Application assignment 3

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Strategic Management Concepts

Chapter 12

Strategic Control & Crisis Management

Chapter 12: Key Issues

The Strategic Control Process

Crisis Management

Introduction

Strategic Control consists of determining the extent to which the organization’s strategies are successful in attaining its goals and objectives.

Strategic control addresses the gaps between the intended and realized strategies.

Why Strategic Control?

Without strategic control, there are no clear benchmarks and ultimately no reliable measurements of how the company is doing.

Strategic control enables executives to account for last-minute changes during the implementation process.

Strategic Control Process

Determine focus of control.

Identify standards or benchmarks.

Measure performance.

Compare standards to performance.

Institute changes as needed.

12-1 Step 1: Focus of Strategic Control

Focus should be internal: How well is the firm attaining its goals?

Focus should also be external: What recent external changes are affecting the firm?

Both quantitative and qualitative factors should be considered.

12-2 Step 2: Strategic Control Standards (Benchmarks)

Set standards for internal factors identified in the previous step.

If possible, standards should be based on competitive benchmarks, best practices, or other targets.

Standards should be as specific as feasible.

Benchmarking & Best Practices

Strategic control standards are often based on competitive benchmarking—the process of measuring a firm’s performance against that of the top performers, usually in the same industry.

After determining the appropriate benchmarks, a firm’s managers set goals to meet or exceed them. Best practices—processes or activities that have been successful in other firms—may be adopted as a means of improving performance.

12-2a Published Information for Strategic Control

The PIMS (profit impact of market strategy) program contains quantitative and qualitative information on the performance of thousands of firms. PIMS was a pioneer in the 1960s when data for benchmarking was not readily available.

Fortune magazine annually publishes the most- and least-admired U.S. corporations with annual sales of at least $500 million in such industries as electronics, pharmaceuticals, retailing, transportation, banking, insurance, metals, food, motor vehicles, and utilities.

Publications such as Forbes, Industry Week, Business Week, and the Industry Standard also provide performance scorecards based on similar criteria.

12-2b Product/Service Quality

There has been a positive relationship between product/service quality—including both the conformance of a product or service to internal standards and the ultimate consumer’s perception of quality—and the financial performance of those firms.

12-2c Innovation

Innovation is a complex process and is conceptualized, measured, and controlled through a variety of means.

Expenditures on developing new or improved products and processes also tend to increase the level of innovation.

12-2d Market Share

Market share is a common measure of performance. As market share increases, control over the external environment, economies of scale, and profitability are all likely to be enhanced.

Relative market share (introduced in chapter 2) can be used as key measure as well.

12-3 Steps 3–5: Exerting Strategic Control

Establish performance targets or benchmarks throughout the organization.

Corrective action should be taken at all levels if actual performance is less than the standard that has been established unless extraordinary causes of the discrepancy can be identified.

Balanced Scorecard

Performance measurement is not based on a single quantitative factor such as profits or stock price, but on an array of quantitative and qualitative factors that includes factors such as as return on assets, market share, customer loyalty and satisfaction, speed, and innovation.

12-3a Control Through the Formal and Informal Organizations

The formal organization—the organizational stucture—can help or hinder success.

Business process reengineering—the application of technology and creativity in an effort to eliminate unnecessary operations or drastically improve those that are not performing well—exerts control through the formal organization.

The informal organization refers to the norms, behaviors, and expectations that evolve when individuals and groups come into contact.

12-4 Crisis Management

A crisis refers to any substantial disruption in operations that physically affects an organization, its basic assumptions, or its core activities.

Crisis management refers to the process of planning for and implementing crisis responses.

Famous Crises

J&J and Tylenol (1982)

Union Carbide in Bhopal (1984)

Exxon Valdez tanker spill (1989)

New York terrorist attacks (2001)

Japanese earthquake & tsunami (2011)

Issues in Crisis Management

Examples of crises include terrorism, natural disasters, boycotts, counterfeiting, and political unrest.

Crises in organizations occur much more frequently than widely reported, however.

Many firms do not actively engage in crisis planning.

Crisis Management Framework

Before the Crisis, organizations should develop a crisis management team to develop and plan for worst-case scenarios and define standard operating procedures that should be implemented prior to any crisis event.

During the Crisis, an organizational spokesperson should communicate effectively with the public to minimize the effect of the crisis.

After the Crisis, communication with the public should continue as needed and the cause of the crisis should be uncovered.

Case Analysis Step 24: Strategic Control

Apply the strategic control model based on the recommended alternatives.

Set standards in step 2 and identify the source of the standards.

Be specific.

Trends in Strategic Management

Globalization

Growing influence of the Internet

Sustainability

Erosion of the low cost-differentiation dichotomy

Effective crisis management

Case Analysis Step 25: Future Prospects

Outline the future prospects for the firm if the recommendations are adopted.

What do you expect to happen if the recommendations are not adopted?