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Chapter 8 strategic evaluation and control

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strategic management its evaluation and control

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Chapter 8 strategic evaluation and control

  1. 1. Chapter-8 Strategic Evaluation and control “ It is the process by which managers monitor the ongoing activities of an organization and its members to evaluate whether activities are being performed efficiently and effectively and to take corrective action to improve performance if they are not” -Sam Walton 4/4/2017 1By-Roshan pant-MBM Nepal commerce campus
  2. 2. Strategy Evaluation and control 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 2
  3. 3. Concept of strategic control • Strategic control is a term used to describe the process used by organizations to control the formation and execution of strategic plans • All strategies are subject to future modification because internal and external factors are constantly changing. In the strategy evaluation and control process managers determine whether the chosen strategy is achieving the organization's objectives. • The fundamental strategy evaluation and control activities are: reviewing internal and external factors that are the bases for current strategies, measuring performance, and taking corrective actions. 4/4/2017 3 By-Roshan pant-MBM Nepal commerce campus
  4. 4. Strategic control contd.. • it is a specialised form of management control, and differs from other forms of management control in respects of its need to handle uncertainty and ambiguity at various points in the control process • Strategic control is also focused on the achievement of future goals, rather than the evaluation of past performance • The purpose of control at the strategic level is not to answer the question:' 'Have we made the right strategic choices at some time in the past?" but rather "How well are we doing now and how well will we be doing in the immediate future for which reliable information is available?" • The point is not to bring to light past errors but to identify needed corrections to steer the corporation in the desired direction. And this determination must be made with respect to currently desirable long-range goals and not against the goals or plans that were established at some time in the past. • Strategic controls take into account the changing assumptions that determine a strategy, continually evaluate the strategy as it is being implemented, and take the necessary steps to adjust the strategy to the new requirements. In this manner, strategic controls are early warning systems and differ from post-action controls which evaluate only after the implementation has been completed. 4/4/2017 4 By-Roshan pant-MBM Nepal commerce campus
  5. 5. Strategic control process 1. Determine what to control. What are the objectives the organization hopes to accomplish? 2. Set control standards. What are the targets and tolerances? 3. Measure performance. What are the actual standards? 4. Compare the performance the performance to the standards. How well does the actual match the plan? 5. Determine the reasons for the deviations. Are the deviations due to internal shortcomings or due to external changes beyond the control of the organization? 6. Take corrective action. Are corrections needed in internal activities to correct organizational shortcomings, or are changes needed in objectives due to external events? 7. Feedback from evaluating the effectiveness of the strategy may influence many of other phases on the strategic management process. 4/4/2017 5 By-Roshan pant-MBM Nepal commerce campus
  6. 6. Types of strategic control • Premise Control • Strategic Surveilliance • Implementation control • Special alert 4/4/2017 6 By-Roshan pant-MBM Nepal commerce campus
  7. 7. 1. Premise(prediction/Assumption) control • Premise control is designed to check methodically and constantly whether the premises on which a strategy is grounded on are still valid. • If you discover that an important premise is no longer valid, the strategy may have to be changed. • The sooner you recognize and reject an invalid premise, the better. This is because the strategy can be adjusted to reflect the reality. • This enables the strategists to take corrective action at the right time rather than continuing with a strategy which is based on erroneous assumptions. The responsibility for premise control can be assigned • It involves the checking of environmental conditions. Premises are primarily concerned with two types of factors:  Environmental factors (for example, inflation, technology, interest rates, regulation, and demographic/social changes).  Industry factors (for example, competitors, suppliers, substitutes, and barriers to entry). • All premises may not require the same amount of control. Therefore, managers must select those premises and variables that (a)are likely to change and (b) would a major impact on the company and its strategy if the did. 4/4/2017 7 By-Roshan pant-MBM Nepal commerce campus
  8. 8. 2.Strategic surveillance • As a business owner, you need to protect your business from external threats that may hinder the success of your strategy. Strategic surveillance controls allow you to monitor multiple sources for these threats. • Strategic surveillance is concerned with observing a wide range of events within and outside your organization that are likely to affect the track of your organization’s strategy. • It’s based on the idea that you can uncover/identify important unanticipated information by monitoring multiple information sources. • Such sources include trade magazines, journals such as The Wall Street Journal, trade conferences, conversations and observations. • Compared to premise control and implementation control, strategic surveillance is designed to be a relatively unfocused, open, and broad search activity. • Thus the basic idea behind strategic surveillance is that some multiple information sources should be encouragedfor searching the opportunity and to uncover important yet unanticipated information. • Strategic surveillance appears to be similar in some way to “environmental scanning.” however it is different :strategic surveillance is designed to safeguard the established strategy on a continuous basis. However environmental scanning is part of the chronological planning cycle devoted to generating information for the new plan. 4/4/2017 8 By-Roshan pant-MBM Nepal commerce campus
  9. 9. 3. Implementation control • Implementation control is designed to assess whether the overall strategy should be changed in light of unfolding events and results associated with incremental steps and actions that implement the overall strategy • Implementation control is aimed at assessing whether the plans, progammes and policies are actually guiding the organization towards its predetermined objectives or not. If the resources that are committed to a project at any point of time would not benefit an organization as envisaged, corrective steps should be undertaken immediately. • There are two types of implementation controls: strategic thrusts or projects, and milestone reviews. Strategic thrusts provide you with information that helps you determine whether the overall strategy is shaping up as planned. With milestone reviews, you monitor the progress of the strategy at various intervals or milestones. • Implementation control may be put into practice through the identification and monitoring of strategic thrusts such as an assessment of the marketing success of a new product after pre-testing, or checking the feasibility of a diversification programme after making initial attempts at seeking technological collaboration. 4/4/2017 9 By-Roshan pant-MBM Nepal commerce campus
  10. 10. 4. Special alert • A special alert control is the rigorous and rapid reassessment of an organization’s strategy because of the occurrence of an immediate, unforeseen event,such as natural disasters, product recalls or market spikes • Thus, Special alert control is based on trigger mechanism for rapid response and immediate reassessment of strategy in the light of sudden and unexpected events called crises. Crises are critical situations that occur unexpectedly and threaten the course of a strategy. Organisations that hope for the best and prepare for the worst are in a vantage position to handle any crisis. • An example of such event is the acquisition of your competitor by an outsider. Such an event will trigger an immediate and intense reassessment of the firm's strategy. • Organization Form crisis teams to handle your company's initial response to the unforeseen events. they also prepare how they will handle these special alerts with procedures to be followed, priorities to keep and tools to be used. 4/4/2017 10 By-Roshan pant-MBM Nepal commerce campus
  11. 11. Operational control vs Strategic control • Operational control systems are designed to ensure that day-to-day actions are consistent with established plans and objectives. It focuses on events in a recent period. • Operational control systems are derived from the requirements of the management control system. • Corrective action is taken where performance does not meet standards. This action may involve training, motivation, leadership, discipline, or termination. • Strategic control: monitors the implementation of the organisation’s strategic plans Operational control: monitors the use of existing resources and progress towards existing plans. Will not alter strategic direction • Strategic Management is very ambiguous, most complex, organization-wide, most critical to survival and has long-term implications. Operational Management on the contrary, is less ambiguous, les complex, specific to functions, less critical to survival and has short-term implications. • For example, operational control should be used when looking at sales numbers, whereas strategic control should be used when looking at the sales process. 4/4/2017 11 By-Roshan pant-MBM Nepal commerce campus
  12. 12. Key differences(1) • Strategic control requires data from more sources. The typical operational control problem uses data from very few sources. • Strategic control requires more data from external sources. as opposed to internal operating factors of operational control • Strategic control are oriented to the future.whereas operational control are oriented to immediate decisions that have immediate impacts. • Strategic control is more concerned with measuring the accuracy of the decision premise. Operating decisions tend to be concerned with the quantitative value of certain outcomes. • Strategic control standards are based on external factors. Measurement standards for operating problems are internal and can be established fairly by past performance on similar products or by similar operations currently being performed. • Strategic control relies on variable reporting interval. The typical operating measurement is concerned with operations over some period of time: pieces per week, profit per quarter, and the like. 4/4/2017 12 By-Roshan pant-MBM Nepal commerce campus
  13. 13. Key differences(2) • Strategic control models are less precise. This is in contrast to operational control models, which are generally very precise in the narrow domain they apply. • Strategic control models are less formal. • The principal variables in a strategic control model are structural. • The key need in analysis for strategic control is model flexibility. This is in contrast to operating control, for which efficient quantitative computation is usually most desirable • The key activity in management control analysis is alternative generation. This is different from the operational control problem, in which in many cases all control alternatives have been specified in advance. The key analysis step in operations is to discover exactly what happened. • The key skill required for management control analysis is creativity. In operational control, by contrast, the formal review of outcomes to discover causes means that they skill required is the ability to do technical, even statistical, analysis of the data received. • The relationship between action and outcome is weaker in strategic control. 4/4/2017 13 By-Roshan pant-MBM Nepal commerce campus
  14. 14. Key differences(3) • The key action variables in strategic control are organizational. In the operational control problem, technical factors such as labor levels, production levels, choice of materials, and the like are the predominant control levels. • Alternative actions in strategic control are less easy to choose in advance. In strategic control problem, it is possible to choose all possible action responses to received data in advance. In an operational control problem, the few responses possible can usually all be worked out before any operating data received. • The time for strategic control is longer. • Strategic control has little repetition. • Strategic control requires a greater variety of data types. Operating control problems typically have a smaller variety of data. • The total volume of data required for strategic control is smaller. On the other hand, perhaps thousands of pieces of data of each type are required for some of operating problems (e.g., the payroll processing of even a small organization). • Strategic control data are less accurate. Operating data generally need to be as accurate as possible. 4/4/2017 14 By-Roshan pant-MBM Nepal commerce campus
  15. 15. Total Quality control (Dr. Kaoru Ishikawa,Japan) • Application of quality management principles to all areas of business from design to delivery instead of confining them only to production activities. • To meet this goal, everyone in the company must participate in and promote quality control, including top executives, all divisions, within the company and all employees.(quality circle is a essence) To engage in quality control means to: 1. Make total quality control the foundation of your business process. 2. Focus full scale efforts on the control of cost, price and profit. 3. Control quantity - amount of production and stock • Total Quality Control is a continual process.Quality standards must be continually reviewed, revised and improved. • What this approach suggests is that the manufacturer must always be keenly attentive to consumer requirements, and the opinions of consumers must be anticipated as the manufacturer establishes his own standards. Unless this is done, QC cannot achieve its goals, nor can it assure quality to consumers. • Removal of the root cause not the symptoms this concept has come of with seven simplified tools of Quality control instead of P-D-C-A of TQM concept 4/4/2017 15 By-Roshan pant-MBM Nepal commerce campus
  16. 16. Ishikawa’s Philosophy • managers should not only implement the quality into their company, but to keep the mentality of continuous improvement. Besides just continuous improvement of quality,Ishikawa also promoted something slightly different from the other gurus. • He valued the idea of a company - wide quality control that was based on a continuous customer service mentality. “ He argues that quality control extends beyond the product and encompasses after – sales service, quality of management, quality of individuals and the company itself” • Ishikawa has a value led philosophy with an emphasis on people and focuses on company- wide quality control and quality circles. • He is best known for his Fishbone Diagram(Cause and Effect diagram) theory; his quality tool diagram which identifies the possible causes and effects of a problem. It was developed to graphically represent the relationship between a problem and its potential causes. Fishbone diagrams can help a group examine thoroughly all possible causes of a quality problem and discern the relationships among them. • Ishikawa constructed the idea that customers are the only reason why business exists 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 16
  17. 17. The Total Quality Control Process(P-D-C-A) before ishikawa’s contribution in TQM concept • 1. Plan Determine goals and targets Determine Standardized work procedures • 2. Do Education and Training - work standards and technical standards must be taught. Workers must be mentored and encouraged to do their best. • 3. Check Inspection It is the supervisor`s duty to check and confirm the standards have been put into practice exactly. When problems occur, check every possible angle, focus on each process. • 4. Action Take appropriate action. 4/4/2017 17 By-Roshan pant-MBM Nepal commerce campus
  18. 18. Quality control process (Ishikawas contribution) • Determine goals and targets • Determine methods of reaching goals • Engage in education and training • Implement work • check the efforts of implementation, • Take appropriate action to accomplish goals and targets. Often times this six step process was used by quality circles. 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 18
  19. 19. Kaoru Ishikawa’s Basic Seven QC Tools 1. Cause-and-effect diagram (also called Ishikawa or fishbone chart): Identifies many possible causes for an effect or problem and sorts ideas into useful categories. 2. Check sheet: A structured, prepared form for collecting and analyzing data; a generic tool that can be adapted for a wide variety of purposes. 3. Control charts: Graphs used to study how a process changes over time. 4. Histogram: The most commonly used graph for showing frequency distributions, or how often each different value in a set of data occurs. 5. Pareto chart: Shows on a bar graph which factors are more significant. 6. Scatter diagram: Graphs pairs of numerical data, one variable on each axis, to look for a relationship. 7. Stratification: A technique that separates data gathered from a variety of sources so that patterns can be seen (some lists replace “stratification” with “flowchart” or “run chart”) According to ishikawa 95% of the quality problems can be solved with these tools 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 19
  20. 20. 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 20
  21. 21. TQC vs. TQM - what`s the difference? TQC • Emphasis is placed on the process and continuous process improvement. • Total participation is required. Employees are encouraged to generate ideas and implement them. • It is flexible - processes and methods can be easily changed. • The target is not absolute - good for a changing market. • Downside: Sometimes the end result is very different from the original target - employees tend to lose sight of the goal because they are too focused on the process. TQM • Emphasis is placed on the target and achieving the target as soon as possible. • The system is simple and straight-forward. • Information delivery is accurate. • The process is considered after the goal has been established. • Downside:Employees stop actively thinking of and implementing process improvement - they don`t want to risk making a mistake or creating delays. 4/4/2017 21 By-Roshan pant-MBM Nepal commerce campus
  22. 22. Issues of performance management • Performance depends not only on organization decision and action but it depends on context and situation • Plurality in interest of the stakeholders invites conflicting performance expectations like investors interest and managers interest • Performance management discourages teamwork because individual is rewarded ignoring group • Evaluators are inconsistent and use different criterion and standards • Only valuable for very good or very poor performer • Encourages manager to achieve short term goals • Managers has complete power over the employees while personal Personal evaluation • performance refers quality, and quality is subjective • Performance measurement produces emotional anguis. 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 22
  23. 23. Problems of measuring strategic performance • Measuring scale: there are various scale of performance measurement selection of particular scale affects • Performance filtering: Only valuable for very good or very poor performer • Plural interest: Plurality in interest of the stakeholders invites conflicting performance expectations like investors interest and managers interest • Optimism bias: The tendency of individuals to underestimate the likelihood they will experience adverse events(It won’t happen to me!” assumption.) • Psychological contract: Refers to the relationship between an employer and its employees, and specifically concerns mutual expectations of inputs and outcomes. • Rater’s perceptual selectivity: The choice of the stimuli would depend on what they feel is relevant for them and or appropriate for them 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 23
  24. 24. Guidelines for proper control • Link to objectives and strategies • Do not exercise control • Focus on meaningful aactivities and results • Avoid rewards for inefficiency • Encourage employees participation • Develop verification procedure • Attempt to pinpoint exception • Accelerate,Deaccelerate and make adequate • Control should involve only the minimum amount of information necessary (80-20 rule: Monitor those 20% of the factors that determine 80% of the results. It is because too many information create confusion.)  Monitor only meaningful activities and results  Control should be timely (Correct before it is too late)  Balance Long and short-term orientation  Pinpointing exceptions (Take action only if goes beyond tolerance limits)  Use reward to meeting/exceeding standards (avoid punishment) 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 24
  25. 25. Strategic audit • A strategy audit is a review of a company's business plan and strategies to identify weaknesses and shortcomings and enable a successful development of the company. • A strategic audit helps small-business owners assess whether internal processes move the needle toward their strategic goals. Based on audit results, management adjusts operations to maximize progress toward the goals. • The strategy audit clarifies three crucial areas: • 1. It secures that the present business plan is complete and includes all relevant information for the development of the company. • 2. It reveals if the management team shares a commitment and believes in the Company vision, and has the same priorities for the strategies and activities as stated in the business plan. • 3. It secures the business logic of the business plan, e.g. if the vision is financially sound, if prioritised actions will develop the company toward the vision, if enough activities are planned to reach the goals in time. 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 25
  26. 26. Strategic Audit Steps 1. Review mission, vision, values and strategic objectives 2. Conduct detailed internal as well as external environment analysis 3. Review corporate governance system (a system by which company is regulated & controlled: BOD structure & qualifications, organization structure, authority & responsibility relationships, legal compliances, budget, strategic & operational control systems including internal & external audit, information availability to managers for informed decisions & actions etc.) 4. Evaluate existing strategies at different levels and modify them as required 5. Justify your recommendation in terms of its ability to resolve both long- and short-term problems and capitalize opportunities 6. Suggest appropriate programs, policies, procedures 7. Suggest appropriate evaluation and control mechanisms 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 26
  27. 27. Strategic audit activities • Measures the performance of strategies • Provides outside views to top management • Strengthen link between the organizational actors • Mirror the decision and actions of strategic leaders and adopters 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 27
  28. 28. Scope of strategic Audit • It specifies means to achieve end(end-means) • It contents role to be performed by each(content-roles) • It contains the strategies for each stakeholder interest(stakeholders-strategies) • It aims to comply the governance issue(Governance- Compliance) • Its outcome is aimed at sustainability(Outcome-sustainability) 4/4/2017 By-Roshan pant-MBM Nepal commerce campus 28

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