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Strategic Management

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Strategic Management ­ MGT603
VU
Lesson 40
STRATEGY REVIEW, EVALUATION AND CONTROL
Learning objectives
The last step of strategy frame work model is control evaluation. In this chapter the main concern is
evaluation process its importance and porter five forces model
Evaluation
Evaluation is the systematic determination of merit, worth, and significance of something or someone.
Evaluation often is used to characterize and appraise subjects of interest in a wide range of human
enterprises, including the Arts, business, computer science, criminal justice, education, engineering,
foundations and non-profit organizations, government, health care, and other human services.
In the field of evaluation, there is some degree of disagreement in the distinctions often made between
the terms 'evaluation' and 'assessment.' Some practitioners would consider these terms to be
interchangeable, while others contend that evaluation is broader than assessment and involves making
judgments about the merit or worth of something (an evaluand) or someone (an evaluee). When such a
distinction is made, 'assessment' is said to primarily involve characterizations ­ objective descriptions,
while 'evaluation' is said to involve characterizations and appraisals ­ determinations of merit and/or
worth. Merit involves judgments about generalized value. Worth involves judgments about instrumental
value. For example, a history and a mathematics teacher may have equal merit in terms of mastery of
their respective disciplines, but the math teacher may have greater worth because of the higher demand
and lower supply of qualified mathematics teachers. A further degree of complexity is introduced to this
argument when working in different languages, where the terms 'evaluation' and 'assessment' may be
variously translated, with terms being used that convey differing connotations related to conducting
characterizations and appraisals.
There are many methods, techniques and approaches for conducting evaluations. The following list
includes some of the most common.
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Strategic Management ­ MGT603
VU
 Accelerated aging
Cost-benefit
Interview
Quantitative
 Action research
analysis
research
Marketing
 Advanced
Data mining
Questionnaire
research
Product  Quality
Delphi Technique
Meta-analysis
Questionnaire
Planning
construction
Discourse analysis
Metrics
 Alternative
Root
cause
Electronic
Multivariate
assessment
analysis
portfolio
statistics
 Appreciative
Rubrics
Environmental
Naturalistic
Inquiry
scanning
observation
Sampling
 Assessment
Ethnography
Observational
School
 Axiomatic design
techniques
accreditation
Experiment
 Benchmarking
Opinion polling
Self-assessment
Experimental
 Case study
Organizational
Six Sigma
techniques
 Change
learning
Factor analysis
Standardized
management
Participant
testing
Factorial
 Clinical trial
observation
Statistical process
experiment
 Cohort study
Policy analysis
control
Feasibility study
 Competitor
Process
Statistical survey
Field experiment
improvement
Statistics
analysis
Fixtureless
In-
 Consensus
Project
Strategic planning
Circuit Test
management
decision-making
Focus group
Structured
 Consensus-
Qualitative
interviewing
Force
field
research
seeking decision-
analysis
Systems theory
making
Quality audit
Game theory
Student testing
 Content analysis
Quality circle
Grading
Total
Quality
 Conversation
Quality control
Management
Inquiry
analysis
Quality
Triangulation
management
Quality
Management
System
Strategy Evaluation
Organizations are most vulnerable when they are at the peak of their success.
R.T. Lenz
"Strategy evaluation alerts management to potential or actual problems in a timely fashion."
­  It is Complex and sensitive undertaking
­  Overemphasis can be costly and counterproductive
Systematic Review, Evaluation & Control
1. Strategies become obsolete
2. Internal environments are dynamic
3. External environments are dynamic
Michael Porter's five forces
Michael Porter's 1979 framework uses concepts developed in Industrial Organization (IO) economics
to derive 5 forces that determine the attractiveness of a market. Porter referred to these forces as the
microenvironment, to contrast it with the more general term macro environment. They consist of those
forces close to a company that affect its ability to serve its customers and make a profit. A change in
any of the forces normally requires a company to re-assess the marketplace.
Five Forces
Five forces -- the bargaining power of customers, the bargaining power of suppliers, the threat of new
entrants, and the threat of substitute products -- combine with other variables to influence a fifth force,
the level of competition in an industry. Each of these forces has several determinants:
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Strategic Management ­ MGT603
VU
A graphical representation of Porters Five Forces
The bargaining power of customers
o  buyer concentration to firm concentration ratio
o  bargaining leverage
o  buyer volume
o  buyer switching costs relative to firm switching costs
o  buyer information availability
o  ability to backward integrate
o  availability of existing substitute products
o  buyer price sensitivity
o  price of total purchase
The bargaining power of suppliers
o  supplier switching costs relative to firm switching costs
o  degree of differentiation of inputs
o  presence of substitute inputs
o  supplier concentration to firm concentration ratio
o  threat of forward integration by suppliers relative to the threat of backward integration by
firms
o  cost of inputs relative to selling price of the product
o  importance of volume to supplier
The threat of new entrants
o  the existence of barriers to entry
o  economies of product differences
o  brand equity
o  switching costs
o  capital requirements
o  access to distribution
o  absolute cost advantages
o  learning curve advantages
o  expected retaliation
o  government policies
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Strategic Management ­ MGT603
VU
 The threat of substitute products
o  buyer propensity to substitute
o  relative price performance of substitutes
o  buyer switching costs
o  perceived level of product differentiation
The intensity of competitive rivalry
o  power of buyers
o  power of suppliers
o  threat of new entrants
o  threat of substitute products
o  number of competitors
o  rate of industry growth
o  intermittent industry overcapacity
o  exit barriers
o  diversity of competitors
o  informational complexity and asymmetry
o  brand equity
o  fixed cost allocation per value added
o  level of advertising expense
Some argue that a 6th force should be added to Porter's list to include a variety of stakeholder groups
from the task environment. This force is referred to as "Relative Power of Other Stakeholders". Some
examples of these stakeholders are governments, local communities, creditors, and shareholders.
This 5 forces analysis is just one part of the complete Porter strategic models. The other elements are
the value chain and the generic strategies.
Purpose of strategy evaluation
 Strategy evaluation is vital to the organization's well-being
 Alert management to potential or actual problems in a timely fashion
 Erroneous strategic decisions can have severe negative impact on organizations
Basic Activities ­
1. Examining the underlying bases of a firms' strategy
2. Comparing expected to actual results
3. Corrective actions to ensure performance conforms to plans
In many organizations, evaluation is an appraisal of performance ­
 Have assets increased?
 Increase in profitability?
 Increase in sales?
 Increase in productivity?
 Profit margins, ROI and EPS ratios increased
Four Criteria (Richard Rummelt):
 Consistency
 Consonance
 Feasibility
 Advantage
Consistency
Strategy should not present inconsistent goals and policies.
 Conflict and interdepartmental bickering symptomatic of managerial disorder and
strategic inconsistency
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Strategic Management ­ MGT603
VU
Consonance
Need for strategies to examine sets of trends
 Adaptive response to external environment
 Trends are results of interactions among other trends
Feasibility
Neither overtax resources nor creates unsolvable sub problems
 Organizations must demonstrate the abilities, competencies, skills and talents to
carry out a given strategy
Advantage
Creation or maintenance of competitive advantage
 Superiority in resources, skills, or position
The process of evaluating Strategies
1. Strategy evaluation is necessary for all sizes and kinds of organization. Strategy evaluation should
initiate managerial questioning of expectations and assumptions should trigger a review of objectives
and values and should stimulate creativity in generating alternative and formulating criteria of
evaluation
2. Evaluating strategies on continuous rather than a periodic basis allows benchmark of progress to
established and o\more effectively monitored
3. Managers and employees of the firm should be continually aware of progress being made towards
achieving the firm's objectives. As a critical success factors change, organization members should be
involved in determining appropriate corrective action.
A Strategy-Evaluation Framework
Strategy-evaluation activities in terms of key questions that should be addressed, alternative answers to
those questions, and appropriate actions for an organization to take. Notice that corrective actions are
almost always needed except when (1) external and internal factors have not significantly changed and
(2) The firm is progressing satisfactorily toward achieving stated objectives.
Evaluation Framework
I. Review Underlying
Bases
III.
Take
Yes
Differences?
Corrective
Actions
NO
II. Measure Firm Performance
Yes
Differences?
NO
Continue present course
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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