Policy and Strategy-VI

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Strategic Management Concepts: A

Competitive Advantage Approach,

Concepts and Cases Seventeenth Edition

Chapter 9

Strategy Evaluation, and

Governance

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Learning Objectives

9.1 Discuss the strategy-evaluation process.

9.2 Discuss three activities that comprise strategy

evaluation.

9.3 Describe and develop a Balanced Scorecard.

9.4 Discuss the role of a board of directors (governance) in

strategic planning.

9.5 Identify and discuss four challenges in strategic

management.

9.6 Identify and describe 17 guidelines for effective strategic

management.

After studying this chapter, you should be able to do the following:

9.1 Discuss the strategy-evaluation process.

9.2 Discuss three activities that comprise strategy evaluation.

9.3 Describe and develop a Balanced Scorecard.

9.4 Discuss the role of a board of directors (governance) in strategic planning.

9.5 Identify and discuss four challenges in strategic management.

9.6 Identify and describe 17 guidelines for effective strategic management.

Figure 9.1 The Comprehensive,

Integrative Strategic-Management

Model

Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning 22, no. 1 (February

1989): 91. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance

Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of

Indonesia,” Journal of Mathematics and Technology, no. 4 (October 2010): 20.

This chapter is highlighted in the strategic management model.

Strategy Evaluation

Three basic activities:

1. Examine the underlying bases of a firm’s strategy.

2. Compare expected results with actual results.

3. Take corrective actions to ensure that performance

conforms to plans.

Strategy evaluation is vital to an organization’s well-being; timely evaluations

can alert management to problems or potential problems before a situation

becomes critical. The strategy-evaluation process includes three basic

activities.

Why Strategy Evaluation is More

Difficult Today (1 of 2)

1. Domestic and world economies are today more

interrelated

2. Product life cycles are shorter

3. Technological advancements are faster

4. Change occurs rapidly

Strategy evaluation is becoming increasingly difficult with the passage of time,

for many reasons. Domestic and world economies were more stable in years

past, product life cycles were longer, product development cycles were longer,

technological advancement was slower, change occurred less frequently, there

were fewer competitors, foreign companies were generally weak, and there

were more regulated industries. Other reasons why strategy evaluation is

more difficult today include the trends on the next slide.

Why Strategy Evaluation is More

Difficult Today (2 of 2)

5. Competitors abound globally

6. Planning cycles are shorter

7. Social media and smartphones have changed everything

Strategy-Evaluation Activities

• Corrective actions are almost always needed except when

– External and internal factors have not significantly

changed, and

– the firm is progressing satisfactorily toward achieving

stated objectives

Strategy evaluation is necessary for all sizes and kinds of organizations.

Table 9.1 A Strategy-Evaluation

Assessment Matrix

Have Major Changes

Occurred in the

Firm’s Internal

Strategic

Position?

Have Major Changes

Occurred in the

Firm’s External

Strategic Position?

Has the Firm

Progressed

Satisfactorily Toward

Achieving Its Stated

Objectives? Result

No No No Take corrective actions

Yes Yes Yes Take corrective actions

Yes Yes No Take corrective actions

Yes No Yes Take corrective actions

Yes No No Take corrective actions

No Yes Yes Take corrective actions

No Yes No Take corrective actions

No No Yes Continue present

strategic course

Table 9.1 summarizes the three strategy-evaluation activities in terms of key

questions that should be addressed, alternative answers to those questions,

and appropriate actions for an organization to take.

Figure 9.2 A Strategy-Evaluation

Framework

Reviewing the underlying bases of an organization’s strategy could be

approached by developing a revised EFE Matrix and IFE Matrix.

Reviewing Bases of Strategy (1 of 2)

1. How have competitors reacted to our strategies?

2. How have competitors’ strategies changed?

3. Have major competitors’ strengths and weaknesses

changed?

4. Why are competitors making certain strategic changes?

Analysis could also address the questions included on the next two slides.

Reviewing Bases of Strategy (2 of 2)

5. Why are some competitors’ strategies more successful

than others?

6. How satisfied are our competitors with their present

market positions and profitability?

7. How far can our major competitors be pushed before

retaliating?

8. How could we more effectively cooperate with our

competitors?

Measuring Organizational

Performance

Strategists use common quantitative criteria to make three

critical comparisons:

1. Comparing the firm’s performance over different time

periods

2. Comparing the firm’s performance to competitors’

3. Comparing the firm’s performance to industry averages

Measuring organizational performance includes comparing expected results to

actual results, investigating deviations from plans, evaluating individual

performance, and examining progress being made toward meeting stated

objectives.

Table 9.3 Corrective Actions 1. Alter the firm’s structure.

2. Replace one or more key individuals.

3. Divest a division.

4. Alter the firm’s vision or mission.

5. Revise objectives.

6. Alter strategies.

7. Devise new policies.

8. Install new performance incentives.

9. Raise capital with stock or debt.

10. Add or terminate salespersons, employees, or managers.

11. Allocate resources differently.

12. Outsource (or reshore) business functions.

Corrective Actions Possibly Needed to Correct Unfavorable Variances

The final strategy-evaluation activity, taking corrective actions, requires making

changes to competitively reposition a firm for the future. As indicated in Table

9.4, examples of changes that may be needed are altering an organization’s

structure, replacing one or more key individuals, selling a division, or revising a

business mission.

The Balanced Scorecard

• The balanced scorecard is a strategy evaluation and

control technique.

• There is a wide variation in how the balanced scorecard is

used.

• The technique is based on the need to “balance” financial

measures with nonfinancial ones.

The balanced scorecard was developed by Harvard Business School

professors Robert Kaplan and David Norton.

Table 9.4 An Example Balanced

Scorecard (1 of 2)

Area of Objectives Measure or Target Time Expectation Primary Responsibility

Customers

Managers/Employees

Operations/Processes

Table 9.4 An Example Balanced Scorecard (2 of 2)

Area of Objectives Measure or Target Time Expectation

Primary

Responsibility

Community/Social

Responsibility

Business Ethics/Natural

Environment

Financial

Board of Directors: Governance

Issues

• A board of directors is a group of individuals at the top of

an organization with oversight and guidance over

management and who look out for shareholders’ interests.

• The act of oversight and direction is referred to as

governance.

A board of directors is a group of individuals at the top of an organization with

oversight and guidance over management and who look out for shareholders’

interests.

The act of oversight and direction is referred to as governance.

Table 9.5 Board of Director Duties

and Responsibilities (1 of 2)

1. CONTROL AND OVERSIGHT OVER MANAGEMENT

a. Select the Chief Executive Officer (CEO).

b. Sanction the CEO’s team.

c. Provide the CEO with a forum.

d. Ensure managerial completely.

e. Evaluate management’s performance.

f. Set management’s salary levels, including fringe benefits.

g. Guarantee managerial integrity through continuous auditing.

h. Evaluate corporate strategies.

i. Devise and revise policies to be implemented by management.

2. ADHERENCE TO LEGAL PRESCRIPTIONS

a. Keep abreast of new laws.

b. Ensure the entire organization fulfills legal prescriptions.

c. Pass bylaws and related resolutions.

d. Select new directors.

e. Approve capital budgets.

f. Authorize borrowing, new stock issues, bonds, and so on.

Table 9.5 in the next two slides identifies the duties and responsibilities of the

board.

Table 9.5 Board of Director Duties

and Responsibilities (2 of 2)

3. CONSIDERATION OF STAKEHOLDERS’ INTERESTS

a. Monitor product quality.

b. Facilitate upward progression in employee quality of work life.

c. Review labor policies and practices.

d. Improve the customer climate.

e. Keep community relations at the highest level.

f. Use influence to better governmental, professional association, and educational

contacts.

g. Maintain good public image.

4. ADVANCEMENT OF STOCKHOLDERS’ RIGHTS

a. Preserve stockholders’ equity.

b. Stimulate corporate growth so that the firm will survive and flourish.

c. Guard against equity dilution.

d. Ensure equitable stockholder representation.

e. Inform stockholders through letters, reports, and meetings.

f. Declare proper dividends.

g. Guarantee corporate survival.

h. Guarantee the film’s financial statements are feasible and accurate.

Four Challenges Facing Strategists

• Is the process more of an art or a science?

• Should strategies be visible or hidden from stakeholders?

• Contingency planning

• Auditing

The challenges that strategists face are identified in the slide.

Contingency Planning (1 of 3)

• Contingency plans can be defined as alternative plans

that can be put into effect if certain key events do not occur

as expected.

Contingency plans can be defined as alternative plans that can be put into

effect if certain key events do not occur as expected.

Contingency Planning (2 of 3)

• If a major competitor withdraws from particular markets as

intelligence reports indicate, what actions should our firm

take?

• If our sales objectives are not reached, what actions

should our firm take to avoid profit losses?

Some contingency plans commonly established by firms include the elements

on the next two slides.

Contingency Planning (3 of 3)

• If demand for our new product exceeds plans, what actions

should our firm take to meet the higher demand?

• If certain disasters occur, what actions should our firm

take?

• If a new technological advancement makes our new

product obsolete sooner than expected, what actions

should our firm take?

Auditing

• Auditing

– “a systematic process of objectively obtaining and

evaluating evidence regarding assertions about

economic actions and events to ascertain the degree of

correspondence between these assertions and

established criteria, and communicating the results to

interested users”

A frequently used tool in strategy evaluation is the audit.

Guidelines for Effective Strategic

Management 1. Keep the process simple and easily understandable.

2. Eliminate vague planning jargon.

3. Keep the process non routine; vary assignments, team

membership, meeting formats, settings, and even the

planning calendar.

4. Welcome bad news and encourage devil’s advocate

thinking.

5. Do not allow technicians to monopolize the planning

process.

6. To the extent possible, involve managers from all areas of

the firm.

Failing to follow certain guidelines in conducting strategic management can

foster criticisms of the process and create problems for the organization.

Table 9.6 Guidelines for Strategic

Planning to be Effective 1. It should be a people process more than a paper process.

2. It should be a learning process for all managers and employees.

3. It should be words supported by numbers rather than numbers supported by

words.

4. It should be simple, non-routine, economical, and provide timely information.

5. It should vary assignments, team memberships, meeting formats, and even the

planning calendar.

6. It should challenge the assumptions underlying the current corporate strategy.

7. It should welcome bad news and provide a true picture of what is happening.

8. It should welcome open-mindedness and a spirit of inquiry and learning.

9. It should not be a bureaucratic mechanism.

10. It should not become ritualistic, stilted, or orchestrated.

11. It should not be too formal, predictable, or rigid.

12. It should not contain jargon or arcane planning language.

13. It should not be a formal system for control and should not dominate decisions.

14. It should not disregard qualitative information.

15. It should not be controlled by “technicians.”

16. Do not pursue too many strategies at once.

17. Continually strengthen the “good ethics is good business” policy.

Table 9.6 presents 17 guidelines for strategic planning to be effective.

Figure 9.3 How to Gain and Sustain

Competitive Advantages

Slide 1: Strategic Management Concepts: A Competitive Advantage Approach, Concepts and Cases
Slide 2: Learning Objectives
Slide 3: Figure 9.1 The Comprehensive, Integrative Strategic-Management Model
Slide 4: Strategy Evaluation
Slide 5: Why Strategy Evaluation is More Difficult Today (1 of 2)
Slide 6: Why Strategy Evaluation is More Difficult Today (2 of 2)
Slide 7: Strategy-Evaluation Activities
Slide 8: Table 9.1 A Strategy-Evaluation Assessment Matrix
Slide 9: Figure 9.2 A Strategy-Evaluation Framework
Slide 10: Reviewing Bases of Strategy (1 of 2)
Slide 11: Reviewing Bases of Strategy (2 of 2)
Slide 12: Measuring Organizational Performance
Slide 13: Table 9.3 Corrective Actions
Slide 14: The Balanced Scorecard
Slide 15: Table 9.4 An Example Balanced Scorecard (1 of 2)
Slide 16: Table 9.4 An Example Balanced Scorecard (2 of 2)
Slide 17: Board of Directors: Governance Issues
Slide 18: Table 9.5 Board of Director Duties and Responsibilities (1 of 2)
Slide 19: Table 9.5 Board of Director Duties and Responsibilities (2 of 2)
Slide 20: Four Challenges Facing Strategists
Slide 21: Contingency Planning (1 of 3)
Slide 22: Contingency Planning (2 of 3)
Slide 23: Contingency Planning (3 of 3)
Slide 24: Auditing
Slide 25: Guidelines for Effective Strategic Management
Slide 26: Table 9.6 Guidelines for Strategic Planning to be Effective
Slide 27: Figure 9.3 How to Gain and Sustain Competitive Advantages
Slide 28: Copyright