Untitled Quiz

Strategy Evaluation

• Strategy evaluation is crucial for organizational success, as erroneous strategic decisions can have significant and long-lasting negative consequences.

• The evaluation process involves:

  • Examining the underlying basis of a firm's strategy.
  • Comparing expected results with actual results.
  • Taking corrective actions to ensure that performance aligns with plans.

• Key factors to consider during evaluation include:

  • Consonance: Alignment of strategic goals and actions with external opportunities and threats.
  • Advantage: A firm's competitive advantage based on its internal strengths relative to external opportunities and threats.
  • Consistency: A firm's strategic actions are aligned with its internal capabilities and resources.
  • Feasibility: A firm's strategic actions are realistic and achievable given its internal resources and capabilities.

Importance of Strategy Evaluation

• Organizations operate within dynamic environments where key internal and external factors can change rapidly.
• Continuously monitoring these factors and adapting strategies accordingly is essential.

Evaluation Process

• Strategy evaluation should trigger critical thinking and questioning of expectations and assumptions.

• This process involves:

  • Reviewing objectives and values.
  • Generating new alternatives for consideration.
  • Formulating evaluation criteria.

• Regular informal evaluation through management by wandering around at all levels promotes effective strategy evaluation.

Strategy-Evaluation Assessment Matrix

• The strategy-evaluation assessment matrix provides a framework for identifying key questions, potential answers to those questions, and appropriate actions to be taken.

Measuring Organizational Performance

• Measuring organizational performance involves comparing expected results to actual results.

• Deviations from plans, individual performance, and progress toward meeting objectives should be carefully examined.

• Both long-term and annual objectives are useful for performance evaluation. Unsatisfactory progress towards accomplishing these objectives indicates a need for corrective actions.

• Contributing factors to unsatisfactory progress can include:

  • Unreasonable policies.
  • Unexpected economic changes.
  • Reliable suppliers or distributors.
  • Inadequate strategies.

• Problems can stem from ineffectiveness (incorrect actions taken) or inefficiency (poor execution of appropriate actions).

Quantitative Criteria

• Quantitative criteria are commonly used to evaluate strategies, including financial ratios, which allow three key comparisons:

  • Comparing a firm's performance over time.
  • Comparing a firm's performance to its competitors.
  • Comparing a firm's performance to industry averages.

• Key financial ratios for evaluating organizational strategy:

  • Return on investment (ROI)
  • Return on equity (ROE)
  • Profit margin
  • Market share
  • Debt to equity
  • Earnings per share
  • Sales growth
  • Asset growth

Qualitative Criteria

• Qualitative or intuitive judgments are also essential in strategy evaluation, addressing questions such as:
  • The effectiveness of the firm's investment balance between high-risk and low-risk projects.
  • The appropriateness of the firm's investment balance between long-term and short-term projects.
  • The effectiveness of the firm's investment balance in different markets (slow-growing vs. fast-growing).
  • The effectiveness of the firm's investment balance among various divisions.
  • The extent to which the firm's strategies are socially responsible.
  • The relationships among the firm's key internal and external factors.