Strategic evaluation and control is the process of determining the effectiveness of a given strategy in achieving the organizational objectives and taking corrective actions whenever required. Control can be exercised through formulation of contingency strategies and a crisis management team.
Success today does not guarantee success tomorrow.
As such, it is important for managers to evaluate the performance of a chosen
strategy after the implementation phase. Strategy evaluation involves three
crucial activities: reviewing the internal and external factors affecting the
implementation of the strategy, measuring performance, and taking corrective
steps to make the strategy more effective. For example, after implementing a
strategy to improve customer service, a company may discover that it needs to
adopt a new customer relationship management (CRM) software program in order to
attain the desired improvements in customer relations.
All three
steps in strategic planning occur within three hierarchical levels: upper
management, middle management, and operational levels. Thus, it is imperative
to foster communication and interaction among employees and managers at all
levels, so as to help the firm to operate as a more functional and effective
team.
All
strategies are subject to future modification because internal and external
factors are constantly changing. In the strategy evaluation and control process
managers determine whether the chosen strategy is achieving the organization's
objectives. The fundamental strategy evaluation and control activities are:
reviewing internal and external factors that are the bases for current
strategies, measuring performance, and taking corrective actions.
Evaluations also help identify the
areas of improvement and the actions necessary to bring the performance back in
line with organizational objectives. After you have successfully evaluated the
changes required, you try to take control by implementing measures to help you
get back on track. In conclusion, without evaluation and control, there is no
way of knowing where you went wrong and how you could have done things
contrarily.
The significance of
strategy evaluation lies in its capacity to co-ordinate the task performed by
managers, groups, departments etc, through control of performance. Strategic Evaluation is significant because of
various factors such as - developing inputs for new strategic planning, the
urge for feedback, appraisal and reward, development of the strategic
management process, judging the validity of strategic choice etc.
It’s
unique in that it’s built to handle unknowns and ambiguity as it tracks a
strategy’s implementation and subsequent results. It is primarily concerned
with finding and helping you adapt to internal or external factors that affect
your strategy, whether they were initially included in your strategic planning
or not.
The
various components of the strategic control process generate answers to these
two questions:
- Has the strategy been
implemented as planned?
- Based on the observed results,
does the strategy need to be changed or adjusted?
In
many senses, strategic control is an evaluation exercise focused on ensuring
the achievement of your goals. The process bridges gaps and allows you to adapt
your strategy as needed during implementation.
The process of Strategy
Evaluation consists of following steps-
- Internal
& External Analysis – this phase seeks to establish
whether the premises on which the strategic objectives were established
have shifted substantially to impact the forward movement. The new
challenges bring opportunities also. SWOT analysis for internal and PESTL
analysis for external factors are tools in this respect.
Internal analysis of the environment is the first step of environment scanning.
Organizations should observe the internal organizational environment. This
includes employee interaction with other employees, employee interaction with
management, manager interaction with other managers, and management interaction
with shareholders, access to natural resources, brand awareness, organizational
structure, main staff, operational potential, etc. Also, discussions,
interviews, and surveys can be used to assess the internal environment. Analysis
of internal environment helps in identifying strengths and weaknesses of an
organization.
SWOT is an acronym used to describe the particular Strengths,
Weaknesses, Opportunities, and Threats that are strategic factors for a
specific company. A SWOT should represent an organization’s core competencies
while also identifying opportunities it cannot currently use to its advantage
due to a gap in resources.
While in external
analysis, three correlated environment should be studied and analyzed
·
Immediate / industry environment
·
National environment
·
Broader socio-economic environment / macro-environment
Examining the industry
environment needs an appraisal of the competitive structure of the
organization’s industry, including the competitive position of a particular
organization and it’s main rivals. Also, an assessment of the nature, stage,
dynamics and history of the industry is essential. It also implies evaluating
the effect of globalization on competition within the industry. Analyzing
the national environment needs an appraisal of whether the
national framework helps in achieving competitive advantage in the globalized
environment. Analysis of macro-environment includes exploring
macro-economic, social, government, legal, technological and international
factors that may influence the environment. The analysis of organization’s
external environment reveals opportunities and threats for an organization.
Strategic managers must
not only recognize the present state of the environment and their industry but
also be able to predict its future positions.
PESTEL analysis is one important tool that
executives can rely on to organize factors within the general environment and
to identify how these factors influence industries and the firms within them.
PESTEL is an anagram, meaning it is a word that created by using parts of other
words. In particular, PESTEL reflects the names of the six segments of the
general environment: (1) political, (2) economic, (3) social, (4) technological,
(5) environmental, and (6) legal. Wise executives carefully examine each of
these six segments to identify major opportunities and threats and then adjust
their firms’ strategies accordingly
PESTLE analysis is a strategic planning tool that is used to examine
various factors that affect the market environment for a business or
organization. The goal of PESTLE analysis is to develop a profound
understanding of the external environment where the organization operates.
Usually, PESTLE analysis is conducted as part of a lead-in to SWOT analysis.
- Fixing benchmark of performance - While fixing the benchmark, strategists encounter questions such as - what benchmarks to
set, how to set them and how to express them. In order to determine the
benchmark performance to be set, it is essential to discover the special
requirements for performing the main task. The performance indicator that
best identify and express the special requirements might then be
determined to be used for evaluation. The organization can use both
quantitative and qualitative criteria for comprehensive assessment of
performance. Quantitative criteria includes determination of net profit,
ROI, earning per share, cost of production, rate of employee turnover etc.
Among the Qualitative factors are subjective evaluation of factors such as
- skills and competencies, risk taking potential, flexibility etc.
Normally benchmarking is done at the time of formulation of strategy and
it is reviewed in the evaluation stage so as to see whether all relevant
business variables are reflected in the benchmark after the passage of
time.
- Measurement of performance - The standard performance
is a bench mark with which the actual performance is to be compared. The
reporting and communication system help in measuring the performance. If
appropriate means are available for measuring the performance and if the
standards are set in the right manner, strategy evaluation becomes easier.
But various factors such as managers’ contribution are difficult to
measure. Similarly divisional performance is sometimes difficult to
measure as compared to individual performance. Thus, variable objectives
must be created against which measurement of performance can be done. The
measurement must be done at right time else evaluation will not meet its
purpose. For measuring the performance, financial statements like -
balance sheet, profit and loss account must be prepared on an annual
basis.
- Analyzing Variance - While measuring the actual performance and
comparing it with standard performance there may be variances which must
be analyzed. The strategists must mention the degree of tolerance limits
between which the variance between actual and standard performance may be
accepted. The positive deviation indicates a better performance but it is
quite unusual exceeding the target always. The negative deviation is an
issue of concern because it indicates a shortfall in performance. Thus in
this case the strategists must discover the causes of deviation and must
take corrective action to overcome it.
- Taking Corrective Action - Once the deviation in
performance is identified, it is essential to plan for a corrective
action. If the performance is consistently less than the desired
performance, the strategists must carry a detailed analysis of the factors
responsible for such performance. If the strategists discover that the
organizational potential does not match with the performance requirements,
then the standards must be lowered. Another rare and drastic corrective
action is reformulating the strategy which requires going back to the
process of strategic management, reframing of plans according to new
resource allocation trend and consequent means going to the beginning
point of strategic management process.
Thus checking performance, pre-set
levels of standards and reformulating plans, objectives, processes form part of
control aspects.
Those who read this also read
1. Internal & External Analysis
2. Control in Strategic Management Process: Step 4/4 Str. Mgt Process/Framework - II
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