CHAPTER 11  Evaluation & Control
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CHAPTER 11 Evaluation & Control. STRATEGIC MANAGEMENT & BUSINESS POLICY 11 TH EDITION. THOMAS L. WHEELEN J. DAVID HUNGER. Evaluation and Control. Evaluation and Control. Evaluation and Control Information – Performance data Activity reports. Evaluation and Control.

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CHAPTER 11 Evaluation & Control

STRATEGIC MANAGEMENT & BUSINESS POLICY11TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER


Evaluation and Control


Evaluation and Control

  • Evaluation and Control Information –

    • Performance data

    • Activity reports


Evaluation and Control

  • Measuring performance –

    • The end result of activity


Evaluation and Control

  • Types of Controls –

    • Behavior controls

      • Some examples of behavior controls are company procedures, quotas of sales calls to potential customers, and rules regarding attendance and tardiness.

      • Behavior controls are very appropriate when results are hard to measure and a clear cause-effect exists between activities (behaviors) and results.


Evaluation and Control

  • Types of Controls –

    • Output controls

      • What is to be accomplished; focus on end result through performance targets.

      • Some examples of output controls are sales quotas, cost reduction or profit objectives, and surveys of customer satisfaction.


Evaluation and Control

  • Types of Controls –

    • Input controls

      • Resources – skills, abilities, values, motives.

      • Input controls are the least useful and are most appropriate when output is difficult to measure and there is no clear cause-effect relationship between behavior and performance (such as in college teaching).


Evaluation and Control

  • Types of Controls –

    • Behavior controls

      • ISO 9000 Standards Series

      • ISO 14000 Standards Series


Evaluation and Control

  • Types of Controls –

    • Activity Based Costing (ABC)

      • Allocation of indirect and fixed costs to individual products or product lines

      • Based on value-added activities

      • More accurate charge of costs


Evaluation and Control

  • Types of Controls –

    • Enterprise Risk Management (ERM)

      • Identify risks

      • Rank risks

      • Measure risks


Evaluation and Control

  • Primary Measures of Performance –

    • Traditional Financial Measures

      • Return on investment (ROI)

      • Earnings per share (EPS)

      • Return on equity (ROE)

      • Operating cash flow

      • Free cash flow


Evaluation and Control

  • Primary Measures of Performance –

    • Shareholder

      • Shareholder value

      • Economic value added (EVA)

      • Market value added (MVA)


Is EVA really an improvement over ROI, ROE, or EPS?

  •  Economic value added (EVA) is being increasingly recommended as an improvement over traditional measures because of EVA's strong relationship to a company's stock price. It uses stock price to measure the difference between the pre-strategy and post-strategy value of a corporation. However, EVA is often difficult to calculate. It is for this reason that more simpler measures like ROI, ROE, and EPS continue to have widespread usage.

  • Another limitation of EVA is this its concern with only one aspect of the task environment - the stockholder. The conclusion seems clear. There is no one best measure or group of measures.


Is the evaluation and control process appropriate for a corporation that emphasizes creativity?

  •  Control is not ignored. Data is just not collected on intermediate activities such as time in the office or manner of dress.

  • The emphasis tends to be on the end-result of activities rather than upon the activities themselves. To be successful, they need both talent and discipline.


Market value added (MVA)

  • The difference between market value of corporation and the capital contributed by shareholders and lenders.


Evaluation and Control

  • Primary Measures of Performance –

    • Balanced Scorecard Approach

      • Financial

      • Customer

      • Internal business perspective

      • Innovation and learning


Evaluation and Control


Evaluation and Control

  • Evaluating Top Management & Board –

    • Chairman-CEO Feedback Instrument

    • Management Audit

    • Strategic Audit


Evaluation and Control

  • Divisional & Functional Performance –

    • Responsibility Centers

      • Standard cost centers. Based on historical data

      • Revenue centers.

      • Expense centers profit centers

      • Investment centers. Difference between revenues and cost.


Evaluation and Control

  • Using Benchmarking –

    • Continual process of measuring products, service, and practices against the toughest competitors or those companies recognized as industry leaders


Evaluation and Control

  • International Measurement Issues –

    • International transfer pricing

    • Repatriation of profit

    • Piracy: copying top products and sell abroad


Strategy Review

The firm’s internal and external environments are dynamic. Therefore, the best conceived and implemented strategies become obsolete!


Strategy Review

Strategy Evaluation—the 3 Basics

  • Examining the underlying basis of the firm’s strategy

  • Comparing actual to expected results

  • Taking corrective action to address performance gaps


Strategy Review

Effective Strategy Evaluation

  • Adequate and timely feedback

    • The cornerstone of effective evaluation


Strategy Review

Strategy Evaluation

  • Must have both

    • Short- & long-term focus


Strategy Review

Four Criteria (Richard Rumelt):

  • Consistency الاتساق

  • Consonance=fit or harmony التكيف

  • Feasibility يمكن التحقق

  • Advantage


Consistency=uniformity

A strategy should not present inconsistent goals and policies

  • If managerial problems continue despite changes in personnel and are issue based, then strategies may be inconsistent.

  • If success for one department means failure for another department, then strategies may be inconsistent.

  • If policy problems/issues continue to be brought to the top for resolution, then strategies may be inconsistent.


Consonance= adapt, fit

Strategists need to examine sets of trends as well as individual trends in evaluating strategies.

  • Strategy must represent an adaptive response to the external environment and critical changes occurring within it.

  • Most trends are the result of interactions among other trends.

  • Difficult in matching key internal and external factors in formulation of strategy.


Feasibility

Strategy must neither overtax available resources nor create unsolvable subproblems.

  • Can the strategy be attempted within the physical, human and financial resources of the enterprise?

  • Limitation on strategic choice imposed by individual and organizational capabilities must be considered.

  • Important to examine whether in the past the organization has demonstrated the capabilities, abilities, competencies, skills, and talents to carry out strategy.


  • Increase in environment’s complexity

  • Difficulty in predicting the future with accuracy

  • Increasing number of variables

Strategy Review

Contemporary

Strategy

Evaluation

Difficulties


  • Rate of obsolescence of even the best plans

  • Increase in domestic and world events

  • Decreasing time span for which planning can be done with any certainty

Strategy Review

Contemporary

Strategy

Evaluation

Difficulties


Strategy Review

Process of Evaluating Strategies:

  • Should initiate managerial questioning of expectations and assumptions

  • Should trigger a review of objectives and values

  • Should stimulate creativity in generating alternatives and criteria of evaluation


I. Review Bases of Strategy

  • Develop a Revised Evaluation Framework Matrix:

    • How have competitors reacted to our strategies?

    • How have competitors’ strategies changed?

    • Have major competitors’ strengths and weaknesses changed?


I. Review Bases of Strategy

  • Why are competitors making certain strategic changes?

  • Why are some competitors’ strategies more successful than others?

  • How satisfied are our competitors with their present market positions and profitability?


I. Review Bases of Strategy

  • How far can our major competitors be pushed before retaliating?

  • How could we more effectively cooperate with our competitors?


I. Review Bases of Strategy

Key Questions in Evaluating Strategy:

  • Are our internal strengths still strengths?

  • Have we added other internal strengths?

  • Are our internal weaknesses still weaknesses?


I. Review Bases of Strategy

  • Do we now have other internal weaknesses?

  • Are our external opportunities still opportunities?

  • Are there now external opportunities?


I. Review Bases of Strategy

  • Are our external threats still threats?

  • Are there now other external threats?

  • Are we vulnerable to a hostile takeover?


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