Evaluating Strategic Management

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EVALUATING STRATEGIC MANAGEMENT

The strategic management process result in decision that can have significant, long lasting consequences. In many organizations, strategy evaluation is simply an appraisal of how well an organization has performed. Strategy evaluation includes three basic activities:

1. Examining the underlying bases of firm strategy

2. Comparing expected result with actual result

3. Taking corrective action to ensure that performance conform to plan.

Strategy evaluation is becoming increasingly difficult with the passage of time, for many reasons.

domestic

And world economies were more stable in years past, product life cycles were longer, product development cycles were longer, technological advancement was slower, change occurred less frequently, there were fewer competitors, foreign companies were weak, and there were more regulated industries. Other reasons why strategy evaluation is more difficult today include the following trends:

1. A dramatic increase in the environment ‘s complexity

2. The increasing difficulty of predicting the future with accuracy

3. The increasing number of variables

4. The rapid rate of obsolescence of even the best plans

5. The increase in the number of both domestic and world events affecting organizations

6. The decreasing time span for which planning can be done with any degree of certainty

Four Criteria (Richard Rummelt in evaluating strategic management:

• Consistency

Strategy should not present inconsistent goals and policies.

Conflict and interdepartmental bickering symptomatic of managerial disorder and strategic inconsistency

• Consonance

Need for strategies to examine sets of trends

• Adaptive response to external environment

• Trends are results of interactions among other trends

• Feasibility

Neither overtax resources or create unsolvable sub problems

• Organizations must demonstrate the abilities, competencies, skills and talents to carry out a given strategy

• Advantage

Creation or maintenance of competitive advantage

• Superiority in resources, skills, or position

Nowadays, the strategy evaluation is become difficult because adjusting with the trends happened. There are some reasons for it:

1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy

3. Increasing number of variables

4. Rate of obsolescence of plans

5. Domestic and global events

6. Decreasing time span for planning certainty

a.Reviewing Bases of Strategy

– Develop revised EFE Matrix

– Develop revised IFE Matrix

Review effectiveness of strategy is important to evaluate how far these strategy matches with our goals, the way are:

1. Competitors’ reaction to strategy

2. Competitors’ change in strategy

3. Competitors’ changes in strengths and weaknesses

4. Reasons for competitors’ strategic change

5. Reasons for competitors’ successful strategies

6. Competitors’ present market positions and profitability

7. Potential for competitor retaliation

8. Potential for cooperation with competitors

b.Measuring Organizational Performance

• Comparing expected to actual results

• Investigating deviations from plan

• Evaluating individual performance

• Progress toward stated objectives

There are Quantitative criteria for strategy evaluation –

Financial Ratios:

o Compare performance over different periods

o Compare performance to competitors

o Compare performance to industry averages

Key Financial Ratios –

– Return on investment

– Return on equity

– Profit margin

– Market share

– Debt to equity

– Earnings per share

– Sales growth...
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