A strategy-Evaluation Framework

Strategy-evaluation activates 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.

“While strategy is a word that is usually associated with the future, its link to the past is no less central. Life is lived forward but understood backward. Managers may live strategy in the future, but they understand it through the past.”

(Henry Mintzberg)

Reviewing Bases of Strategy

A revised IFE Matrix should focus on changes in the organization's management, marketing, finance/accounting, production/operations, R&D, and management information systems strengths and weaknesses. A revised EFE Matrix should indicate how effective firms' strategies have been in response to key opportunities and threats. This analysis could also address such questions as the following.

How have competitors reacted to our strategies?
How have competitors' strategies changed?
Have major competitor's strengths and weaknesses changed?
Why are competitors making certain strategic changes?
Why are some competitor's strategies more successful than others?
How satisfied are our competitors with their present market positions and profitability?
How far can our major competitors be pushed before retaliating?
How could we more effectively cooperate with our competitors?

Numerous external and internal factors can prohibit firms form achieving long-term and annual objectives. Externally, actions by competitors, changes in demand, changes in technology, economic changes, demographic shifts, and governmental actions may prohibit objectives form being accomplished. Internally, ineffective strategies may have been chosen or implementation activities may have been poor. Objectives may have been too optimistic. Thus, failure to achieve to achieve objectives may not be the result of unsatisfactory work by managers and employees. All organizational members need to know this to encourage their support for strategy-evaluation activities. Organizations desperately need to know as soon as possible when their strategies are not effective. Sometimes managers and employees on the front lines discover this well before strategists.

External opportunities and threats and internal strengths and weaknesses that represent the bases of current strategies should continually be monitored for when they will change and in what ways. Some key questions to address in evaluating strategies. Follow.

Are our internal strengths still strengths?
Have we added other internal strengths? If so, what are they?
Are our internal weaknesses still weaknesses.
Do we now have other internal weaknesses? If so, what are they?
Are our external opportunities still opportunities?
Are there now other external opportunities? If so, what are they?
Are our external threats still threats?
Are there now other external threats? If so, what are they?
Are we vulnerable to a hostile takeover?

Measuring Organizational Performance

Another important strategy-evaluation activity is measuring organizational performance. This activity includes comparing expected results to actual results, investigating deviations from plans, evaluating individual performance, and examining progress being and toward meeting stated objectives. Bothe long-term and annual objectives are commonly used in this process. Criteria for evaluating strategies should be measurable and easily verifiable. Criteria that predict results may be more important than those that reveal what already has happened. For example, rather than simply being informed that sales in the last quarter were 20 percent under what was expected, strategists need to know that sales in the next quarter may be 20 percent below standard unless some action is taken to counter the trend. Really effective control requires accurate forecasting.

Failure to make satisfactory progress toward accomplishing long-term or annual objectives signals a need for corrective actions. Many factors, such as unreasonable policies, unexpected turns in the economy, unreliable suppliers or distributors, or ineffective strategies, can result in unsatisfactory progress toward meeting objectives. Problems can result from ineffectiveness not doing the right things or inefficiency poorly doing the right things

Determining which objectives are most important in the evaluation os strategies can be difficult. Strategy evaluation is based on both quantitative and qualitative criteria. Selecting the exact set of criteria for evaluating strategies depends on a particular organization’s size, industry, strategies, and management philosophy. AN organization pursuing a retrenchment strategy, for example, could have an entirely different set of evaluative criteria from an organization pursuing a market development strategy. Quantitative criteria commonly used to evaluate strategies are financial ration, which strategists use to make three critical comparisons: (1) comparing the firm’s performance over different time periods, (2) comparing the firm’s performance to competitors’, and (3) comparing the firm’s performance to industry averages. Some key financial ratios that are particularly useful as criteria for strategy evaluation are as follows.

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

But there are some potential problems associated with using quantitative criteria for evaluating strategies. First, most quantitative criteria are geared to annual objectives rare than long-term objectives. Also, different accounting methods can provide different results on many quantitative criteria. Third, intuitive judgments are almost always involved in deriving quantitative criteria. For these and other reasons, qualitative criteria are also important in evaluating strategies. Human factors such as high absenteeism and turnover rates, poor production quality and quantity rates, or low employee satisfaction can be underlying causes of declining performance. Marketing, finance/accounting, R&D, or management information systems factors can also cause financial problems. Seymour Tilles identified six qualitative questions that are useful in evaluation strategies.

Is the strategy internally consistent?
Is the strategy consistent with the environment?
Is the strategy appropriate in view of available resources?
Does the strategy involve an acceptable degree of risk?
Does the strategy have an appropriate time framework?
Is the strategy workable?

Some additional key questions that reveal the need for qualitative or intuitive judgments in strategy evaluation are as follows:

How good is the form’s balance of investments between high-risk and low-risk projects?
How good is the firms’ balance of investments between long-term and short term projects?
How good is the firm’s balance of investment between slow-growing markets and fast-growing markets?
How good are the firm’s alternative strategies socially responsible?
To what extent are the form’s alternative strategies socially responsible?
What are the relationships among the key internal and external static factors?
How are major competitors likely to respond to particular strategies?

Taking Corrective Actions

The final strategy-evaluation activity, taking corrective actions, requires making changes to competitively reposition a firm for the future. Examples of changes that may be needed are altering an organization's structure, replacing one or more key individuals, selling divisions, or revising a business mission. Other changes could include establishing or revising objectives, devising new policies, issuing stock to raise capital, adding additional salespersons, differently allocating resources, or developing new performance incentives. Taking corrective actions does not necessarily mean that exiting strategies will be abandoned or even that new strategies must be formulated. 

No organization can survive as an island; no organization can escape change. Taking corrective actions is necessary to keep an organization on track toward achieving stated objectives. In his thought-provoking books future Shock and The Third Wave, Alvin Toffler argued that business environments are overcoming so dynamic and complex that they threaten people and organizations with future shock, which occurs when the nature, types, and speed of changes overpower an individual’s or organization’s ability and capacity to adapt. Strategy evaluation enhances an organization’s ability to adapt successfully to changing circumstances. Brown and Agnew referred to this notion as corporate agility.

Taking corrective actions raises employees’ and manager’s anxieties. Research suggests that participating in strategy-evaluation activities is one of the best wary sot overcome individuals’ resistances to change. According to Erex and Kanfer, individuals accept change best when they have a cognitive understanding of the changes, a sense of control lover the situation, and awareness that necessary actions are going to be take to implement the changes.

Strategy evaluation can lead to strategy-formulation changes, strategy-implementation changes, either formulation and implementation changes, or no changes at all. Strategists cannot escape having to revise strategies and implementation approaches sooner or later. Hussey and Langham offered the following insight on taking corrective actins.

Corrective actions should place an organizations is in a better position to capitalize upon internal strengths; to take advantage of key external opportunities; to ovoid, reduce, or iterate external thereat; and to improve internal weaknesses. Corrective actions should have a proper time horizon and an appropriate amount of risk. They should be internally consistent and socially responsible. Perhaps most important, corrective actions strengthen an organization’s competitive position in its basic industry. Continuous strategy evaluation keeps strategists close to the pulse of an organization and provides information needed for an effective strategic management system.

An example company that today is taking major corrective actions is Sun Microsystems. For nearly two decades, Sun Microsystems dismissed the standard chips and software that ran most computers in favor of its own so upped-up custom designs. Although more powerful than Intel and Microsoft chips and servers, Sun products were also more expensive. However, today Intel and Microsoft and similar firms produce generic chips and software that are less expensive than Sun’s and just as powerful, so Sun increasingly is unable to compete on price, quality, or power. Sun’s revenues and profits are declining rapidly, and the firm is actively engaged in the strategy-evaluation process.