Topic 2: EVALUATING STRATEGY Flashcards
The strategic management process results in decisions that can have significant, long-lasting
consequences. Erroneous strategic decisions can inflict penalties and can be difficult to reverse.
Strategy evaluation is vital to the well-being of an organisation because timely evaluations can alert
management to problems or potential problems before a situation becomes critical.
Strategy evaluation includes three basic activities:
1. Examining the underlying bases of the strategy of the organisation
2. Comparing expected results with actual results
3. Taking corrective actions to ensure that performance conforms to plans.
STRATEGY EVALUATION CRITERIA
Johnson, Whittington and Scholes (2011: 363) outline three evaluation criteria:
• Suitability – which is concerned with assessing whether the strategy addresses the key issues
relating to the opportunities and constraints faced by an organisation?
• Acceptability – is concerned with whether the expected performance outcomes of a proposed
strategy meets the expectations of stakeholders.
• Feasibility – is concerned with whether a strategy could work in practice.
Rumelt (1980), cited in David and David (2015:374) offered four criteria that could be used to
evaluate a strategy:
• Consistency – a strategy should not present inconsistent goals and policies
• Consonance – refers to the need to examine trends in evaluating strategies
• Feasibility – a strategy must neither overtax available resources nor create unsolvable
sub problems.
• Advantage – a strategy must provide for the creation or maintenance of a competitive
advantage in a selected area of activity
Consonance and advantage are mostly based on an organisation’s external assessment, whereas
consistency and feasibility are largely based on an internal assessment.
Thompson, Scott and Martin (2014:383) state that there are three important measures of
performance:
• Economy – which means doing things cost effectively. Resources must be managed at the
lowest possible cost consistent with achieving quantity and quality targets
• Efficiency – which implies ‘doing things right’. Resources must be utilised to maximise the
returns from them.
• Effectiveness – or ‘doing the right things’. This means that resources should be allocated to
those activities which satisfy the needs, expectations and priorities of the various stakeholders
in the organisation.
Economy and efficiency measures are essentially quantitative and objective
Evaluating a strategy during the strategic control phase of the strategic management
process
Appropriateness
• Is the strategy still in line with the organisation’s mission and
long-term goals?
• Is the strategy still acceptable for all stakeholders?
• Has the strategy strengthened the competitive position of the
company?
• Has the organisation managed to change or influence the
market or industry with the strategy if it was the intention to do
so?
• Is the strategy still appropriate for the organisation, given
changes in the external environment?
• Are the necessary skills and resources still available to ensure
sustained success of the strategy?
Feasibility
• Is the strategy still feasible in terms of resources?
• Is the strategy still feasible in the light of the strategies and
actions of competitors?
Desirability
• Has the strategy produced adequate results in the short term?
• Will the strategy continue to produce adequate results in the
long term?
• Is the strategy still a desirable option for the organisation?
• Have stakeholder preferences changes?
STRATEGY EVALUATION FRAMEWORK
The three stages are:
Activity One – Reviewing the underlying bases of strategy
Activity Two – Measuring organisational performance
Activity Three – Taking corrective actions.
BASIC REQUIREMENTS OF STRATEGY EVALUATION
Strategy evaluation must meet several basic requirements to be effective:
• Strategy evaluation activities must be economical
• Strategy evaluation activities should be meaningful – they should specifically relate to the
objectives of the organisation.
• Strategy evaluation activities should provide timely information.
• Strategy evaluation should be designed to provide a true picture of what is happening.
• Information derived from the strategy-evaluation process should facilitate action.
• Strategy evaluation activities should not dominate decisions; it should foster understanding
and trust.
• Strategy evaluations should be simple, not too cumbersome and not too restrictive.
(David and David, 2015: 383)
Regardless of how strategies are formulated, implemented and evaluated, unforeseen events (strikes,
boycotts, and natural disasters) can make a strategy obsolete. To minimise the impact of potential
threats, organisations should develop contingency plans as part of their strategy-evaluation process.
Contingency plans are alternative plans that can be put into effect if certain events do not occur as
expected.
REFLECTION PERSPECTIVE
The balanced scorecard is a means to measure the effectiveness of an organisation’s strategic
management efforts. It allows an organisation to understand how well it has aligned and integrated
itself and how successfully it has implemented and executed its strategy. The balanced scorecard
approach measures strategic success using four dimensions:
• Financial perspective – is the organisation’s performance resulting in increased shareholder
value? Some indicators are increased revenue growth, better cost management and more
effective asset utilisation.
• Customer perspective – is the organisation’s performance resulting in an increasing share of
customer spending? Indicators here are increased customer acquisition, improved customer
satisfaction, better retention of customers and increasing customer profitability.
• Internal perspective – are the internal processes effectively aligned to drive and deliver
improved performance? Indicators here are operations management processes, customer
management processes, innovation processes and regulatory and social processes.
• Learning and growth perspective – does the organisation have the necessary human capital,
technology and culture to drive the strategy? Indicators here are employee know-how, skills
and commitment, information technology architecture and the climate of the organisation
SUMMARY
Strategy in practice concerns who decides… what to do… why and how … and when things need to
change. Strategy is about being aware and being in control of this change agenda. Strategy is:
• Knowing where the organisation is and how well it is performing
• Ensuring that employees know and support what the organisation stands for and where it is
going
• Knowing how the organisation intends to follow this direction
• Ensuring that strategies and strategic ideas are implemented, while recognising that there is
a constant need for vigilance and flexibility.
Strategy is about what organisations do. It is about doing the right things in the right way and for the
right reasons. (Thompson, Scott and Martin, 2014:598).
