ZeePedia Add to Favourites   |   Contact us


Strategic Management

<<< Previous REVIEWING BASES OF STRATEGY:Measuring Organizational Performance Next >>>
 
img
Strategic Management ­ MGT603
VU
Lesson 43
REVIEWING BASES OF STRATEGY
Reviewing the underlying bases of an organization's strategy could be approached by developing a revised EFE
Matrix and IFE Matrix. A revised IFE Matrix should focus on changes in the organization's management,
marketing, finance/accounting, production/operations, R&D, and computer information systems
strengths and weaknesses. A revised EFE Matrix should indicate how effective a firm's strategies have been
in response to key opportunities and threats. This analysis could also address such questions as the
following:
1. How have competitors reacted to our strategies?
2. How have competitors' strategies changed?
3. Have major competitors' strengths and weaknesses changed?
4. Why are competitors making certain strategic changes?
5. Why are some competitors' strategies more successful than others?
6. How satisfied are our competitors with their present market positions and profitability?
7. How far can our major competitors be pushed before retaliating?
8. How could we more effectively cooperate with our competitors?
Numerous external and internal factors can prohibit firms from achieving long-term and annual
objectives. Externally, actions by competitors, changes in demand, changes in technology, economic
changes, demographic shifts, and governmental actions may prohibit objectives from being accomplished.
Internally, ineffective strategies may have been chosen or implementation activities may have been poor.
Objectives may have been too optimistic. Thus, failure to achieve objectives may not be the result of
unsatisfactory work by managers and employees. All organizational members need to know this to
encourage their support for strategy-evaluation activities. Organizations desperately need to know as soon
as possible when their strategies are not effective. Sometimes managers and employees on the front line
discover this well before strategists.
External opportunities and threats and internal strengths and weaknesses that represent the bases of
current strategies should continually be monitored for change. It is not really a question of whether these
factors will change, but rather when they will change and in what ways. Some key questions to address in
evaluating strategies are given here.
1. Are our internal strengths still strengths?
2. Have we added other internal strengths? If so, what are they?
3. Are our internal weaknesses still weaknesses?
4. Do we now have other internal weaknesses? If so, what are they?
5. Are our external opportunities still opportunities?
6. Are there now other external opportunities? If so, what are they?
7. Are our external threats still threats?
8. Are there now other external threats? If so, what are they?
9. Are we vulnerable to a hostile takeover?
Measuring Organizational Performance
Another important strategy-evaluation activity is measuring organizational performance. 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).
150
img
Strategic Management ­ MGT603
VU
Determining which objectives are most important in the evaluation of strategies can be difficult. Strategy
evaluation is based on both quantitative and qualitative criteria. Selecting the exact set of criteria for
evaluating strategies depends on a particular organization's size, industry, strategies, and management
philosophy. An organization pursuing a retrenchment strategy, for example, could have an entirely
different set of evaluative criteria from an organization pursuing a market-development strategy.
Quantitative criteria commonly used to evaluate strategies are financial ratios, which strategists use to
make three critical comparisons: (1) comparing the firm's performance over different time periods, (2)
comparing the firm's performance to competitors', and (3) comparing the firm's performance to industry
averages. Some key financial ratios that are particularly useful as criteria for strategy evaluation are as
follows:
1. Return on investment
2. Return on equity
3. Profit margin
4. Market share
5. Debt to equity
6. Earnings per share
7. Sales growth
8. Asset growth
But there are some potential problems associated with using quantitative criteria for evaluating strategies.
First, most quantitative criteria are geared to annual objectives rather than long-term objectives. Also,
different accounting methods can provide different results on many quantitative criteria. Third, intuitive
judgments are almost always involved in deriving quantitative criteria. For these and other reasons,
qualitative criteria are also important in evaluating strategies. Human factors such as high absenteeism and
turnover rates, poor production quality and quantity rates, or low employee satisfaction can be underlying
causes of declining performance. Marketing, finance/accounting, R&D, or computer information systems
factors can also cause financial problems. Seymour Tilles identified six qualitative questions that are useful
in evaluating strategies:
1. Is the strategy internally consistent?
2. Is the strategy consistent with the environment?
3. Is the strategy appropriate in view of available resources?
4. Does the strategy involve an acceptable degree of risk?
5. Does the strategy have an appropriate time framework?
6. Is the strategy workable?5
Some additional key questions that reveal the need for qualitative or intuitive judgments in strategy
evaluation are as follows:
1. How good is the firm's balance of investments between high-risk and low-risk projects?
2. How good is the firm's balance of investments between long-term and short-term projects?
3. How good is the firm's balance of investments between slow-growing markets and fast-growing
markets?
4. How good is the firm's balance of investments among different divisions?
5. To what extent are the firm's alternative strategies socially responsible?
6. What are the relationships among the firm's key internal and external strategic factors?
7. How are major competitors likely to respond to particular strategies?
Taking Corrective Actions
The final strategy-evaluation activity, taking corrective actions, requires making changes to reposition a firm
competitively for the future. Examples of changes that may be needed are altering an organization's
structure, replacing one or more key individuals, selling a division, or revising a business mission. Other
changes could include establishing or revising objectives, devising new policies, issuing stock to raise
capital, adding additional salespersons, allocating resources differently, or developing new performance
incentives. Taking corrective actions does not necessarily mean that existing strategies will be abandoned
or even that new strategies must be formulated.
The probabilities and possibilities for incorrect or inappropriate actions increase geometrically with an
arithmetic increase in personnel. Any person directing an overall undertaking must check on the actions of
151
img
Strategic Management ­ MGT603
VU
the participants as well as the results that they have achieved. If either the actions or results do not comply
with preconceived or planned achievements, then corrective actions are needed.
No organization can survive as an island; no organization can escape change. Taking corrective actions is
necessary to keep an organization on track toward achieving stated objectives. In his thought-provoking
books, Future Shock and The Third Wave, Alvin Toffler argued that business environments are becoming so
dynamic and complex that they threaten people and organizations with future shock, which occurs when the
nature, types, and speed of changes overpower an individual's or organization's ability and capacity to
adapt. Strategy evaluation enhances an organization's ability to adapt successfully to changing
circumstances. Brown and Agnew referred to this notion as corporate agility.
Taking corrective actions raises employees' and managers' anxieties. Research suggests that participation in
strategy-evaluation activities is one of the best ways to overcome individuals' resistance to change.
According to Erez and Kanfer, individuals accept change best when they have a cognitive understanding
of the changes, a sense of control over the situation, and an awareness that necessary actions are going to
be taken to implement the changes.
Strategy evaluation can lead to strategy-formulation changes, strategy-implementation changes, both
formulation and implementation changes, and no changes at all. Strategists cannot escape having to revise
strategies and implementation approaches sooner or later. Hussey and Langham offered the following
insight on taking corrective actions:
Resistance to change is often emotionally based and not easily overcome by rational argument. Resistance
may be based on such feelings as loss of status, implied criticism of present competence, fear of failure in
the new situation, annoyance at not being consulted, lack of understanding of the need for change, or
insecurity in changing from well-known and fixed methods. It is necessary, therefore, to overcome such
resistance by creating situations of participation and full explanation when changes are envisaged.
Corrective actions should place an organization in a better position to capitalize upon internal strengths; to
take advantage of key external opportunities; to avoid, reduce, or mitigate external threats; and to improve
internal weaknesses. Corrective actions should have a proper time horizon and an appropriate amount of
risk. They should be internally consistent and socially responsible. Perhaps most importantly, corrective
actions strengthen an organization's competitive position in its basic industry. Continuous strategy
evaluation keeps strategists close to the pulse of an organization and provides information needed for an
effective strategic-management system. Carter Bayles described the benefits of strategy evaluation as
follows:
152
Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning