-By

Sreelatha
Sd. Thahaseen
Venkatesh V
Vinod J
 Understand the basic, control process.
 Choose among traditional measures, such as Return
on Investment (ROI) and shareholder value
measures such as economic value added, to
properly assess performance.
 Use the balanced scorecard approach to develop key
performance measures.
 Apply the benchmarking process to a function or an
activity.
 Understand the impact of problem with measuring
performance.
 Strategy can neither be formulated nor adjusted to
changing circumstances without a process of strategy
evaluation.
 Whether performed by an individual or as part of an
organizational review procedure, strategy evaluation
forms an essential step in the process of guiding an
enterprise.
 Evaluation is vital to the organization’s well-being
because:
◦ It compares performance with desired results
and gives feedback for management to
evaluate and take corrective
◦ It alerts management to potential/actual
problems in a timely fashion.
 Strategy evaluation is often an appraisal
of performance.
 Strategists ask questions like:
◦ Have the firm’s assets increased?
◦ Has there been an increase inprofitability?
◦ Has there been an increase in sales?
◦ Has there been an increase inproductivity?
◦ Have profit margins, ROI, and EPSratios
increased?
Glueck and Jauch have defined Strategic
Evaluation as follows:
◦ “Evaluation of strategy” is that phase of the
strategic management process in which the top
managers determine whether their strategic
choice as implemented is meeting the objectives
of the enterprise.
 There are two aspects in this phase of strategic
management:
◦ Evaluation which emphasizes measurement of
results of a strategic action and
◦ Control which emphasizes on taking necessary
actions in the light of gap that exists between
intended results and actual results in the
strategic action.
 Difficulty predicting future with accuracy
 Increasing number of variables
 Rate of obsolescence of plans
 Domestic and global events
 Decreasing time span for planning certainty
 This process ensures that the company achieves what it
was set out to achieve. It compares actual with desired
performance and provides feedback necessary
for management to evaluate results and take corrective
action where necessary. This process can be viewed in
five steps.
 Determine what to measure -this involves clarification
of the aims to be achieved, i.e., the aims and objectives
must be stated in clear terms that should include
specific deadlines.
 Establish standard of performance –requires realistic
measurement by which the degree and quality of goal
achievement can be determined.
 Measure actual performance – this should be an
ongoing repetitive process, actual frequency of
measurement being dependent on the type
of activity
 Comparing actual performance against standards
– this involves comparing measured results with
established targets or standards previously set.
 Take corrective action – if actual results fall
outside the desired tolerance rang, action must be
taken to rectify the deviation.
 Strategic control is the process of taking into accounts the
changing assumptions both external and internal to the
organization on which a strategy is based, continually
evaluating the strategy as it is being implemented and taking
corrective actions to adjust strategy according to changing
conditions or taking necessary actions to realign strategy
implementation
 Are the premises made during the strategy formulation process
proving to be correct?
 Is the strategy being implemented properly?
 Is there any need for change in the strategy? If yes, what is the
type of change required to ensure strategic effectiveness?
 Operational control focuses on the results of
strategic action and is aimed at evaluating the
performance of the organization as a whole,
different SBUs and other units.
 How is the organization performing?•Are the
organizational resources being utilized properly?
 What are the actions required to ensure the proper
utilization of resources in order to meet
organizational objectives?
 Depending on the stages at which control is
exercised, it may be of three types:
 Control of inputs that are required in an action,
known as feed forward control
 Control at different stages of action process,
known as concurrent, real-time, or steering
control; and
 Post action control based on feedback from the
completed action, known as feedback control
 Feed-forward controls, sometimes called
preliminary or preventive controls, attempt to identify
and prevent deviations in the standards before they
occur. Feed-forward controls focus on human,
material, and financial resources within
the organization.
 Concurrent controls monitor ongoing employee
activity to ensure consistency with quality standards.
These controls rely on performance standards, rules,
and regulations for guiding employee tasks and
behaviors. Their purpose is to ensure that work
activities produce the desired results.
 Feedback controls involve reviewing information to
determine whether performance meets established
standards. For example, suppose that an organization
establishes a goal of increasing its profit by 12 percent
next year. To ensure that this goal is reached, the
organization must monitor its profit on a monthly basis.
After three months, if profit has increased by 3 percent,
management might assume that plans are going
according to schedule.
 Activity-Based Costing (ABC) is a method used for
the allocation of indirect and fixed cost to individual
product lines based on the value-added activities going
into that product. This method is useful in doing a
value chain analysis of a firm’s activities for making
outsourcing decisions.
 Enterprise Risk Management (ERM) is an
integrated process for managing the uncertainties that
could negatively or positively influence the
achievement of a corporation’s objectives. The
process of rating risk involves the following
◦ Identify the risk using scenario analysis or Brainstorming.
◦ Rank the risk using some scale of impact and likelihood
◦ Measure the risk using some agreed upon standard.
 The days when simple financial measures such as
ROI or EPS were used alone to assess the overall
corporate performance are coming to an end.
 Analysts now recommend a broad range of methods
to evaluate the success or failure of a strategy.
 Some of these methods are stakeholder measures,
shareholder value and the balance scorecard
approach.
 Traditional financial methods – these methods were
used to measure corporate performance in terms of
profit.
◦ ROI
◦ EPS
◦ ROE
◦ Operating Cash flow
◦ Free cash flow
 Stakeholder Measures – top management should establish
one or more simple stakeholder measures for
each stakeholder category according to its own set of
criteria
 Shareholder value – This can be defined as the present
value of anticipated future stream of cash flows from the
business plus the value of the company, if
liquidated. The New York consulting firm Stern Stewart
&Company devised and popularized two shareholder
value measures known as the Economic value Added
(EVA) and the Market
Value Added (MVA). The basic concepts of these are that
businesses should not invest in projects unless they can
generate profit above the cost of capital.
 Economic value added (EVA) is a performance measure
developed by Stern Stewart & Co that attempts to
measure the true economic profit produced by a company.
It is frequently also referred to as "economic profit", and
provides a measurement of a company's economic
success (or failure) over a period of time.
 Market value added (MVA), on the other hand, is simply
the difference between the current total market value of a
company and the capital contributed by
investors(including both shareholders and bondholders).
MVA is not a performance metric like EVA, but instead is
a wealth metric; measuring the level of value a company
has accumulated over time. As a company performs well
over time, it will retain earnings.
 Evaluate strategies from 4 perspectives:
1. Financial Performance: How do we appear to
shareholders?
2. Customer knowledge: how do customers view us?
3. Internal business process: What must excel us?
4. Learning & growth: Can we continue to improve and
create value? Besides, performance of people and
performance according to stakeholders can be added.
 Management Audit is used to evaluate how
management handle the various corporate activities
such as
◦ Corporate social responsibilities.
◦ Functional areas of the organization.
 Strategic Audit – provides a checklist of questions,
by area or issue, that enables a systematic analysis of
various corporate functions and activities to be made.
 It is useful as a diagnostic tool to pin point corporate-
wide problems.
 Responsibility Centers – are used to isolate a unit so
that it can be evaluated separately from the rest of the
corporation
◦ Standard cost centers
◦ Revenue centers
◦ Expense centers
◦ Profit centers
◦ Investment centers
 Using Benchmarking – Continual process of
measuring products, service, and practices against
the toughest competitors or those companies
recognized as industry leaders
 International Measurement Issues
 International transfer pricing
 Repatriation of profit
 Strategic Information Systems
 Enterprise Resource Planning (ERP)
 Divisional and functional IS support
Short-term orientation
Goal displacement
Behavior substitution
Sub-optimization
 Minimum amount of information necessary
 Meaningful activities and results
 Timely
 Long and short-term
 Pinpointing exceptions
 Meeting/exceeding standards
 The final step in the strategic management process is
evaluating results. Managers must evaluate the results
to determine how effective their strategies have been
and what corrections are necessary. All strategies are
subject to future modification because internal and
external factors are constantly changing.
Thank You!