It can be implemented by three main approaches:
1) Responsibility control centers approach, 2) Key success factors approach 3) Generic strategies approach.
Strategic leap control means exerting control over strategic decisions that allow for strategic leaps. It can be implemented by four approaches:
1) Strategic issue management approach, 2) Strategic field analysis approach, 3) Systems modelling approach, 4) Scenario-based approach.
Evaluation Techniques for Operational Control
Operational control is about the allocation and the use of organizational resources. Evaluation techniques for operational control are based on organizational appraisal or analysis of internal environment.
Evaluation techniques for operational control can be classified into five main groups:
1) Internal analysis (e.g., value chain analysis), 2) Comparative analysis (e.g., historical analysis), 3) Comprehensive analysis (e.g., key factor rating and balanced scorecard), 4) Special purpose techniques (networks scheduling techniques and mbo), 5) Auditing techniques (e.g., financial audit, operational audit, social audit, and environmental audit).
Role of Organizational Systems in Strategic Evaluation and Control
Organizational systems integrate various parts of the organization. The major organizational systems that are directly related to evaluation and control are information systems (ISs) and reward and appraisal systems
Information systems (IS) are used in order to collect, process, store and distribute information concerning various parameters of an organization, including its customers, suppliers, inventories and financial health. Without an IS, an organization could not operate or improve its operational efficiency. It provides information to managers, which helps evaluate performance and initiate corrective action.
Reward systems are related to evaluation and control because they could energize organizational members, through rewards and penalties, to work towards the achievement of organizational objectives. Reward systems also help organizational members to ensure that deviations do not occur, or when they do, motivate the members to do their best to correct the deviations.
Appraisal systems constitute the basis of reward systems. The purpose of appraisal systems is to systematically evaluate the performance of organizational units and that of organizational members in the light of organizational objectives. Appraisal systems provide feedback for the evaluation and control process about how organizational units are performing.
Guidelines for Effective Evaluation and Control
An effective evaluation and control system can be established by observing the following guideline as listed below:
1) Strategy should drive the evaluation and control process; that is, the requirements of the strategy to be implemented should dictate what type of evaluation and control system to be used. 2) Controls should monitor only meaningful activities and results. 3) A balanced approach to evaluation and control should be adopted by using both short-term and long-term controls. 4) Evaluation and control should be timely so that corrective action can be taken before it is too late. 5) Evaluation and control should be directly related to only those activities that really matter for the achievement of organizational goals or performance. 6) The reward of meeting or exceeding standards should be emphasized, rather than the penalties of falling short of the standards.