Strategic evaluation and control

 

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. There can be the following types of control –

(i) Operational control- It is aimed at allocation and use of organizational resources through evaluation of performance of organizational units, divisions, SBU`s to assess their contribution in achieving organizational objectives.

(ii) Strategic control- It takes into account the changing assumptions that determine a strategy, continually evaluate the strategy as it is being implemented and take the necessary steps to adjust the strategy to the new requirements.

The four basic type of strategic control are-

1. Premise control- It identifies the key assumptions and keeps track of any change in them to assess its impact on strategy and implementation. The goal is to find if the assumptions are still valid or not .It is generally handled by the corporate planning staff considering the environmental and organizational factors.

2. Implementation control- It includes evaluating plans, programs, projects, to see if they guide the organization to achieve predetermined organizational objectives or not. It leads to strategic rethinking .It consists of identification and monitoring of strategic thrusts.

3. Strategic surveillance- It aims at generalized control. It is designed to monitor a broad range of events inside and outside the organization that are likely to threaten the course of the firm. Organizational learning and knowledge management systems capture the information for strategic surveillance.

4. Special Alert control- It is a rapid response or immediate reassessment of strategy in the light of sudden and unexpected events. It can be exercised through formulation of contingency strategies and a crisis management team. 

Strategic Evaluation Process-

(A) Setting standards of performance – It must focus on questions like:

• What standards should be set?
• How should the standards be set?
• In what terms should these standards be expressed?

The firm must identify the areas of operational efficiency in terms of people, processes, productivity and pace. Standards set must be related to key management tasks. The special requirement for performance of these task must be studied. It can be expresses in terms of performance indicators.

The criteria for setting standards may be qualitative or quantitative. Therefore standards can be set keeping in mind past achievements, compare performance with industry average or major competitors. Factors such as capabilities of a firm, core competencies, risk bearing ability, strategic clarity and flexibility and workability must also be considered.

(B) Measurement of performance – Standards of performance act as a benchmark in evaluating the actual performance. Operationally it is done through accounting, reporting and communication system. The key areas which must be kept in mind are – difficulty in measurement, timing of measurement (critical points) and periodicity in measurement (task schedule).

 

(C) Analyzing variances – The two main tasks are noting deviations and finding the cause of deviations.
♦  When actual performance is equal to budgeted performance tolerance limits must be set.

♦ When actual performance is greater than budgeted performance one must check the validity of standards and efficiency of management.

♦ When actual performance is less than budgeted performance we must pinpoint the areas where performance is low and take corrective action,

The cause of deviations may be – External or internal, Random or expected, Temporary or permanent. The two main questions to focus upon are : 

Are the strategies still valid?

Does the organization have the capacity to respond to the changes needed?

(D) Taking corrective actions – It consists of the following-

♦ Checking of performance – It includes in-depth analysis and diagnosis of the factors that might be responsible for bad performance.

♦ Checking of standards – It results in lowering or elevation of standards according to the conditions.

♦ Reformulate strategies,plans,objectives – Giving a fresh start to the strategic management process

Importance of Strategic evaluation and control

• There is a need for feedback ,appraisal and reward
• to check on the validity of strategic choice
• Congruence between decisions and intended strategy
• Creating inputs for new strategic planning