Professional Documents
Culture Documents
Evaluation
Types of control
1. Premise control
2. Strategic surveillance
3. Special alert control
4. Implementation control
Premise control
.Every strategy is based on certain planning
premises-assumptions or predictions
.Premise control is designed to check systematically
and continuously whether the premises on which
the strategy is based are still valid
.If a vital premise is no longer valid, the strategy
may have to be changed.
.Planning premises are primarily concerned with
environmental and industry factors.
Environmental factors
A firm has little or no control over environmental factors.
These factors influence over the success of the companys
strategy
Strategies are based on key premises such as
inflation,technology,interest
rates,regulation,and
demographic/social changes etc.
Industry factors
The performance of the firms in a given industry is
affected by industry factors.
Competitors,suppliers,product subtitutes,and barriers to
entry are some of them in which strategic assumptions are
made.
Tracking all of these premises is expensive and time
consuming.
Managers must select premises whose change is likely and
have major impact on the firm and its strategy.
Implementation control
Implementation control is designed to
assess whether the overall strategy
should be change in light of the results
associated with the incremental actions
that implement the overall strategy.
The two basic types of implementation
control are
1. Monitoring strategic thrusts/forces or
projects
2. Milestone review
of Planning
premises
and
projections
Key
strategic
thrusts and
milestones
Potential
threats and
opportunitie
s related to
the strategy
Occurrence
of
recognizable
but unlikely
events
Degree
focusing
of High
Low
Low
High
High
Medium
Low
Low
High
High
Yes
Yes
Seldom
Seldom
Yes
Yes
Yes
Yes
No
Yes
Seldom
Yes
No
yes
Seldom
Seldom
Data
acquisition:
Formalizatio Medium
n
Low
Centralizatio
n
Use with:
Environment
al factors
Industry
factors
Strategy
Specific
factors
Strategic
Surveillance
Premise Control
Implementation Control
Strategy
Time
1
formulation
Strategy Implementation
Time 2
Time 3
Quality Control
Total quality management is an
umbrella management for the quality
programs.
The concept of TQM was developed by
American W. Edwards Deming and J.M.
Juran after the World War II
The
concept
gained
the
huge
popularity by 1970s.
During
this
time
Japanese
manufacturers acquired unquestioned
reputations for their superior quality.
Measures of Corporate
Performance
Disadvantages
EPS
It has following limitations
1. It is based on accrual income, the real
conversion of income into cash will be
delayed.
2. It does not consider the time value of
money.
ROE
.It has following limitations
1. It is derived from accounting based data
2. EPS and ROE are often unrelated to a
companys stock price.
Stakeholder Measures
Each stakeholder has its own set of
criteria to determine how well the
corporation is performing.
These criteria typically deal with the
direct and indirect impacts of corporate
activities on stakeholder interests.
Top management should establish one
or more stakeholder measures for each
stakeholder category so that it can keep
track of stakeholder concerns.
The following figure outlines a sample
scorecard with stakeholders.
Stakehold
er
category
Customers
Suppliers
Financial
community
Employees
Number of
suggestions,productivity,number of
grievances
Congress
Consumer
advocates
Environme
ntalists
Shareholder value
Accounting based methods such as ROI,ROE
and EPS are not reliable indicators of a
corporations economic value
The organizations now a days use shareholder
value to measure of corporate performance
and strategic management effectiveness.
Shareholder value represent the anticipated
future stream of cash flows from the business
plus the value if the company is liquidated.
Shareholder value analyses the cash flow or
increment of shareholders wealth.
The value of a corporation is the present value
of future cash flow at the cost of capital.
As long as the returns from a business exceed
its cost of capital, the business will create
Responsibility centers
Control systems can be established to
monitor
specific
functions,projects,or
divisions.
Budgets are one type of control system
that is typically used to control the
financial indicators of performance.
Responsibility centers are used to isolate a
unit so that it can be evaluated separately
from the rest of the corporation.
Each responsibility centre has its own
budget and is evaluated on its use of
budgeted resources.
2.Revenue centers
Revenue centers is concerned with the
unit sales or dollar sales volume.
The centre is judged in terms of
effectiveness rather than efficiency.
The actual sales are compared with
projected sales i.e. previous years sales.
3. Expense centers
The expense centers are administrative,
service and R&D etc.
These costs company but they only
indirectly contribute to revenue.
4.Profit centers
Performance is measured in terms of the
difference
between
revenues
and
expenditures.
A profit center is typically established
whenever an organizational unit has
control over both its resources and its
products or services.
A company can be organized into
divisions of separate product lines.
The manager of each division is given
autonomy to keep profits at a
satisfactory level.
5.Investment centers
An investment centers performance
is measured in terms of the
difference between its resources and
its services or products.
The
best
used
measure
of
investment center performance is
ROI.
However,
the
use
of
timely,
quantifiable standards does not
guarantee good performance.
The very act of monitoring and
measuring performance can cause
side effects that interfere with
overall corporate performance.
Among the most frequent negative
side effect are a short term
orientation and goal displacement.
Goal displacement
If
not
carefully
work
done,
monitoring
and
measuring
of
performance can actually result in a
decline
in
overall
corporate
performance.
Goal displacement is the confusion
of means with ends and occurs when
activities originally intended to help
managers
attain
corporate
objectives
becomes
ends
in
themselves-or are adapted to meet
ends other than those for which they
Behavior substitution
Behavior substitution refers to a
phenomenon
when
people
substitute activities that do not lead
to goal accomplishment for activities
that do lead to goal accomplishment
because the wrong activities are
being rewarded.
Managers like most other people,
tend to focus more of their attention
on behaviors that are clearly
measurable than on those that are
Suboptimization
Suboptimization refers to the phenomenon of a unit
optimizing its goal accomplishment to the detriment of
the organization as a whole.
The responsibility centers sometimes refuse to cooperate
with other units or divisions in the same corporation if
cooperation could in some way negatively affect its
performance evaluation.
For example suboptimization occurs when a marketing
department approves an early shipment date to a
customer as a means of getting an order and forces the
manufacturing department into overtime production for
that one order.
Production costs are raised, which reduces the
manufacturing departments overall efficiency.
The end result might be that, although marketing
achieves its sales goals, the corporation as a whole fails
to achieve its expected profitability.
Strategic Audit to
Evaluate and Control
Perforce
A strategic audit
provides a checklist
of
questions, by area or issue, that enables a
systematic analysis to be made of various
corporate functions and activities.
A strategic audit is a type of management
audit and is extremely useful as a diagnostic
tool to pinpoint corporate wide problem areas
and to highlight organizational strengths and
weaknesses.
A strategic audit can help determine why a
certain area is creating problems for a
corporation and help generate solutions to the
problem.
Analysis
(+)Factors (-) Factors
Comments
The End