Strategic Evaluation

1. Determine what to measure

The focus should be on the most significant elements in a process—the ones that account for
the highest proportion of expense or the greatest number of problems.
2. Establish standards of performance
Strategic objectives that have acceptable performance results. Each standard usually
includes a tolerance range, which defines acceptable deviations including final output and
intermediate stages of production output.
3. Measure actual performance
Measurements must be made at predetermined times
4. Compare actual performance with the standard
If actual performance results are within the desired tolerance range, the measurement process
stops here.
5. Take corrective action
If actual results fall outside the desired tolerance range, action must be taken to correct the
deviation.
Strategic Evaluation and Control
⚫ Strategic evaluation and control constitutes
the final phase of strategic management.
Strategic Evaluation and Control
⚫ Strategic evaluation operates at two levels:
• Strategic level - wherein we are concerned more with
the consistency of strategy with the environment.
• Operational level – wherein the effort is directed at
assessing how well the organisation is pursuing a given
strategy.
Purpose of Strategic Evaluation
⚫ The purpose of strategic evaluation is to evaluate
the effectiveness of strategy in achieving
organisational objectives.
 Definition
⚫ Strategic evaluation and control could be defined
as the process of determining the effectiveness of
a given strategy in achieving the organisational
objectives and taking corrective action wherever
required.
 Establishing Strategic Controls

Strategic control is concerned with tracking a strategy as it is being

implemented, detecting problems or changes in its underlying
premises, and making necessary adjustments.
Characterized as a form of “steering control”
 Nature of Strategic Evaluation
⚫ Nature of the strategic evaluation and control process is to test
the effectiveness of strategy.
⚫ During the two proceedings phases of the strategic management
process, the strategists formulate the strategy to achieve a set of
objectives and then implement the strategy.
⚫
There has to be a way of finding out whether the strategy being
implemented will guide the organisation towards its intended
objectives.
⚫
Strategic evaluation and control, therefore, performs the crucial
task of keeping the organisation on the right track.
⚫
In the absence of such a mechanism, there would be no means
for strategists to find out whether or not the strategy is
producing the desired effect.
 Nature of Strategic Evaluation
⚫ Through the process of strategic evaluation and control, the strategists
attempt to answer set of questions, as below.

• Are the premises made during strategy formulation proving to be

correct?
• Is the strategy guiding the organisation towards its intended objectives?
Are the organisation and its managers doing things which ought to be
• done?
Is there a need to change and reformulate the strategy? How is the
• organisation performing?
• Are the time schedules being adhered to? Are the resources being
• utilised properly?
• What needs to be done to ensure that resources are utilised properly
• and objectives met?
 Importance of Strategic
Evaluation
⚫ Strategic evaluation helps to keep a check on the
validity of a strategic choice.
⚫ An ongoing process of evaluation would, in fact,
provide feedback on the continued relevance of the
strategic choice made during the formulation phase.
This is due to the efficacy of strategic evaluation to
determine the effectiveness of strategy.
 Importance of Strategic
Evaluation
⚫ During the course of strategy implementation managers
are required to take scores of decisions.

⚫ Strategic evaluation can help to assess whether the

decisions match the intended strategy requirements.
In the absence of such evaluation, managers would not
know explicitly how to exercise such discretion.
⚫ Strategic evaluation, through its process of
control, feedback, rewards, and review, helps in a
successful culmination of the strategic
management process.
⚫ The process of strategic evaluation provides a
considerable amount of information and
experience to strategists that can be useful in new
strategic planning.
 Participants in Strategic
Evaluation
⚫ Shareholders
⚫ Board of Directors
⚫ Chief executives
⚫ Profit-centre heads
⚫ Financial controllers
⚫ Company secretaries
⚫ External and Internal Auditors
⚫ Audit and Executive Committees
⚫ Corporate Planning Staff or Department
⚫ Middle-level managers
 Barriers in Evaluation
⚫ Limits of control
⚫ Difficulties in measurement
⚫ Resistance to evaluation
⚫ Rely on short-term implications of activities
 Requirements for Effective
Evaluation
⚫ The effective control must be:
•Control should involve only the minimum amount of information as too
much information tends to clutter up the control system and creates
confusion.
•Control should monitor only managerial activities and results even if the
evaluation is difficult to perform.
•Controls should be timely so that corrective action can be taken quickly.
•Long-term and short-term controls should be used so that a balanced
approach to evaluation can be adopted.
continued…………..
 Requirements for Effective
Evaluation
⚫ Controls should aim at pinpointing exceptions as nitpicking does not result
in effective evaluation.
⚫ The 80:20 principle, where 20 per cent of the activities result in 80
per cent of achievement, needs to be emphasised.
Getting bogged down with the activities that do not really count for
⚫ achievement makes the evaluation ineffective.
Rewards for meeting or exceeding standards should be emphasised so that
⚫ managers are motivated to perform.
Unnecessary emphasis on penalties tend to pressurise the managers
⚫ to rely on efficiency rather than effectiveness
The Balanced Scorecard Approach
 What is a Balanced Scorecard?

The Balanced Scorecard is a strategic planning and

management system used to align business activities to the
vision and strategy of the organization by monitoring
performance against strategic goals.
Balanced Scorecard Concept

• Was first published in 1992 by Kaplan and Norton, a

book followed in 1996.
• Traditional performance measurement that only focus
on external accounting data are obsolete.
• The approach is to provide 'balance' to the financial
perspective.
Why Use a Balanced Scorecard?

•Improve organizational performance by measuring what

matters
•Increase focus on strategy and results
•Align organization strategy with workers on a day-to-day
basis
•Focus on the drivers key to future performance
•Improve communication of the organization’s Vision and
Strategy
•Prioritize Projects / Initiatives
 4 Original Business Perspectives

The Balanced
Scorecard model
suggests that we view
the organization
from 4 perspectives.

Then Develop metrics,

collect data and analyze
it relative to each of
these perspectives

Adapted from The Balanced Scorecard by Kaplan & Norton

4 Business Perspectives Questions

Financial
❑ What must we do to create sustainable economic value?
Internal Business Process
❑ To satisfy our stakeholders, what must be our levels of productivity,
efficiency, and quality?
Learning and Growth
❑ How does our employee performance management system, including feedback
to employees, support high performance?
Customer

❑ What do our customers require from us and how are we doing according to
those requirements?
Balanced Scorecard Measurements
 Key Implementation
Success Factors
•Obtaining executive sponsorship and commitment
•Involving a broad base of leaders, managers and
employees in scorecard development
•Choose the right Scorecard Champion
•Beginning interactive (two-way) communication first
•Viewing the scorecard as a long-term journey rather than
a short-term project
•Getting outside help if needed
Balanced Scorecard Strategy Map
 Scorecard Potential Pitfalls
◼
& Criticisms
Lack of a well Defined Strategy
❑ The balanced scorecard relies on a well defined strategy and understanding
of linkages between strategic objections and metrics. Without this
foundation the implementation could fail.
◼ Too much focus on the lagging measures
❑ Focusing on only the lagging measures may cause a lack of priority or
opportunity for the leading measures.
◼ Use of Generic Metrics
❑ Don’t just copy metrics from another firm. Identify the measures that
apply to your strategy and competitive position .
◼ Self-serving managers
❑ Managers whose goal is to achieve a desired result in order to obtain a bonus
or other self reward.
Balanced Scorecard Benefit Re-Cap

• Helps align key performance measures with strategy at all levels of an

organization
• The methodology facilitates communication and understanding of business
goals and strategies at all levels of an organization
• Strategic initiatives that follow "best practices" methodologies that cascade
through the entire organization
• Transforms an organization’s mission statement and strategic plan from a
passive document into the "marching orders" for the organization on a daily
basis.
• It enables executives to truly execute their strategies by identifying what should
be done and measured.
Till date, some form of a Balanced Scorecard is used by nearly 60% of Fortune 500
companies