This research paper would not have been possible without the support of many people. The author wishes to express her gratitude to her Lecturer, Prof. Dr. B. Baidya who was abundantly helpful and offered invaluable assistance, support and guidance. Deepest gratitude also due to the members 2012 December Block Release Class of Corporate Planning and Strategy Course (BSAD), without whose knowledge and assistance,this study would not have been successful. Special thanks also to group members; Ireen Makonese , Jonathan Mumbi and James Kaunda for sharing the literature and invaluable assistance. Not forgetting to her best friends who always been there. The author would also like to convey thanks to the Solusi University for providing unperturbed internet facilities .The author wishes to express her love and gratitude to her beloved families; for their understanding & endless love, through the duration of her studies.
Strategic Management is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. In order to determine the direction of the organization, it is necessary to understand its current position and the possible avenues through which it can pursue a particular course of action. Strategic Management is a continual process for improving organizational performance by developing strategies to produce results. It involves looking at where the agency wants to go, assessing the agency’s current situation, and developing and implementing approaches for moving forward. The process of strategic management involves four basic elements and these are:- Environmental Scanning
Evaluation and Control.
Central to this discussion is the Evaluation and Control of any strategic management process. Strategic control and evaluation, is the final stage in strategic management. In this stage, managers determine whether the strategy is achieving the organization’s objectives or not? The fundamental activities of this stage are reviewing internal and external factors that are the bases for current strategies, measuring performance and taking corrective actions. It is, however, imperative to give definitions to core concepts which will be under discussion in this research paper:-
Strategic control can be defined as the process of monitoring whether 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. 1.3 Strategic Evaluation
Strategic evaluation is a way for businesses to evaluate the health and productivity of their company and their future endeavors. Typically, strategic evaluations attempt to see past the obvious factors that influence short-term plans, and seek a more-dynamic study of the trends that will dictate the future success or failure of the company. Like a chess match, strategic evaluation succeeds when companies are able to accurately analyze and predict several moves ahead into the future, in order to best tailor their present policies.
2.0 EVALUATION & CONTROL
These two processes ensure that the company is achieving what it set out to accomplish. They compare performance with desired results. Below is a model for the two processes:-
Determine what to measure
Top managers and operational managers must specify implementation process and results to be monitored/controlled and evaluated. The processes and results must be measurable in a reasonably objective and consistent manner. The focus should be on the most significant elements in a process, that is, the ones that account for the highest proportion of exposure or the ones with the greatest number of problems.
Establish standards of Performance
Standards used to measure performance are detailed expressions of strategic objectives. They are measures of acceptable performance results. Each standard can usually includes a tolerance range, which defines any acceptable deviations. Standards can be set not only for final output, but also for intermediate stages of production output. Measure Actual Performance.
Measurements must be made at predetermined times.
Compare Actual Performance with the Standard
If the actual performance results are within the desired tolerance range, the measurement process stops here.
Take Corrective Action
If the actual results fall outside the desired tolerance range, action must be taken to correct the deviation. The action must not only correct the deviation but also prevent its recurrence. The following issues must be resolved: Is the deviation only a chance fluctuation?
Are the processes being carried out in correctly?
Are the processes appropriate for achieving the desired standards?
3.0 OBJECTIVES OF STRATEGIC EVALUATION AND CONTROL
Organizations are most vulnerable when they are at the peak of their success. Erroneous strategic decisions can inflict severe penalties and can be exceedingly difficult, if not impossible, to reverse. Strategy control and evaluation process is vital to an organization’s well-being and if timely, they can alert management to problems or potential problems before a situation becomes critical. Through evaluation and Control process, corporate activities and performance results are monitored so that actual performance can be compared with desired performance. Regular control or check and Periodic evaluation will yield desired Performance.
4.0 DIFFERENCE BETWEEN EVALUATION AND CONTROL
Strategic Evaluation is an evaluation used by managers as an aid to decide which strategy a program should adopt in order to accomplish its goals and objectives at a minimum cost. In addition, strategy evaluation might include alternative specifications of the program design itself, manpower specifications, progress objectives, and budget allocations. Strategic control on the other hand is a tool that allows managers to evaluate whether or not their selected strategies are working as intended. It enables managers to find ways to improve the strategies and seek changes if
strategies are not working.
5.0 MEASURING PERFORMANCE
Performance is the end result of activity. Measures to select to asses performance depends on the organizational unit to be appraised and the objectives to be achieved. The objectives that were established in the strategy formulation part of the strategic management process (dealing with profitability, market share and cost reduction, among others) should certainly be used to measure corporate or overall performance once the strategies have been implemented. This activity includes comparing expected results to actual results, investigating deviations from plans, evaluating individual performance, and examining progress being made toward meeting stated objectives. Both long-term and annual objectives are commonly used in this process. Criteria for evaluating strategies should be measurable and easily verifiable. Criteria that predict results may be more important than those that reveal what already has happened. For example, rather than simply being informed that sales last quarter were 20 percent under what was expected, strategists need to know that sales next quarter may be 20 percent below standard unless some action is taken to counter the trend. Really effective control requires accurate forecasting.
Failure to make satisfactory progress toward accomplishing long-term or annual objectives signals a need for corrective actions. Many factors, such as unreasonable policies, unexpected turns in the economy, unreliable suppliers or distributors, or ineffective strategies, can result in unsatisfactory progress toward meeting objectives. Problems can result from ineffectiveness (not doing the right things) or inefficiency (doing the right things poorly).
Clearly, standards mean that we must measure performance against them. In addition to determining appropriate techniques of measurement we have to determine such things as frequency of measurement, for example, daily, weekly, monthly or annually and the responsibility for measurement, that, who should do it. More frequent and more detailed measurement usually means more cost. We need to be careful to ensure that the costs of measurement and the control process itself do not exceed the value of such measurements and do not overly interfere with the activities of those being measured.
5.1 Primary Measures of Corporate Performance
Appropriate financial measures used in strategic management are ROI or EPS or ROE to assess the overall corporate performance. Analysis for such recommended is a broad range of methods to evaluate the success or failure of a strategy. Some of the important methods are: Stakeholder measures – Financial performance: how do we appear to shareholders? Shareholder values- Customer knowledge: how do customers view us? Balance Score Card approach- The Scorecard is used to evaluate strategies. When one is aware of the method of evaluation, it is useful to set objectives based on the evaluation method used Strategic Audit-Internal business perspective: What must we excel at? Innovation & Learning: Can we continue to improve and create Value?
5.2 Strategic Audit
Strategy audit is one of the methods for evaluating the performance of the chosen strategy. It provides a checklist of questions, by area or issue, which enables a systematic analysis of various organizational functions or activities. Audit is an extremely useful diagnostic tool for pinpointing the problems areas and highlights organizational strengths and weaknesses for corporate planning. However, the main objective of strategic audit is to develop benchmarks. The process of bench marks involves the following steps: – Identification of functions or process, usually an activity which can give a business unit competitive advantage, that has to be audited. Determination of measures of performance of the function or process.
5.3 Importance of Strategic Audit for corporate planning
Evaluates current performance result
Review corporate governance
Scan and assess the external environment
Scan and assess the internal environment
Analyze Strategic Factor using SWOT.
Generate and evaluate strategic alternatives
Evaluate and control
5.4 Establishing of Specific Standards of Performance and allowed Deviations The establishment of specific performance standards that will need to be achieved for each area of activity if overall and sub-objectives are to be achieved. For example, to achieve a specified sales objective, a target of performance for each sales area may be required. In turn, this may require a specific standard of performance from each of the salespeople in the region with respect to, for example, number of calls, conversion rates and order value. Like each standard of performance, we must also try to determine what are allowable deviations for both under- and over-performance. When these allowable deviations are exceeded, then this would initiate some sort of corrective action. Such limits are useful for initiating ongoing control.
5.4.1 Analyzing results
Analysis and interpretation of results prior to taking any action is one of the most important and yet most difficult steps in the control process. Because marketing is a complex process there is potential for misinterpreting the causes of variances from standards and hence compounding the problem by taking the wrong corrective action. The system of marketing control, therefore, requires an information system which is based on aggregative data so that variances can be broken down into their constituent causes. The system should also allow responsibilities for these variances to be pinpointed so that corrective action can be communicated. The analysis system should also allow sufficient time for detailed analysis to be made to avoid taking precipitous actions.
5.4.2 Taking corrective action
There is a temptation to assume that corrective action only needs to be taken when results are less than those required or when budgets and costs are being exceeded. In fact, both ‘negative’ (underachievement) and ‘positive’ (overachievement) deviations may require corrective action. For example, failure to spend the amount budgeted for, say, sales force expenses may indicate either that the initial sum allocated was excessive and needs to be reassessed, and/or that the sales force was not as ‘active’ as they might be. Similarly, overachievement on, say, market share or profitability may mean that overall objectives in these areas need to be looked at again. This relates back to the analysis stage of the control sequence, but it shows that all significant deviations from standards should be looked at with a view to taking corrective action.
Another question which arise vis-à-vis corrective action (and indeed the whole process of control and evaluation) is timing: how quickly should corrective action be implemented? This will vary according to the area of control and evaluation and the nature and extent of deviations from standards. For example, a sudden fall in sales and profits will probably require immediate action. In broader terms, some elements of control will effectively be continuous; for example, the control and evaluation of sales calls and expenses, which may be carried out on a monthly, weekly or even daily basis. Other areas of control will relate more to the annual planning sequence and will include sales and market share analysis. Finally, we may have control and evaluation processes which relate to the totality of marketing activities and systems, that is, a comprehensive examination of the marketing function itself within the organization. In effect, this is a marketing audit which is an essential part of the strategic control and evaluation process.
5.4.3 Problems in Measuring Performance:-
Lack of quantifiable objectives or performance standards
Lack of timely and valid information
Side effects of measurement (biases against quantifiable goals) Short-term orientation( ROI) manipulation of earnings or investment Goal displacement( Means become ends themselves)
Behavior substitution (doing only those activities which are rewarded ) Quantifiable drives out non quantifiable
Sub optimization (Local optimization)
Strategy evaluation and control can facilitate accomplishment of annual and long-term objectives. Effective strategy evaluation and control allows an organization to capitalize on internal strengths as they develop, to exploit external opportunities as they emerge, to recognize and defend against threats, and to mitigate internal weaknesses before they become detrimental. Strategists in successful organizations take the time to formulate, implement, and then control and evaluate strategies deliberately and systematically. Good strategists move their organization forward with purpose and direction, continually evaluating and improving the firm’s external and internal strategic position. Strategy control and evaluation allows an organization to shape its own future rather than allowing it to be constantly shaped by remote forces that have little or no vested interest in the well-being of the enterprise. Although not a guarantee for success, strategic management allows organizations to make effective long-term decisions, to execute those decisions efficiently, and to take corrective actions as needed to ensure success.
Computer networks and the Internet help to coordinate strategic-management activities and to ensure that decisions are based on good information. A key to effective strategy control and evaluation to successful strategic management is an integration of intuition and analysis. A potentially fatal problem is the tendency for analytical and intuitive issues to polarize. This polarization leads to strategy evaluation that is dominated by either analysis or intuition, or to strategy evaluation that is discontinuous, with a lack of coordination among analytical and intuitive issues. Strategists in successful organizations realize that strategic management is first and foremost a people process. It is an excellent vehicle for fostering organizational communication.
People are what make the difference in organizations. The real key to effective strategic management is to accept the premise that the planning process is more important than the written plan, that the manager is continuously planning and does not stop planning when the written plan is finished. The written plan is only a snapshot as of the moment it is approved. If the manager is not planning on a continuous basis (planning, measuring, and revising) the written plan can become obsolete the day it is finished. This obsolescence becomes more of a certainty as the increasingly rapid rate of change makes the business environment more uncertain.
Measuring performance is a crucial part of Evaluation and Control. The lack of quantifiable objectives or performance standards and the inability of the information system to provide timely, valid information are two obvious control problems. In designing a control and evaluation system, top management should remember that controls should follow strategy. Unless controls ensure the use of the proper strategy to achieve objectives, dysfunctional side effects may completely undermine the implementation of the objectives. The following guidelines are very important to develop the control and evaluation system in any organization:- Controls should involve only the minimum amount of information needed to give a reliable picture of events. Too many controls create confusion. Focus on the strategic factors by following the 80/20 rule
Monitor those 20% of the factors that determine 80% of the results. Minimum amount of information( Monitor those 20% important strategic factors contributing 80% results Monitor only meaningful activities & results( if cooperation between divisions is important establish some qualitative or quantitative measures Timely to take prompt corrective actions
Long-term and short-term controls
Pinpointing exceptions (management by exceptions)
Reward meeting or exceeding standards. Rather than punishment for failing. Heavy punishment leads to goal displacement. Managers will fudge reports & lobby for lower standards
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