control and evaluation1

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Prentice Hall, Inc. © 2008 11-1

STRATEGIC MANAGEMENT & BUSINESS POLICY

11 TH

EDITIONTHOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 11 Evaluation& Cont ol


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The evaluation and controlprocess

• Ensure that a compan is achievin! "hatit set out to accomplish. It comparesper#ormance "ith desired result andprovides the #eed $ac% necessar #ormana!ement to evaluate results and ta%ecorrective action, as needed.



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Prentice Hall, Inc. © 2008 11-&

Evaluation an! Cont ol


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' #ive step #eed$ac% model

• (etermine "hat to measure ) Top mana!ers andoperational mana!ers need to speci# "hatimplementation process and results must $e capa$le o#$ein! measured in a reasona$l o$*ective and consistentmanner. The #ocus should $e on the most si!ni#icantelement in a process the ones that account #or hi!hestproportion o# e+pense or the !reatest num$er o#pro$lems. easurement must $e #ound #or all important

areas, re!ardless o# di##icult .• Esta$lish standards o# per#ormance) tandards used to

per#ormance are detailed e+pressions o# strate!ico$*ectives the are measure o# accepta$le per#ormance

11-


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/ont,

the deviation, the #ollo"in! uestions must $e ans"ered)1. Is the deviation onl a chance #luctuation2. 're the process $ein! carried out incorrectl

&. 're the process appropriate to the achievement o# thedesired standard 'ction must $e ta%en "ill not onlcorrect the deviation $ut also prevent it is happenin!a!ain.

. 3ho is the $est person to ta%e corrective action



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Evaluation and Control Information –

6 Performance data 6 Activity reports


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easurin! per#ormance

• The end result o# activit . 3hich measures to selectassess per#ormance depends on the or!ani7ational unitto $e appraised and the o$*ective to $e achieved. Theo$*ectives that "ere esta$lished earlier in the strate!#ormulation part o# strate!ic mana!ement process

dealin! "ith pro#ita$ilit , mar%et share, and costreduction, amon! others9 should certainl $e used tomeasure corporate per#ormance once the strate!ies

have $een implemented




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T pes o# control

• /ontrol can $e esta$lish to #ocus on actualper#ormance results out put9, on theactivities that !enerate the per#ormance

$ehavior9, or on resources that are usedin per#ormance input9

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Types of Controls – 6 Behavior controls

• ome e+amples o# $ehavior controls are

compan procedures, uotas o# sales calls topotential customers, and rules re!ardin!attendance and tardiness.•;ehavior controls are ver appropriate "henresults are hard to measure and a clear cause-e##ect e+ists $et"een activities $ehaviors9 andresults.


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Types of Controls –

6 Input controls•=esources 6 s%ills, a$ilities, values, motives.•Input controls are the least use#ul and are mostappropriate "hen output is di##icult to measureand there is no clear cause-e##ect relationship$et"een $ehavior and per#ormance such as incolle!e teachin!9.


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6 Behavior controls•I > :000 tandards eries is a "a o#o$*ectivel documentin! a compan ?s hi!h levelo# ualit operation.•I > 1 000 tandards eries is a "a o# todocument the compan ?s impact on theenvironment.


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6 Activity Based Costing (ABC)• 'llocation o# indirect and #i+ed costs toindividual products or product lines•;ased on value-added activities

• ore accurate char!e o# costs


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T pes o# /ontrols

Enterprise =is% ana!ement E= 9• E= 9 is a corporate "ide, inte!rated process #or

mana!in! the uncertainties that could ne!ativel or

positivel in#luence the achievement o# a corporation?so$*ectives. In the past, "as done in a #ra!mentedmanner #unctions or $usiness units. Individuals "ouldmana!e process ris%, sa#et ris%, and insurance,#inancial and other assorted ris%s. 's a result o# this#ra!mented approach, companies "ould ta%e hu!e ris%sin some areas o# the $usiness "hile over mana!in!su$stantiall smaller ris%s in other areas.



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Primary "easures of Performance –

6Traditional #inancial "easures•=eturn on investment =>I9

•Earnin!s per share EP 9•=eturn on e uit =>E9

•>peratin! cash #lo"•Aree cash #lo"


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Traditional Ainancial easures

• =eturn on investment =>I9It is simpl the result o# dividin! net income $e#ore ta+es$ the total amount invested in the compan t picallmeasured $ total assets9.

• Earnin! per chair EP/9 "hich involves dividin! net earnin!s $ the amount o#

common stoc%, also has several de#iciencies as anevaluation o# past and #uture per#ormance.

• =eturn on e uit =>E9 3hich involves dividin! net income $ total e uit .

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E l i ! C l


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6 $hareholder • hareholder value) can $e de#ined as thepresent value o# anticipated #uture value streamo# cash #lo"s #rom the $usiness plus the valueo# the compan i# li uidated.•Economic value added EB'9C a#ter-ta+operatin! income 6 investment in assets +"ei!hted avera!e cost o# capital9


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I" EVA #all$ an i% ov#%#ntov# ROI' ROE' o EPS(

• Economic value added EB'9 is $ein! increasin!lrecommended as an improvement over traditional measures$ecause o# EB'Ds stron! relationship to a compan Ds stoc%price. It uses stoc% price to measure the di##erence $et"een

the pre-strate! and post-strate! value o# a corporation.Ho"ever, EB' is o#ten di##icult to calculate. It is #or thisreason that more simpler measures li%e =>I, =>E, and EPcontinue to have "idespread usa!e.

• 'nother limitation o# EB' is this its concern "ith onl oneaspect o# the tas% environment - the stoc%holder. Theconclusion seems clear. There is no one $est measure or!roup o# measures.



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I" t)# #valuation an! *ont ol o*#""a o iat# +o a *o o ation t)at #% )a"i,#"

* #ativit$(

• /ontrol is not i!nored. (ata is *ust not collectedon intermediate activities such as time in theo##ice or manner o# dress.

• The emphasis tends to $e on the end-result o#activities rather than upon the activitiesthemselves. To $e success#ul, the need $othtalent and discipline.

Prentice Hall, Inc. © 2008 11-2&


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ar%et value added B'9

• The di##erence $et"een mar%et value o#corporation and the capital contri$uted $shareholders and lenders.




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6 Balanced $corecard Approach•Ainancial•/ustomer •Internal $usiness perspective

•Innovation and learnin!



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ivisional % #unctional Performance –

6 esponsi'ility Centers• tandard cost centers. ;ased on historical data•=evenue centers.•E+pense centers pro#it centers

•Investment centers. (i##erence $et"eenrevenues and cost.



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sing Benchmar!ing –

6 Continual process of measuring products*service* and practices against the toughestcompetitors or those companies recogni+edas industry leaders


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trate! =evie"

The #irm?s internal and e+ternalenvironments are d namic. There#ore,the $est conceived and implemented

strate!ies $ecome o$solete


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trate! =evie"

E##ective trate! Evaluation

• 'de uate and timel #eed$ac%The cornerstone o# e##ectiveevaluation


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&&

trate! =evie"

trate! Evaluation

• ust have 'othhort- G lon!-term #ocus


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trate! =evie"

Aour /riteria =ichard =umelt9)

• /onsistenc س ت ل ا• /onsonanceC#it or harmon ف ي ك ا• Aeasi$ilit ح ا ن ك م• 'dvanta!e


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/onsistenc Cuni#ormit

• If policy problems/issues continue to be broughtto the top for resolution, then strategies may beinconsistent.

• If success for one epartment means failure foranother epartment, then strategies may beinconsistent.

• If managerial problems continue espite changes

in personnel an are issue base , then strategiesmay be inconsistent.

A strategy should not present inconsistentgoals and policies


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/onsonanceC adapt, #it

• Di!cult in matching "ey internal an e#ternalfactors in formulation of strategy.

• $ost tren s are the result of interactions among

other tren s.

• %trategy must represent an a apti&e response to

the e#ternal en&ironment an critical changesoccurring 'ithin it.

Strategists need to examine sets of trends as well as individual trends in evaluating

strategies.


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Aeasi$ilit

• Important to e#amine 'hether in the past theorgani(ation has emonstrate the capabilities,abilities, competencies, s"ills, an talents to carry

out strategy.

• )imitation on strategic choice impose byin i&i ual an organi(ational capabilities must beconsi ere .

• *an the strategy be attempte 'ithin the physical,human an +nancial resources of the enterprise

Strategy must neither overtax availableresources nor create unsolvable subproblems.


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trate! =evie"

• ate of obsolescence ofe&en the best plans

• Increase in omestic an'orl e&ents

• Decreasing time span for'hich planning can be

one 'ith any certainty

ontemporary%trategyE&aluationDi!culties


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trate! =evie"

Process o# Evaluatin! trate!ies)

• hould initiate mana!erial uestionin!o# e+pectations and assumptions• hould tri!!er a revie" o# o$*ectives

and values• hould stimulate creativit in !eneratin!

alternatives and criteria o# evaluation


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I. =evie" ;ases o# trate!

• (evelop a =evised EvaluationArame"or% atri+)

• ,o- have competitors reacted to ourstrategies.

• ,o- have competitors/ strategieschanged.

• ,ave ma0or competitors/ strengths and-ea!nesses changed.


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• 1hy are competitors ma!ing certainstrategic changes.

• 1hy are some competitors/ strategiesmore successful than others.

• ,o- satisfied are our competitors -iththeir present mar!et positions and profita'ility.


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• ,o- far can our ma0or competitors 'e pushed 'efore retaliating.

• ,o- could -e more effectively cooperate-ith our competitors.


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e uestions in Evaluatin! trate! )

• Are our internal strengths still strengths.

• ,ave -e added other internal strengths.

• Are our internal -ea!nesses still-ea!nesses.


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• Are our e2ternal threats still threats.

• Are there no- other e2ternal threats.

• Are -e vulnera'le to a hostile ta!eover.

control and evaluation1

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