Characteristics of an Effective Evaluation System

Strategy evaluation must meet several basic requirements to be effective. First, strategy-evaluation activities must be economical; too much information can be just as bad as too little information and too many controls can do more harm than good. Strategy evaluation activities also should be meaningful they should specifically relate to a firm’s objectives. They should provide managers with useful information about tasks over which they have control and influence. Strategy-evaluation activities should provide timely information on occasion and in some areas, managers may daily need information. For example, when affirm has diversified by acquiring another firm, evaluative information may be needed frequently. However, in an R&D department, daily or even weekly evaluative information could be dysfunctional. Approximate information that is timely is generally more desirable as a basis for strategy evaluation than accurate information that doses not edict the present. Frequent measurement and rapid reporting may frustrate control rather than give better control. The time dimension of control must coincide with the time span of the event being measured.

Strategy evaluation should be designed to provide a true picture of what is happening. For example, in an ever economic downturn, productivity and profitability ratios may drop alarmingly, although employees and managers are actually working harder. Strategy evaluations should fairly portray this type of situation. Information derived from the strategy-evaluation process should facilitate action and should be directed to those individuals in the organizations who need to take action based on it. Managers commonly ignore evaluative reports that are provided only or informational purposes; not all managers need to receive all reports. Controls need to action-oriented rather than information-oriented.

The strategy-evaluation process should not dominate decisions; it should foster mutual understanding, trust, and common sense. No department should fail to cooperate with another in evaluating strategies. Strategy evaluations should be simple, not too cumbersome, and not too restrictive. Complex strategy-evaluation system is its usefulness, not its complexity.

Large organizations require a more elaborate and detailed strategy-evaluation system because it is more difficult to coordinate efforts among different divisions and functional areas. Managers in small companies’ often communicate daily with each other and their employees and do not need expensive evaluative reporting systems. Familiarity with local environments usually makes gathering and evaluating information much easier for small organizations than for large businesses. But the key to an effective strategy-evaluation system may be the ability to convince participants that failure to accomplish certain objectives within a prescribed time is not necessarily a reflection of their performance.

There is no one ideal strategy-evaluation system. The unique characteristics of an organization, including fits size, management style, purpose, problems, and strengths, can determine a strategy-evaluation and control system’s final design