The document provides information about strategic management evaluation and control processes. It discusses measuring performance, comparing results to standards, identifying deviations, and taking corrective actions. Key aspects include setting measurable goals, benchmarking against best-in-class competitors, and using tools like the balanced scorecard to evaluate performance from multiple perspectives. Regular monitoring and analysis of variances is important to ensure the organization achieves its objectives.

1. 1 STRATEGIC MANAGEMENT Evaluation and Control

2. 2 Evaluation and Control Evaluation & Control: Process that ensures that the company is achieving what it set out to accomplish. Compares performance with desired results. 1) corporate 2) divisional & functional

3. 3 Evaluation and Control

4. Hero Honda example What to measure: most important elements of process which account for the highest expense or problems Standards of performance (KPIs): measures of expected performance results relating to strategic objectives. Acceptable tolerance indicated (KPIs) Measure performance at predetermined times 4

5. Compare performance to asses deviations if any Corrective action. Deviation by chance Incorrect way of execution Incorrect process best person for corrective action 5

6. 6 Evaluation & Control Information Performance data and activity reports Information on incorrect way of doing should be available to operations managers for immediate correction. Information regarding incorrect process should reach top management to develop new one

7. 7 Evaluation and Control (corporate) Measuring Performance: Performance end result of activity Measures depend on organizational unit Appropriate Measures: ROI ( post mortem) Steering Controls (real time control, enabling corrective action) EX: Statistical Process Control(SPC) in quality

8. 8 Types of Control: Behavior Controls 2) Output Controls, 3) Input Controls Output controls are used in conglomerate diversifications while in concentric diversification , all three controls are used for synergy Behavior Controls appropriate when performance results are not clear, but cause -effect relation relationship between activity & result are clear. Example: ISO 9000 Quality Management uses Policies, rules, SOP’s, directives

9. Output Controls When out put is clear but relation between activity & result is not clear Objectives, targets, milestones, quota For example: production targets, cost reduction targets, profit objectives, customer satisfaction surveys 9

10. Input Controls when output is difficult to measure & relation between activity & result is not clear. Example : College teaching Resources, knowledge, skills, values 10

11. 11 Evaluation and Control Activity-Based Costing: ABC Allocating indirect and fixed costs to individual product lines based on the value-added activities going into that product

12. 12 ABC allocates fixed costs based on value added activities going into the product Traditional cost A/C allocates O.H costs based on volume. It understates cost of low volume but complex product and overstates cost of high volume but simple product, as O.H costs are now 80 to 90% . Example: X Pen manufactures black pen for 90% of volume and blue pen for 10% of volume. Retooling takes 8 hours. ABC analyses process and charges retooling cost to the batch being produced. Traditional method allocates volume wise!

13. 13 Primary measures of corporate performance Return on Investment (ROI) Traditional Financial Measures Earnings per Share (EPS) Return on Equity (ROE)

14. ROI = Net income before tax/ Total net assets EPS=Earnings/No of equity shares Not reliable .Accrual basis( encashing may be delayed). Many values possible; Time value of money not considered. ROE= net income/equity All the above can be manipulated. Not adequate measure of corporate performance. 14

15. 15 Stake holder measures Top management must fix one or two measures addressing concerns of each stake holder group.

16. 16 Evaluation and Control Shareholder Value Present value of the anticipated future stream of cash flows plus the value of the company if liquidated. Cash flow is the important measure. Present value of future cash flows discounted at cost of capital should be > capital invested.

17. 17 Evaluation and Control Economic Value Added (EVA) (will soon replace ROI) = EAT minus total annual cost of capital EVA = After tax operating income minus ( product of investment in assets and weighted average cost of capital ‘k’). ‘k’ includes cost of equity and debt)

18. India’s most admired companies based on EVA HUL Wipro Infosys Reliance ITC Ranbaxy … 18

19. 19 Evaluation and Control Market Value Added (MVA) Difference between the market value of a corporation and capital contributed by shareholders and lenders. It measures the stock market’s expectations of NPV of past and future projects of the firm.MVA is the present value of future EVA Microsoft, GE, Intel & coca-Cola have high MVA in US. GM has low value. EVA & MVA are better measures

20. 20 Evaluation and Control Balanced Scorecard (Kaplan & Norton) Financial (How do we appear to shareholders?) Customer (How do customers view us?) Internal Business Perspective (What must we excel at?) Innovation and Learning (Can we continue to improve and create value?)

21. 21 Balanced Score Card Under each area , include key performance measures , a target ,and an initiative Cash flow, Quarterly sales growth, ROCE Customer: market share ,sales from new products Internal Business perspective: cycle time, unit cost, productivity, quality Innovation: Time to develop new products

22. 22 Evaluation and Control Evaluating Top Management Board of Directors evaluate CEO performance through: Strategy Committee (17 item questionnaire by Charan, focusing on leadership in the organisation, team building, management succession, and leadership of external constituencies Audit Committee( CSR, Functional areas, & strategic audit ) Compensation Committee( CEO’s ability to set strategic direction, build a management team, and provide leadership are more important than a few quantitative measures)

23. 23 Evaluation and Control (Divisional & functional) Variance analysis on operating budgets for the strategic programs is done by Top Management. Each Responsibility Centre has its own budget and is assessed on its use Responsibility Centers: Standard cost centers ( Production centres--Expected cost vs actual cost) Revenue centers( sales regions –projected vs actual sales) Expense centers (admn, service, research centers - Profit centers (Divisions) Investment centers( different divisions, making same product-ROI is the comparative assessment)

25. Find output measures and obtain measurements

26. Select best-in-class to benchmark against

27. Calculate differences and determine reasons

28. Develop tactical programs for closing gaps

30. 26 Evaluation and Control Problems in Measuring Performance: 1)Lack of quantifiable objectives/performance standards 2)Lack of timely and valid information 3) Side effects of measurement (DEMING was against quantifiable goals) 3.1 Short-term orientation( ROI) manipulation of earnings /investment 3.2 Goal displacement( Means become ends themselves) Behavior substitution (doing only those activities which are rewarded .Quantifiable drives out non quantifiable Sub optimization (Local optimization)

31. 27 Evaluation and Control Guidelines for Proper Control: (Control should follow strategy) Minimum amount of information( Monitor those 20% important strategic factors contributing 80% results Monitor only meaningful activities & results( if cooperation between divisions is important establish some qualitative or quantitative measures Timely to take prompt corrective actions Long-term and short-term controls Pinpointing exceptions (management by exceptions) Reward meeting or exceeding standards. Rather than punishment for failing. Heavy punishment leads to goal displacement. Managers will fudge reports & lobby for lower standards

32. 28 Evaluation and Control Strategic Incentive Management: Weighted-factor method (SBU Managers)……. see next slide Long-term evaluation method ( Top corporate level managers) --Growth in EPS over 5 year period Strategic-funds method (Expenses for current operations & developmental expenses are accounted separately, emphasizing S/T & L/T approaches

33. 29 Weighted Factor Approach to Strategic Incentive Management Strategic Business Unit Category Factor Weight High Growth Return on assets 10% Cash flow 0% Strategic-funds programs (developmental expenses) 45% Market-share increase 45% 100% Medium Growth Return on assets 25% Cash flow 25% Strategic-funds programs (developmental expenses) 25% Market-share increase 25% 100% Low Growth Return on assets 50% Cash flow 50% Strategic-funds programs (developmental expenses) 0% Market-share increase 0% 100%

34. 30 Evaluation and Control Strategic Audit: Type of management audit that is extremely useful as a diagnostic tool to pinpoint corporate-wide problem areas and to highlight organizational strengths and weaknesses.

36. Review corporate governance

37. Scan and assess the external environment

38. Scan and assess the internal environment

39. Analyze strategic factors using SWOT

40. Generate and evaluate strategic alternatives

41. Implement strategies

43. How did the corporation perform the past year overall in terms of return on investment, market share, and profitability?

44. B. Strategic Posture

45. What are the corporation’s current mission, objectives, strategies, and policies?

46. Are they clearly stated or are they merely implied from performance?

47. Mission: What businesses) is the corporation in? Why?

49. Policies: What are they? Are they consistent with each other, with the mission and objectives, with the strategies, and with the internal and external environments?

51. Who are they? Are they internal or external?

53. What do they contribute to the corporation in terms of knowledge, skills, background, and connections? If the corporation has international operations, do board members have international experience?

54. How long have they served on the board?

56. What person or group constitutes top management?

57. What are top management’s chief characteristics in terms of knowledge, skills, background, and style? If the corporation has international operations, does top management have international experience? Are executives from acquired companies considered part of the top management team?

58. Has top management been responsible for the corporation’s performance over the past few years? How many managers have been in their current position for less than 3 years? Were they internal promotions or external hires?

59. Has it established a systematic approach to strategic management?

60. What is its level of involvement in the strategic management process?

63. What general environmental forces are currently affecting both the corporation and the industries in which it competes? Which present current or future threats? Opportunities? See Table 3.1 on page 55.

64. a) Economic

65. b) Technological

66. c) Political-legal

67. d) Sociocultural

69. What forces drive industry competition? Are these forces the same globally or do they vary from country to country?

70. a) Threat of new entrants

71. b) Bargaining power of buyers

72. c) Threat of substitute products or services

73. d) Bargaining power of suppliers

74. e) Rivalry among competing firms

75. f) Relative power of unions, governments, special interest groups, etc.

77. Which of these forces and factors are the most important to the corporation and to the industries in which it competes at the present time? Which will be important in the future?

78. IV. Internal Environment: Strengths and Weaknesses (SWOT)

79. A. Corporate Structure

80. How is the corporation structured at present?

81. a) Is the decision-making authority centralized around one group or decentralized to many units?

82. b) Is it organized on the basis of functions, projects, geography, or some combination of these?

84. In what ways does it compare with similar corporations?

85. B. Corporate Culture

86. Is there a well-defined or emerging culture composed of shared beliefs, expectations, and values?

87. Is the culture consistent with the current objectives, strategies, policies, and programs?

88. What is the culture’s position on important issues facing the corporation (that is, on productivity, quality of performance, adaptability to changing conditions, and internationalization)?

89. Is the culture compatible with the employees’ diversity of backgrounds?

91. Marketing

92. a) What are the corporation’s current marketing objectives, strategies, policies, and programs?

93. i) Are they clearly stated, or merely implied from performance and/or budgets?

94. ii) Are they consistent with the corporation’s mission, objectives, strategies, policies, and with internal and external environments?

95. b) How well is the corporation performing in terms of analysis of market position and marketing mix (that is, product, price, place, and promotion) in both domestic and international markets? What percentage of sales comes from foreign operations?

98. a) What are the corporation’s current financial objectives, strategies, policies, and programs?

99. i) Are they clearly stated or merely implied?

100. ii) Are they consistent with the corporation’s mission, objectives, strategies, policies, and with internal and external environments?

101. b) How well is the corporation performing in terms of financial analysis?

102. i) What trends emerge from this analysis?

103. ii) Are there any significant differences when statements are calculated in constant versus reported dollars?

105. v) Does finance provide the company with a competitive advantage?

106. c) How well does this corporation’s financial performance compare with that of similar corporations?

107. d) Are financial managers using accepted financial concepts and techniques to evaluate and improve current corporate and divisional performance? (Consider financial leverage, capital budgeting, ratio analysis, and managing foreign currencies.)

108. e) Does finance adjust to the conditions in each country in which the company operates?

110. a) What are the corporation’s current R&D objectives, strategies, policies, and programs?

111. i) Are they clearly stated, or merely implied from performance and/or budgets?

112. ii) Are they consistent with the corporation’s mission, objectives, strategies, policies, and with internal and external environments?

113. iii) What is the role of technology in corporate performance?

114. iv) Is the mix of basic, applied, and engineering research appropriate given the corporate mission and strategies?

116. c) Is the corporation competent in technology transfer? Does it use concurrent engineering and cross-functional work teams in product and process design?

117. d) What role does technological discontinuity play in the company’s products?

118. e) How well does the corporation’s investment in R&D compare with the investments of similar corporations?

119. f) Does R&D adjust to the conditions in each country in which the company operates?

121. a) What are the corporation’s current manufacturing/service objectives, strategies, policies, and programs?

122. i) Are they clearly stated, or merely implied from performance and/or budgets?

123. ii) Are they consistent with the corporation’s mission, objectives, strategies, policies, and environments?

124. b) What is the type and extent of operations capabilities of the corporation? How much is done domestically versus internationally? Is the amount of outsourcing appropriate to be competitive? Is purchasing being handled appropriately?

127. e) How well does the corporation perform relative to the competition? Is it balancing inventory costs (warehousing) with logistical costs (just-in-time)? Consider costs per unit of labor, material, and overhead; downtime; inventory control management and/or scheduling of service staff; production ratings; facility utilization percentages; and number of clients successfully treated by category (if service firm) or percentage of orders shipped on time (if product firm).

128. i) What trends emerge from this analysis?

129. ii) What impact have these trends had on past performance and how will they probably affect future performance?

131. f) Are operations managers using appropriate concepts and techniques to evaluate and improve current performance? Consider cost systems, quality control, reliability systems, inventory control management, personnel scheduling, TQM, learning curves, safety programs, and engineering programs that can improve efficiency of manufacturing or of service.

132. g) Does operations adjust to the conditions in each country in which it has facilities?

133. h) What is the role of the operations manager in the strategic management process?

134. Human Resources Management (HRM)

136. ii) Are they consistent with the corporation’s mission, objectives, strategies, policies, and with internal and external environments?

137. b) How well is the corporation’s HRM performing in terms of improving the fit between the individual employee and the job? Consider turnover, grievances, strikes, layoffs, employee training, and quality of work life.

138. i) What trends emerge from this analysis?

139. ii) What impact have these trends had on past performance and how will they probably affect future performance?

140. iii) Does this analysis support the corporation’s past and pending strategic decisions?

142. d) Are HRM managers using appropriate concepts and techniques to evaluate and improve corporate performance? Consider the job analysis program, performance appraisal system, up-to-date job descriptions, training and development programs, attitude surveys, job design programs, quality of relationship with unions, and use of autonomous work teams.

143. e) How well is the company managing the diversity of its workforce?

144. f) Does HRM adjust to the conditions in each country in which the company operates? Does the company have a code of conduct for HRM in developing nations? Are employees receiving international assignments to prepare them for managerial positions?

146. a) What are the corporation’s current IS objectives, strategies, policies, and programs?

147. i) Are they clearly stated, or merely implied from performance and/or budgets?

148. ii) Are they consistent with the corporation’s mission, objectives, strategies, policies, and with internal and external environments?

149. b) How well is the corporation’s IS performing in terms of providing a useful database, automating routine clerical operations, assisting managers in making routine decisions, and providing information necessary for strategic decisions?

150. i) What trends emerge from this analysis?

152. iii) Does this analysis support the corporation’s past and pending strategic decisions?

153. iv) Does IS provide the company with a competitive advantage?

154. c) How does this corporation’s IS performance and stage of development compare with that of similar corporations?

155. d) Are IS managers using appropriate concepts and techniques to evaluate and improve corporate performance? Do they know how to build and manage a complex database, conduct system analyses, and implement interactive decision-support systems?

156. e) Does the company have a global IS? Does it have difficulty with getting data across national boundaries?

158. Which of these factors are the most important to the corporation and to the industries in which it competes at the present time? Which will be important in the future?

159. V. Analysis of Strategic Factors (SWOT)

160. A. Situational Analysis

161. What are the most important internal and external factors (Strengths, Weaknesses, Opportunities, Threats) that strongly affect the corporation’s present and future performance? List five to ten strategic factors.

162. B. Review of Mission and Objectives

164. If changed, what will the effects on the firm be?

165. VI. Strategic Alternatives and Recommended Strategy

166. A. Strategic Alternatives

167. Can the current or revised objectives be met by the simple, more careful implementing of those strategies presently in use (for example, fine-tuning the strategies)?

168. What are the major feasible alternative strategies available to this corporation? What are the pros and cons of each? Can corporate scenarios be developed and agreed upon?

170. c) Consider any functional strategic alternatives that might be needed for reinforcement of an important corporate or business strategic alternative.

171. B. Recommended Strategy

172. Specify which of the strategic alternatives you are recommending for the corporate, business, and functional levels of the corporation. Do you recommend different business or functional strategies for different units of the corporation?

173. Justify your recommendation in terms of its ability to resolve both long- and short-term problems and effectively deal with the strategic factors.

175. A. What kinds of programs (for example, restructuring the corporation or instituting TQM) should be developed to implement the recommended strategy?

176. Who should develop these programs?

177. Who should be in charge of these programs?

178. B. Are the programs financially feasible? Can pro forma budgets be developed and agreed upon? Are priorities and timetables appropriate to individual programs?

180. A. Is the current information system capable of providing sufficient feedback on implementation activities and performance? Can it measure critical success factors?

181. Can performance results be pinpointed by area, unit, project, or function?

182. Is the information timely?

183. B. Are adequate control measures in place to ensure conformance with the recommended strategic plan?

184. Are appropriate standards and measures being used?

185. Are reward systems capable of recognizing and rewarding good performance?