Strategic Control Strategic control focuses on the dual questions of whether: (1) the strategy is being implemented as planned;

and (2) the results produced by the strategy are t hose intended. Strategic control is the critical evaluation of plans, activities, and results, thereby providing information for the future action. There are four types of strategic control: premise control, implementation control, strategic s urveillance and special alert control Premise Control: Premise Control: Planning premises/assumptions are established early on in the s trategic planning process and act as a basis for formulating strategies. Premise control has been designed to check systematically and continuously whether or n ot the premises set during the planning and implementation processes are still v alid. It involves the checking of environmental conditions. Premises are primari ly 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 ba rriers to entry). All premises may not require the same amount of control. Therefore, managers mus t select those premises and variables that (a) are likely to change and (b) woul d a major impact on the company and its strategy if the did. Implementation Control: Strategic implantation control provides an additional so urce of feed forward information. Implementation control is designed to assess wh ether the overall strategy should be changed in light of unfolding events and re sults associated with incremental steps and actions that implement the overall s trategy. The two basis types of implementation control are: 1. Monitoring strategic thrusts (new or key strategic programs). Two approach es are useful in enacting implementation controls focused on monitoring strategi c thrusts: (1) one way is to agree early in the planning process on which thrust s are critical factors in the success of the strategy or of that thrust; (2) the second approach is to use stop/go assessments linked to a series of meaningful thresholds (time, costs, research and development, success, etc.) associated wit h particular thrusts. 2. Milestone Reviews. Milestones are significant points in the development of a programme, such as points where large commitments of resources must be made. A milestone review usually involves a full-scale reassessment of the strategy an d the advisability of continuing or refocusing the direction of the company. In order to control the current strategy, must be provided in strategic plans. Strategic Surveillance: is designed to monitor a broad range of events inside an d outside the company that are likely to threaten the course of the firms strateg y. The basic idea behind strategic surveillance is that some form of general mon itoring of multiple information sources should be encouraged, with the specific intent being the opportunity to uncover important yet unanticipated information. Strategic surveillance appears to be similar in some way to environmental scanni ng. The rationale, however, is different. Environmental, scanning usually is seen as part of the chronological planning cycle devoted to generating information f or the new plan. By way of contrast, strategic surveillance is designed to safeg uard the established strategy on a continuous basis. Special Alert Control: Special alert controls are the need to thoroughly, and of ten rapidly, reconsider the firms basis strategy based on a sudden, unexpected ev ent. (i.e., natural disasters, chemical spills, plane crashes, product defects, hostile takeovers etc.). Special alert controls should be conducted throughout the entire strategic management process.

2 Strategic Control Process Although control systems must be tailored to specific situations, such systems g enerally follow the same basic process. Regardless of the type or levels of control systems an organization needs, contr ol may be depicted as a six-step feedback model): 1. Determine what to control. What are the objectives the organization hope s 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 inte rnal shortcomings or due to external changes beyond the control of the organizat ion? 6. Take corrective action. Are corrections needed in internal activities to correct organizational shortcomings, or are changes needed in objectives due to external events? Feedback from evaluating the effectiveness of the strategy may influence many of other phases on the strategic management process. A well-designed control system will usually include feedback of control informat ion to the individual or group performing the controlled activity. Simple feedback systems measure outputs of a process and feed into the system or the inputs of a system corrective actions to obtain desired outputs. The conseq uence of utilizing the feedback control systems is that the unsatisfactory perfo rmance continues until the malfunction is discovered. One technique for reducing the problems associated with feedback control systems is feedforward control. F eedforward systems monitor inputs into a process to ascertain whether the inputs are as planned; if they are not, the inputs, or perhaps the process, are change d in order to obtain desired results. The Importance Of Strategic Control Henry Mintzberg,one of the foremost theorists in the area of strategic managemen t, tells us that no matter how well the organization plans its strategy, a diffe rent strategy may emerge. Starting with the intended or planned strategies, he related the five types of s trategies in the following manner: 1. Intended strategies that get realized; these may be called deliberate st rategies. 2. Intended strategies that do get realized; these may be called unrealized strategies. 3. Realized strategies that were never intended; these may be called emerge nt strategies. Recognizing the number of different ways that intended and realized strategies m ay differ underscores the importance of evaluation and control systems so that t he firm can monitor its performance and take corrective action if the actual per formance differs from the intended strategies and planned results. Strategic Control: A New Perspective Most commentators would agree with the definition of strategic control offered b y Schendel and Hofer: "Strategic control focuses on the dual questions of whether: (1) the strategy is being implemented as planned; and (2) the results produced by the strategy are those intended." This definition refers to the traditional review and feedback stages which const itutes the last step in the strategic management process. Normative models of th e strategic management process have depicted it as including there primary stage s: strategy formulation, strategy implementation, and strategy evaluation (contr ol).

Strategy evaluations concerned primarily with traditional controls processes whi ch involves the review and feedback of performance to determine if plans, strate gies, and objectives are being achieved, with the resulting information being us ed to solve problems or take corrective actions. Recent conceptual contributors to the strategic control literature have argued f or anticipatory feedforward controls, that recognize a rapidly changing and unce rtain external environment. Schreyogg and Steinmann (1987) have made a preliminary effort, in developing new system to operate on a continuous basis, checking and critically evaluating ass umptions, strategies and results. They refer to strategic control as "the critic al evaluation of plans, activities, and results, thereby providing information f or the future action". Schreyogg and Steinmann based on the shortcomings of feedback-control. Two centr al characteristics if this feedback control is highly questionable for control p urposes in strategic management: (a) feedback control is post-action control and (b) standards are taken for granted. Schreyogg and Steinmann proposed an alternative to the classical feedback model of control: a 3-step model of strategic control which includes premise control, implementation control, and strategic surveillance. Pearce and Robinson extended this model and added a component "special alert control" to deal specifically w ith low probability, high impact threatening events. The nature of these four strategic controls is summarized in Figure 6-4. Time (t ) marks the point where strategy formulation starts. Premise control is establi shed at the point in time of initial premising (t ). From here on promise contro l accompanies all further selective steps of premising in planning and implement ing the strategy. The strategic surveillance of emerging events parallels the st rategic management process and runs continuously from time (t ) through (t ). Wh en strategy implementation begins (t ), the third control device, implementation control is put into action and run through the end of the planning cycle (t ). Special alert controls are conducted over the entire planning cycle. Determine What To Control The first step in the control process is determining the major areas to control. Managers usually base their major controls on the organizational mission, goals and objectives developed during the planning process. Managers must make choices because it is expensive and virtually impossible to c ontrol every aspect of the organization s activities. In deciding what to contro l, the organization must communicate through the actions of its executives that strategic control is a needed activity. Without top management s commitment to c ontrolling activities, the control system could be useless. Set Control Standards The second step in the control process is establishing standards. A control stan dards is a target against which subsequent performance will be compared. Standards are the criteria that enable managers to evaluate future, current, or past actions. They are measured in a variety of ways, including physical, quanti tative, and qualitative terms. Five aspects of the performance can be managed an d controlled: quantity, quality, time cost, and behavior. Each aspect of control may need additional categorizing. An organization must identify the targets, determine the tolerances those target s, and specify the timing of consistent with the organization s goals defined in the first step of determining what to control. For example, standards might ind icate how well a product is made or how effectively a service is to be delivered . Standards may also reflect specific activities or behaviors that are necessary t o achieve organizational goals. Goals are translated into performance standards by making them measurable. An organizational goal to increase market share, for example, may be translated into a top-management performance standard to increas e market share by 10 percent within a twelve-month period. Helpful measures of s trategic performance include: sales (total, and by division, product category, a nd region), sales growth, net profits, return on sales, assets, equity, and inve stment cost of sales, cash flow, market share, product quality, valued added, an

d employees productivity. Quantification of the objective standard is sometimes difficult. For example, co nsider the goal of product leadership. An organization compares its product with those of competitors and determines the extent to which it pioneers in the intr oduction of basis product and product improvements. Such standards may exist eve n though they are not formally and explicitly stated. Setting the timing associated with the standards is also a problem for many orga nizations. It is not unusual for short-term objectives to be met at the expense of long-term objectives. Management must develop standards in all performance areas touched on by establi shed organizational goals. The various forms standards are depend on what is bei ng measured and on the managerial level responsible for taking corrective action . Commonly uses as an example, the following eight types of standards have been se t by General Electric : Profitability standards : These standards indicate how much profit General Elect ric would like to make in a given time period. Market position standards : These standards indicate the percentage of total pro duct market that company would like to win from competitors. Productivity standards : These production-oriented standards indicate various ac ceptable rates which final products should be generated within the organization. Product leadership standards : Product leadership standards indicate what levels of product innovation would make people view General Electric products as leade rs in the market. Personnel development standards : Personnel development standards list acceptabl e of progress in this area. Employee attitude standards : These standards indicate attitudes that General El ectric employees should adopt. Public responsibility standards : All organizations have certain obligations to society. General Electric s standards in this area indicate acceptable levels of activity within the organization directed toward living up to social responsibi lities. Standards reflecting balance between short-range and long-range goals . Standard s in this area indicate what the acceptable long- and short - range goals are an d the relationship among them. Critical Control Points and Standards. The principle of critical point control, one of the more important control principles, states: "Effective control require s attention against plans". There are, however, no specific catalog of controls available to all managers because of the peculiarities of various enterprises an d departments, the variety of products and services to be measured, and the innu merable planning programs to be followed. ________________________________________ Measure Performance Once standards are determined, the next step is measuring performance. The actua l performance must be compared to the standards. In some work places, this phase may require only visual observation. In other situations, more precise determin ations are needed. Many types of measurements taken for control purposes are bas ed on some form of historical standard. These standards can be based on data der ived from the PIMS (profit impact of market strategy) program, published informa tion that is publicly available, ratings of product / service quality, innovatio n rates, and relative market shares standings. PIMS was developed by Professor S idney Shoeffler of Harvard University in the 1960s. Strategic control standards are based on the practice of competitive benchmarkin g - the process of measuring a firm s performance against that of the top perfor mance in its industry. (see last part of this Chapter) Compare Performance To Standards The comparing step determines the degree of variation between actual performance and standard. If the first two phases have been done well, the third phase of t he controlling process - comparing performance with standards - should be straig

htforward. However, sometimes it is difficult to make the required comparisons ( e.g., behavioral standards). Some deviations from the standard may be justified because of changes in environ mental conditions, or other reasons. Determine The Reasons For The Deviations The fight step of the control process involves finding out: "why performance has deviated from the standards?" Causes of deviation can range from selected achie ve organizational objectives. Particularly, the organization needs to ask if the deviations are due to internal shortcomings or external changes beyond the cont rol of the organization. A general checklist such as following can be helpful: Are the standards appropriate for the stated objective and strategies? Are the objectives and corresponding still appropriate in light of the current e nvironmental situation? Are the strategies for achieving the objectives still appropriate in light of th e current environmental situation? Are the firm s organizational structure, systems (e.g., information), and resour ce support adequate for successfully implementing the strategies and therefore a chieving the objectives? Are the activities being executed appropriate for achieving standard? The locus of the cause, either internal or external, has different implications for the kinds of corrective action. Take Corrective Action The final step in the control process is determining the need for corrective act ion. Managers can choose among three courses of action: 1. they can do nothing 2. they can correct the actual performance; or 3. they can revise the standard. Maintaining the status quo if preferable when performance essentially matches th e standards. When standards are not met, managers must carefully assess the reas ons why and take corrective action. Moreover, the need to check standards period ically to ensure that the standards and the associated performance measures are still relevant for the future. The final phase of controlling process occurs when managers must decide action t o take to correct performance when deviations occur. Corrective action depends o n the discovery of deviations and the ability to take necessary action. Often th e real cause of deviation must be found before corrective action can be taken. C auses of deviations can range from unrealistic objectives to the wrong strategy being selected achieve organizational objectives. Each cause requires a differen t corrective action. Not all deviations from external environmental threats or o pportunities have progressed to the point a particular outcome is likely, correc tive action may be necessary. There are three choices of corrective action: 1. Normal mode - follow a routine, no crisis approach; this take more time 2. As hoc crash mode - saves time by speeding up the response process, gear ed to the problem ad hand. 3. Preplanned crisis mode - specifies a planned response in advance; this a pproach lowers the response time and increases the capacity for handling strateg ic surprises. The below checklist suggest the following five general areas for corrective acti ons: Revise the Standards. It is entirely possible that the standards are not in line with objectives and strategies selected. Changing an established standard usual ly is necessary if the standards were set too high or to low are the outset. In such cases it s the standard that needs corrective attention not the performance . Revise the Objective. Some deviations from the standard may by justified because of changes in environmental conditions, or other reasons. In these circumstance s, adjusting the objectives can y much more logical and sensible then adjusting performance.

Revise the Strategies. Deciding on internal changes and taking corrective action may involve changes in strategy. A strategy that was originally appropriate can become inappropriate during a period because of environmental shifts. Revise the Structure, System or Support. The performance deviation may by caused by an inadequate organizational structure, systems, or resource support. Each o f these factors is discussed elsewhere in this chapter, or other part of this th esis. Revise Activity. The most common adjustment involves additional coaching by mana gement, additional training, more positive incentives, more negative incentives, improved scheduling, compensation practices, training programs, the redesign of jobs or the replacement of personnel. Managers can also attempt to influence events or trends external to itself throu gh advertising or other public awareness programs. In such case, the changes sho uld be made only after the most intense scrutiny. Management must remember that adjustments in any of the above areas may require adjustments in one or more of the other factors. For example, adjusting the obje ctives is likely to require different strategies, standards, resources, activiti es, and perhaps organizational structure and systems. ________________________________________ Ryszard Barnat, LLM., DBA, Ph.D. (Strat. Mgmt) Strategic Control and Operational Control | MBA Knowledge Base: http://www.mbakn ol.com/strategic-management/strategic-control-and-operational-control/