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STRATEGY EVALUATION
We have already discussed a five-component framework that highlights the strategic management process. We have also completed discussions on the first four components. Now we turn to the last component of the framework. This unit addresses the strategy-critical performance evaluation and, whenever necessary, initiating corrective adjustments in an organization’s vision, objectives, strategy, or implementation approaches in the light of actual experience and changing conditions in the organization’s internal and external environments. The essence of strategy evaluation is keeping track of current performance and anticipating changes. Managers usually make evaluation to find new opportunities or avoid threats, keep performance in line with management’s expectations, and/or solve specific problems.
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actions either to get back to the track or change the track or make changes in other relevant aspects of strategy. The status of strategy-evaluation in the entire strategic management process is shown in Figure 10.1. Need for Strategy Evaluation and Corrective Adjustments Strategy-managers need to continually evaluate and monitor the progress in the strategic actions undertaken for strategy implementation. Systematic review provides adequate information for finding out any deviations in the actual activities from the planned activities. Based on these information, managers can then undertake appropriate actions. Here we discuss the necessity of strategy evaluation under the following heads:
Figure 10.1: Structural position of strategy evaluation in the strategic management process Obtaining data for corrective actions: Organizations are constantly facing dynamic environments. The key internal and external factors change quickly and dramatically. These changes affect strategy implementation. Regular evaluation of strategy while being implemented provides relevant data for taking corrective actions.
Strategic Analysis of Organization Setting Long-Term Objectives
Formulating Strategy
Implementing Strategy
Strategy Evaluation
Analysis of Internal Environment
Analysis of External Environment
Systematic review provides adequate information for finding out any deviations in the actual activities from the planned activities.
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Keeping track of progress of activities: Strategy evaluation helps managers keep track of progress in the implementation of strategy. If progress seems to be slow or something wrong has occurred or new developments have taken place in the external situations of the organization, it becomes mandatory to undertake corrective actions and adjustments.
Detection of flaws: Nobody could guarantee that a particular strategy will work or that it is the most sound strategy. Therefore, strategy should be evaluated for critical flaws. The strategy-managers, through review of results and future possibilities, determine whether the strategy is working. If any flaw is detected in the implementation of strategy, they take steps to make it work.
Making managers proactive: Installation of an evaluation system puts the managers in a systematic trap, which compels them not to neglect the importance of assessing the impact of changes in the organizational environments. It reminds them not to be complacent about the present achievement. It makes them feel that success today is no guarantee for success tomorrow.
Developing a sense of commitment: When all managers and employees are involved in the process of evaluating strategy on a continuing basis, they become committed to keeping the company moving steadily toward achieving objectives.
Adjustments or modifications may be needed in the vision or mission, or objectives or strategies or in the approaches to execution of the strategies. If corrective actions or adjustments are not initiated properly and on time, it may invite catastrophic consequences for the organization.
Characteristics/Requirements of an Effective Strategy Evaluation System
A strategy-evaluation system in order to be effective and successful must meet certain requirements. These requirements are the basic characteristics of an effective evaluation system. We discuss below the major requirements of an ideal strategy-evaluation system:
Economical: The activities related to evaluation of strategy must be economical. If they are not cost-effective, wastage would creep up. A balance needs to be maintained in obtaining information –not too much or not too little. Very often, too much data and too many controls do more harm than good.
Meaningful: The strategy-evaluation activities must be meaningful in the sense that they have to be related specifically to the objectives against which strategy has been adopted.
Providing useful information: The information collected through evaluation must be useful. Redundant information is useless to managers in decision-making.
Providing timely information: The strategy-evaluation system should be established in such a way that it can provide information to relevant
A strategy-evaluation system in order to be effective and successful must meet certain requirements.
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Review Questions
- Define strategy evaluation.
- Explain the nature of strategy evaluation.
- Discuss the importance of strategy evaluation and corrective adjustments.
- What are the characteristics of an effective strategy evaluation system? Discuss them briefly.
Application Discussion Questions
- Talk to a senior manager of an organization known to you about the strategy evaluation system in his/her company. Do you think this organization has all the characteristics of an effective evaluation system?
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Lesson-2: Components of an Effective Evaluation
System/Strategy-Evaluation Framework
Learning Objectives: After studying this lesson, you should be able to:
- Identify the major components of an effective evaluation system.
- Discuss the features of each of the components of effective evaluation system. Introduction From Lesson-1 of this unit we understand that managers cannot escape their responsibility of evaluating strategy. If they do escape, they will naturally be doomed to fail. Keeping this in mind, we have highlighted the importance of strategy evaluation in the previous lesson. This lesson attempts to detail out the components of effective strategy evaluation system and the process of making corrective adjustments. Components of Effective/Ideal Strategy Evaluation System There are three major components of an ideal strategy-evaluation system:^3
- Reviewing underlying bases of strategy
- Measuring organizational performance
- Taking corrective actions
- Reviewing underlying bases of strategy Internal strengths and weaknesses as well as external opportunities and threats form the bases for a strategy. The opportunities, threats, strengths and weaknesses are not likely to remain valid for long time. So, when implementation of a strategy takes a long time (some strategies may even take several years for full implementation), these bases of strategy should be reviewed. A review would reveal many issues like the following: (a) How competitors have reacted to the firm’s strategies; (b) How competitors have changed their strategies in response of (our) company’s strategies; (c) Whether strengths and weaknesses have changed; (d) Whether new opportunities by now have emerged or new threats have surfaced; and (e) Above all, whether the already-identified opportunities, threats, strengths and weaknesses are still as they were at the time of SWOT analysis. A review of the bases of strategy enables the managers to identify the real reasons for unsatisfactory results. It may so happen that ineffective strategy has been chosen or strategy has been implemented very poorly, or sudden changes in the external factors (such as changes in demand, changes in technology, new policies by government, actions by competitors, or sudden natural disaster like cyclone or flood) have prohibited the company from achieving the objectives. Review helps in discovering these changes.
A review of the bases of strategy enables the managers to identify the real reasons for unsatisfactory results.
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Review Questions
- Make a list of the major components of an effective evaluation system.
- Discuss the components of effective evaluation system.
Application Discussion Questions
- Suppose that you are operating a business organization which does not have an effective evaluation system. Suggest an appropriate evaluation system for your organization.
NOTES (for Unit-10)
- David W. Cravens, C.W. Lamb and Victoria L. Crittenden, Strategic Marketing Management (Boston: McGraw-Hill, 1999), p. 486.
- Lawrence R. Jauch and William F. Glueck, Business Policy and Strategic Management (New York: McGraw-Hill, 1988), p.375.
- Fred R. David, Strategic Management (New Jersey: Prentice-Hall, 1999), pp. 285-290.
