Professional Documents
Culture Documents
Introduction
Strategy evaluation is that phase of the strategic management process in which
top management try to assure that the strategy formulated is being properly
implemented and is meeting its objectives of the enterprise. A follow through
on strategy and at implementation requires a control system and effective
information system, which provides managers with accurate and complete
feedback in real-time so that they can act on the data.
Control and evaluation process help strategic managers monitor the progress
of a plan. Strategy evaluation is simply an appraisal of how well an
organization has performed. Adequate and timely feedback is the cornerstone
of effective strategy.
Strategy evaluation is becoming increasingly difficult withthe passage of time
for many reasons:
affecting organization
the decreasing time span for which planning can be done with any
degree of uncertainty.
budgetarycontrol
system,
attempts
can
be
made
to
keep
lead
to
betterpurchasing
and
the
labour
requirement
for
Activity ratios show how funds of the organisation are beingused. These ratios
are in the form of inventory turnover ratio,receivable turnover ratio, and assets
turnover ratio. Inventoryturnover ratio indicates the number of times inventory
isreplaced during the year and shows how effectively inventoryhas been
managed. Receivable turnover ratio shows howpromptly the organisation is
able to collect dues from itsdebtors. Assets turnover ratio indicates how
effectively assetshave been used to generate sales.
Leverage Ratios
Leverage ratios indicate the relative amount of funds in thebusiness supplied
by creditrs/financiers and shareholders/owners. These ratios are in the form of
debt-equity ratio, debttotalcapital ratio, and interest coverage ratio.
Debt-equity ratio
indicates the proportion of debt in relation to equity andindicates the financial
strength of the organization. Debt-totalcapital ratio shows the proportion of
debt to total capitalemployed. This also indicates the financial strength.
Interestcoverage
ratio
shows
the
interest
burden
being
borne
by
The system of control through return on investment can beseen from Figure as
operating
in
Du
Pont
Company.
Limitations
There are some limitations of the rate of returnas a control tool:
1. The use of rate of return is associated withthe fixation of a standard rate of
return againstwhich the actual is compared. What should bethis standard return
is often questionable. Comparisons ofrates of return are hardly enough because
they do not tellwhat the optimum rate of return should be.
2. Another problem comes in the way of valuation ofinvestment. The question
is at what cost the assets shouldbe valued: at original cost, depreciated cost, or
replacementcost. In an inflationary economy, the problem of priceadjustment
becomes more acute, whatever basis of valuationis adopted.
3. The rate of return on investment sometimes hampersdiversification if it has
no flexibility. This is because of thefact that the rate of return is determined by
the amount ofrisk; higher the risk, higher the desirable rate of return.
4. Many times, the return on investment is followed sorigorously that
expenditure such as research anddevelopment, which can contribute to the
profitability in thelong run, are curtailed to show impressive results in terms
ofrate of return. This practice, however, is detrimental to theorganisation in the
long run.
handicapped
population,contributing
towards
educational
in
thisapproach
is
the
determination
of
expectations
of
There are several reasons why a strategy may not produce desired results. The
external factors may not be in tune with the strategy. Competitors may also
spring surprises occasionally with unexpected moves that may create major
gaps in the strategy. Having spent time, effort and money while formulating
strategies, it is, therefore, not advisable to leave the implementation of strategy
to chance. Managers need to constantly monitor everything, introduce checks
and balances and carry out mid-course corrections at an early stage while
implementing the strategies. SEC helps an organization in several ways.
Feed Forward Control
Feed forward control involves evolution of inputs and takingcorrective action
before a particular sequence of operation completed. Thus, it attempts to
remove the limitations of timelag in taking corrective action. Feed forward
control monitorsinputs into a process determine whether the inputs are
asplanned. If inputs are not as planned corrective action is takento adjust the
inputs according to the plan so that the desiredresults are achieved within the
planned inputs. It is just likehunting a duck. A hunter will always aim ahead of
a ducksflight compensate for the time lag between a shot and a hopedforhit.
To be effective, feed forward control should meet thefollowing requirements:
Operational Problems
Even if managers agree to evaluate the strategy, the problem ofstrategic
evaluation is not over, though a beginning has beenmade. This is so because
strategic evaluation is a nebulousprocess; many factors are not as clear as the
managers would likethese to be. These factors are in the areas of determination
ofevaluative criteria, performance measurement, andtaking suitable corrective
actions. All these areinvolved in strategic evaluation and control.However,
nebulousness nature is not unique tostrategic evaluation and control only but it
isunique to the entire strategic management process.
We shall make an attempt later in this chapter as tohow these operational
problems may be overcome.
PARTICIPANTS OF STRATEGIC EVALUATION AND CONTROL
Participants in Strategic Evaluation andControlSince strategic evaluation and
control is a part of strategicmanagement process, all those persons who
participate instrategy formulation and implementation should also participate
in strategic evaluation except those who act in advisorycapacity Board of
directors, chief executive, other managers,corporate, planning staff, consultants
participate in strategicmanagen1ent process. Out of these corporate planning
staffand consultants act either advisors or facilitators Thus, threegroups of
personnel are actively involved in strategic evaluationand control though their
areas of evaluation and control differ.In some cases, outside agencies like
financial institutions orgovernment, mostly to the case of public sector
enterprises alsoparticipate in strategic evaluation and control either
upGroup
Executive
Office
(GEO)
and
Business
Review
planning
system,
motivation
system,
appraisalsystem,
and
9. Stages of Control
Depending on the stages at which control is exercised, it may beof three types:
Feedback control is based on the measurement of the results ofan action. Based
on this measurement, if any deviation is foundbetween performance standards
and actual performance, thecorrective action is undertaken as shown in Figure.
The controlaims at future action of the similar nature so that there is
conformity between standards and actual. This is requiredbecause, sometimes,
feed forward or concurrent control is notpossible to apply, for example, many
personal characteristics ofan individual which go into behavioral processes are
notmeasurable, hence feed forward control is difficult to apply. Inthe business
organizations, top management control is mostlybased on feedback. To Intake
feedback control effective, it isessential that corrective action is taken as soonas possible.
Wal-Mart Stores, Inc. was not only the largest retail organization by sales
volume in the U.S. in 2006, but also the largest company in the world. As of
January 31, 2006, Wal-Mart Stores, Inc. was structured into three business
units, Wal-Mart Stores USA, SAMS CLUB, and Wal-Mart International. The
Wal-Mart Stores unit had 3,289 locations and included the companys
Supercenters, discount stores, and Neighborhood Markets in the U.S., as well
as Walmart.com. The SAMS CLUB unit had 567 locations and included the
warehouse membership clubs in the U.S. plus samsclub.com.
Wal-Mart
International had 2,285 locations in 10 countries. Sales and profits for the year
ending January 31, 2006 were a record high $312.4 billion and $11.2 billion,
respectively. Earnings per share jumped from $2.41 in 2005 to $2.68 in 2006.
Wal-Marts management faced significant challenges in 2006 challenges
that could significantly affect the achievement of its growth objectives. The
company was being condemned for business practices ranging from low pay
and stingy healthcare benefits to exporting jobs and destroying small
businesses.
action discrimination suit. The companys second highest executive had been
forced to leave the company after being convicted of fraud and tax evasion. In
addition, filmmaker Robert Greenwald premiered a scathing documentary in
2005
titled,
Wal-Mart:
The
High
Cost
of
Low
Prices.
both repurchased stock and continually raised dividends, the stock had failed
to respond.
Conclusion
Evaluation and control play a central role in the strategic management process
to assess how well things are going at every phase of the process and to take
whatever action is necessary to improve performance. We evaluate to know
how good our strategic plans are and how well they are implemented. The
information we get from evaluation enables us to exercise better control over
the strategic management process.
We evaluate and control for three good reasons: to ensure that the
organisationis headed in the right direction, to provide guidance on how good
performance can beachieved, and to inspire confidence in the organisations
ability to produce desired results.
How the evaluation and control process works is quite straightforward: set
performance objectives, compare actual performance against objectives, take
whatever action is necessary to improve performance. By setting performance
objectives the organisation is forced to constantly re-examine its targets
(usually the strategic goals and objectives) and ensure they have measurable,
realistic outcomes. Performance objectives should be set in those areas most
critical to success, and the level of performance set should constantly be
examined to ensure that it remains realistic and in tune with present and
anticipated conditions. Evaluation and control do not merely look at the
implementation process, they should also be used to assess the validity of the
strategic plan itself.
Bibliography
Books/Articles
Webliography
http://www.investopedia.com/terms/d/strategic.asp#ixzz276fG1EHt
http://www.investorwords.com/1504/strategic.html#ixzz276fni79e