strategy evaluation and control

STRATEGY EVALUATION AND CONTROL

Strategic control can be defined as process of monitoring as to whether to various strategies adopted by the organization are helping its internal environment to be matched with the external environment. Strategic control processes allow managers to evaluate a company's program from a critical long-term perspective. This involves a detailed and objective analysis of a company's organization and its ability to maximize its strengths and market opportunities.

 Strategic control involves tracking a strategy as it's being implemented. It's also concerned with detecting problems or changes in the strategy and making necessary adjustments. As a manager, you tend to ask yourself questions, such as whether the company is moving in the right direction, or whether your assumptions about major trends and changes in the company's environment are correct. Such questions necessitate the establishment of strategic controls.

Types of Strategic Control

Premise control: is designed to check systematically and continuous whether or not the premises set during the planning and implementation process are still valid. Premise control is designed to check methodically and constantly whether the premises on which a strategy is grounded on are still valid. If you discover that an important premise is no longer valid, the strategy may have to be changed. The sooner you recognize and reject an invalid premise, the better. This is because the strategy can be adjusted to reflect the reality.

Implementation control: is designed to assess whether the overall strategy result associated with incremental steps and actions that implement overall strategy. Implementing a strategy takes place as a series of steps, activities, investments and acts that occur over a lengthy period. As a manager, you'll mobilize resources, carry out special projects and employ or reassign staff. Implementation control is the type of strategic control that must be carried out as events unfold. There are two types of implementation controls: strategic thrusts or projects, and milestone reviews. Strategic thrusts provide you with information that helps you determine whether the overall strategy is shaping up as planned. With milestone reviews, you monitor the progress of the strategy at various intervals or milestones.

Strategic surveillance: It is designed to monitor a broad range of events inside and outside the company to threaten the course of firm's strategy. Strategic surveillance is designed to observe a wide range of events within and outside your organization that are likely to affect the track of your organization's strategy. It's based on the idea that you can uncover important yet unanticipated information by monitoring multiple information sources. Such sources include trade magazines, journals such as The Wall Street Journal, trade conferences, conversations and observations.

Special alert control: is the need to thoroughly and often rapidly reconsider the firm's basic strategy based on a sudden unexpected event. A special alert control is the rigorous and rapid reassessment of an organization's strategy because of the occurrence of an immediate, unforeseen event. An example of such event is the acquisition of your competitor by an outsider. Such an event will trigger an immediate and intense reassessment of the firm's strategy. Form crisis teams to handle your company's initial response to the unforeseen events.

CHARACTERISTICS OF EFFECTIVE CONTROL SYSTEMS

For a control system to be effective, it must be:

1. Accurate. Information on performance must be accurate. Evaluating the accuracy of the information they receive is one of the most important control tasks that managers face.
2. Timely. Information must be collected, routed, and evaluated quickly if action is to be taken in time to produce improvements.
3. Objective and Comprehensible. The information in a control system should be understandable and be seen as objective by the individuals who use it. A difficult-to understand control system will cause unnecessary mistakes and confusion or frustration among employees.
4. Focused on Strategic Control Points. The control system should be focused on those areas where deviations from the standards are most likely to take place or where deviations would lead to the greatest harm.
5. Economically Realistic. The cost of implementing a control system should be less than, or at most equal to, the benefits derived from the control system.
6. Organizational Realistic. The control system has to be compatible with organizational realities and all standards for performance must be realistic.
7. Coordinated with the Organization's Work Flow. Control information needs to be coordinated with the flow of work through the organization for two reasons: (1) each step in the work process may affect the success or failure of the entire operation, (2) the control information must get to all the people who need to receive it.
8. Flexible. Controls must have flexibility built into them so that the organizations can react quickly to overcome adverse changes or to take advantage of new opportunities.
9. Prescriptive and Operational. Control systems ought to indicate, upon the detection of the deviation from standards, what corrective action should be taken.
10. Accepted by Organization Members. For a control system to be accepted by organization members, the controls must be related to meaningful and accepted goals.

STRATEGIC CONTROL PROCESS

The control process is depicted as a six-step model

a)      Determine what 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 control every aspect of the organization's activities. In deciding what to control, the organization must communicate through the actions of its executives that strategic control is a needed activity. Without top management's commitment to controlling activities, the control system could be useless.

b)     Set Control Standards

A control standards 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, quantitative, and qualitative terms. Five aspects of the performance can be managed and 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 targets, 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 indicate 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 to achieve organizational goals. Goals are translated into performance standards by making them measurable. Helpful measures of strategic performance include: sales (total, and by division, product category, and region), sales growth, net profits, return on sales, assets, equity, and investment cost of sales, cash flow, market share, product quality, valued added, and employees productivity.

c) Measure Performance

Once standards are determined, the next step is measuring performance. The actual performance must be compared to the standards. In some work places, this phase may require only visual observation. In other situations, more precise determinations are needed. Many types of measurements taken for control purposes are based on some form of historical standard. Strategic control standards are based on the practice of competitive benchmarking - the process of measuring a firm's performance against that of the top performance in its industry. The proliferation of computers tied into networks has made it possible for managers to obtain up-to-minute status reports on a variety of quantitative performance measures. Managers should be careful to observe and measure in accurately before taking corrective action.

d) 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 the controlling process - comparing performance with standards - should be straightforward.

e) 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 achieve organizational objectives. Particularly, the organization needs to ask if the deviations are due to internal shortcomings or external changes beyond the control 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 environmental situation?
• Are the strategies for achieving the objectives still appropriate in light of the current environmental situation?
• Are the firm's organizational structure, systems (e.g., information), and resource support adequate for successfully implementing the strategies and therefore achieving 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.

f) Take Corrective Action

The final step in the control process is determining the need for corrective action. 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.

Corrective action depends on the discovery of deviations and the ability to take necessary action. Often the real cause of deviation must be found before corrective action can be taken. Causes of deviations can range from unrealistic objectives to the wrong strategy being selected achieve organizational objectives. Each cause requires a different corrective action. Not all deviations from external environmental threats or opportunities have progressed to the point a particular outcome is likely, corrective action may be necessary.

The below checklist suggest the following five general areas for corrective actions:

• Revise the Standards. It is entirely possible that the standards are not in line with objectives and strategies selected. Changing an established standard usually 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 circumstances, 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 of these factors is discussed elsewhere in this chapter, or other part of this thesis.
• Revise Activity. The most common adjustment involves additional coaching by management, additional training, more positive incentives, more negative incentives, improved scheduling, compensation practices, training programs, the redesign of jobs or the replacement of personnel.

IMPORTANCE OF STRATEGIC CONTROL

Henry Mintzberg, one of the foremost theorists in the area of strategic management, tells us that no matter how well the organization plans its strategy, a different strategy may emerge.

Starting with the intended or planned strategies, he related the five types of strategies in the following manner:

1. Intended strategies that get realized; these may be called deliberate strategies.
2. Intended strategies that do get realized; these may be called unrealized strategies.
3. Realized strategies that were never intended; these may be called emergent strategies.

Recognizing the number of different ways that intended and realized strategies may differ underscores the importance of evaluation and control systems so that the firm can monitor its performance and take corrective action if the actual performance differs from the intended strategies and planned results.

The purpose of strategic evaluation is to evaluate the effectiveness of strategy in achieving organizational objectives.  Strategic evaluation and control could be defined as the process of determining the effectiveness of a given strategy in achieving the organizational objectives and taking corrective action wherever required.

Nature of the strategic evaluation and control process is to test the effectiveness of strategy. During the two proceedings phases of the strategic management process, the strategists formulate the strategy to achieve a set of objectives and then implement the strategy. There has to be a way of finding out whether the strategy being implemented will guide the organization towards its intended objectives. Strategic evaluation and control, therefore, performs the crucial task of keeping the organization on the right track. In the absence of such a mechanism, there would be no means for strategists to find out whether or not the strategy is producing the desired effect

Importance of Strategic Evaluation

·         Strategic evaluation helps to keep a check on the validity of a strategic choice. An ongoing process of evaluation would, in fact, provide feedback on the continued relevance of the strategic choice made during the formulation phase. This is due to the efficacy of strategic evaluation to determine the effectiveness of strategy.

·         During the course of strategy implementation managers are required to take scores of decisions. Strategic evaluation can help to assess whether the decisions match the intended strategy requirements. In the absence of such evaluation, managers would not know explicitly how to exercise such discretion.

·         Strategic evaluation, through its process of control, feedback, rewards, and review, helps in a successful culmination of the strategic management process. The process of strategic evaluation provides a considerable amount of information and experience to strategists that can be useful in new strategic planning.

Why Strategy Fails

1.      Not starting at the beginning: Flawless execution will not overcome flawed strategic assumptions. Underestimating market trends or customer needs, or overestimating the organization’s abilities to respond to them, dooms efforts from the start.

2.       Confusing planning with delivery: Many organizations mistakenly equate planning with execution and a goal with results. A process for execution and resource alignment must be the final element to close the loop on a successful strategic planning process.

3.       Being disconnected from the vision: Well-developed strategy answers the question: How will we achieve and monetize our vision? It is the context for all decision making and resource allocation. The link between your vision and your strategy must be crystal clear.

4.      Underestimating change management needs: Executives are responsible for thinking constantly about the “why” and “what” of strategy, whereas the rest of the organization is focused every day on the “how.” As a result, executives are light-years ahead of their organizations in understanding what drives the need to change and why the change must occur to remain successful. Ignoring this foundational axiom of change management makes aligning employees and strategy nearly impossible.

5.       Diluting the strategic message: No organization is more powerful than the one whose people are laser-focused on driving vision to reality. Unfortunately, leaders assume traditional communication channels are effective in disseminating this critical strategic information.

6.      Holding rare and ineffective progress reviews: Successful organizations perform routine strategy self-examinations, often in the implementation phase, to assess progress, diagnose issues and make timely adjustments.

Through the process of strategic evaluation and control, the strategists attempt to answer set of questions, as below.

·         Are the premises made during strategy formulation proving to be correct?

·         Is the strategy guiding the organization towards its intended objectives?

·         Are the organization and its managers doing things which ought to be done?

·         Is there a need to change and reformulate the strategy?

·         How is the organization performing?

·         Are the time schedules being adhered to?

·         Are the resources being utilized properly?

·         What needs to be done to ensure that resources are utilized properly and objectives met?

Key Players in Strategic Controls

·         Shareholders Board of Directors

·         Chief executives

·         Profit-centre heads

·         Financial controllers

·         Company secretaries

·         External and Internal Auditors Audit

·         Executive Committees Corporate Planning Staff

·         Department Middle-level managers