4.

12 Strategic Management

QUESTIONS

STRATEGIC EVALUATION
Short Answer Questions (2 marks.each)
1. Define strategy implementation?
What is Resource allocation?
5
MODULE
AND CONTROL
3. What is resource mobilization?

4 What is Strategic Choice?

5. What is Organisational Change Approach?

STRATEGIC EVALUATION
6. What is Collaborative Approach?
What is Culnural Approach? Strategic managemen completes its cycle with the evaluation and
8. What is Crescive Approach? control of strategy. Strategic evaluation plays a central role in the

9 What is strategic budgeting? strategic management process to assess how well things are going on at
Whatis BCG - based Budgeting
10. every phase of the process and to take whatever action that is necessary
Short Essay Questions (5 marks each) to improve the performançe. Strategic evaluation is used to test the
the criteria for evaluation of strategic alternatives?
1. What are strategic effectiveness of strategy.
What various steps
Explain the concept strategic implementation.
of are

involved in strategic implementation? Meaning and Definition

3. What are the approaches of Strategic Implementation?
Strategy Formulation and: Strategic evaluation is the process of determining the effectiveness
4 Explain the Interrelationship between
ofa given strategy in achieving the organisational objectives and taking
Implementation
What the issues relating to strategic impiementation? corrective action whenever
required. The purpose of strategic evaluation
5. are

choice. is to
evaluate effectiveness of strategy in achieving the organisational
the
6. Explain various factors affecting strategic
resource allocation.
Explain the various of
means objectives. In strategic evaluation phase the
strategist tries to assure that
Narrate the qualities of global leader.
8. What are leadership issues? the strategic choice is properly
implemented. An ongoing process of
Essay Questions (15 marks each) evaluation provides feedback on the relevance of strategic choice made
and factors iavolved in strategic
1 What is strategic choice? Explain the process
during formulation phase.
choice.
the steps and approaches in In the words of Glueck and Jauch 'evaluation of
2 What is strategic implementation? Explain is tha
strategy
strategic implementation. phase of strategic management process in which the
top managers
 Strategic Management Strategic Evaluation and Control 5.3
5.2

much for implementing the chosen

managers may not show
concern
determine whether their strategic choice as implemented is meeting the a.

objectives of the enterprise'. strategy.

Thus strategic evaluation is the process through which the strategists b. while implementing strategies, managers may prefer their individual

know the extent to which a strategy is able to achieve its objectives. or departmental interest rather than overall interest of the company.

During the course of strategic implementation, managers are required C wrong interpretation of plans, policies, objectives and strategies
to take number of decisions. Strategic evaluation helps to assess whether by the managers.
the decisions match with the strategic requirements.
4. To develop and implement correct incentive / reward system
Need and Importance of Strategic Evaluation
Managerial rewards are usually based on actual performance of

1. To test the effectiveness ofstrategy work. Through strategic evaluation one can spot out who are the

strategists the performers, super performers and ultra performers. Thus evaluation
During the first two phases of strategic management,
then implement the helps in designing and implementing motivational plan in the organisation.
formulate the strategy to achieve objectives and
strategy. Evaluation stage is necessary to ensure that the strategy being 6. To formulate new strategies
towards its predetermined
implemented is guiding the organisation Through strategie evaluation, accurate assessment of strategies are
objectives. taken place which helps in formulating new strategies as soon as old
2. To correct wrong assumptions in planning strategies are achieved.

the basis of some assumptions 7. To modify the present strategies

Every strategic plan is formulated
on

what is happening in future.

or postulates. No one can accurately predict The evaluation process
spots out hindrances and bottleneck factors
Therefore, strategies formulated and implemented are to be moniteredho
prevent in achieving the
organisational objectives. The awarene
continuously in order to correct wrong postulates. of these factors can be well utilised in
modifying present strategies.
3. To corTect wrong course of actions chosen in implementation Techniques / Factors of
Strategic Evaluation
implemented by SBU or
are to be
managers. functional
Strategies The evaluation of the
the following problems may
strategy of an
organisation can be done
While implementing the chosen strategy quantitatively as well as
qualitatively.
Occur.
 5.4 Strategic Management Strategic Evaluation and Control 5.5

. uantitative Techniques of Evaluation measure success if some of the performance indicators are up, some
are down while some are constant. On such situation the manager has to
Quantitative criteria for evaluation is an important technique used
identify the critical factors which pave the success of the organisation.
for strategic evauation. This is important for measuring the organisational
Hofer has suggested the following three measures to evaluate the
Derformance whereby, the actual results are compared with the expected
strategic results of a firm.
results. Usually the organisations use financial ratios as quantitative
a. Value Added Method: In this method the difference between sales
criteria for evaluating strategies. Quantitative Techniques are used for
revenue and cost of rawmaterials purchased is used as a yardstick
the following purposes.
to evaluate the strategic result.
. To compare the performance ofthe organisation over different time
Return on Value Added (ROVA): Value added is the additional
periods; utility created. In this method net profit before tax is compared
2. To compare the performance of the organisation with its competitors with the total value added.
in the industry; Profit before tax x100
ROVA Valueadded
3 To compare the organisations' performance with industry average.
Asset Utilisation Method: It considers both the return generated
In the words of Steiner, for evaluating the effectiveness of strategy from investment and the relative value created.
the following yardsticks can be' used. Asset utilisation= ROVA
g. Market share
a. Net profit
h. Production cost
I. Oualitative Factors of Evaluation
b. Market price of share
A number of criteria have been suggested by different strategists to
i. Distribution cost
C. Dividend rates
evaluate strategy qualitatively. Among these, the evaluation techniques
Earning on capital employed j. Return on equity
d. put forward by Tilles is the most popular. He uses the following qualitative
e. Growth in sales volume factors to evaluate the chosen strategy.

and absenteeism, etcC. Effectiveness of a chosen strategy can be

f. Employees turnover Internal consistency:
that there is evaluated by measuring how the strategy helps to bring integrated
favourable, one can conclude
f all these factors are

and the chosen strategy capable

is effect with organisation. It means, a strategy which brings unity
an
eitective implementation of strategy
But it is difficult to in an organisation will be more preferred.
or being aceomplishing organisational objectrives.
 5.6
Strategic Management Strategic Evaluation and Control 5.7
b.
Consistency with the environment: Business environment is always Role of Board of Directors: Board of Directors are trustees of
aynamic. Strategies should be formnulated by incorporating he shareholders. They dircctly answerable to sharcholders. They
are
anticipated changes. If the strategies chosen are capable of meeting evaluate the performance of the company by conducting strategic
the
challenges posed by the environiment, it can be persumed as an appraisal meetings. Thus board is directly involved in strategic
effective strategy. control.
c. Appropriateness of time horizon: A strategy can be considered ás b. Role of Chief Executive: Chief Executive of an
organisationis
an effective strategy only if it is capable of achieving the target responsible for overall performance. He always evaluates critical
objectives within the given time horizon. variations between planned and actual results. Hence he
plays
a
crucial role in strategic control.
STRATEGIC CONTROL
C. Role of ther Managers: Other Managers include finance
Meaning and Definition managers, SBU managers and middle level
managers. Finance
Strategic control is concerned with checking on how wellthe strategy managers are concerned with finding out deviations between
and actual
planned
is being implemented to achieve the objectives of the organisation. performance expressed in nonetary terms. They use
financial
Strategic control techniques are 'used to find out deviations in strategic analysis and budgeting as control tools. SBU managers
objectives set and taking appropriate actions to resolve the difference.
are
responsible for overall control of their respective
business units.
strategic
Strategic control tries to compare the actual result obtained with the Middle leve> managers are concerned
with day to
day operational control and prepare
planned strategy. The strategic control process is closely related to reports to be used by higher
level managers.
strategic planning process.
Strategic control can be defined as that aspect of strategic CONTROL PROCESS
whether it is.
management through which an organisation ensures The process of control is
exerciscd through four major stages. These
achieving its objectives contemplated in the strategic action. stages are:
1 Setting performance standards
Participants in Strategic Control
2. Measuring actual performance
the
Chief Executive and Other Managers
Board of Directors, are
3.
control process Analysing variance
key persons who are involved in the strategic
4. Taking corrective action.
 5.8 Strategic Management Strategic Evaluation and Control
5.9
c. Present Standard
objectives,
strategiesplans The goals / targets are
which are to be achieved in a
decided by the management of the firm
the aspiration levels and
particular period. Present standards convey
corrective take into account the
performance environmental condilions.
analysis standards These are more realistic and
also consider the
to achieve them. organisations' capacity
These, however, require tremendous
of such analysis analysis. Absence
may lead to shocking results.
variance actual
analysis ) performance
II. Measuring
It involves
Actual Performance
measuring the performance in respect to a work in relation
to standard fixed in advance. The measurement of
Controlprocess performance against
standard should be on a continuous basis. The
continuous evaluation of
I. Setting Performance Standard
performance heips to detect deviations in advance and avoid
negative
with
plans which
specify deviations.
Every function in the organisation begins
the objectives or targets to be achieved. in the light of these, standards II. Anaysing Variances
are established which are the criteria against which the actual results
This step involves two stages
of the föllowing
finding out the extent of variation
-

are measured. The standards of performance could be any

and identifying the causes of such variations. When standards are
three types. achieved, no further
managerial action is needed. When the variation
between standard and actual performance is beyond the
a. Historical Standard prescribed limit,
is made
an analysis is made of the causes of deviations.
In this type of standard, comparison of preseni performance
IV. Taking Corrective Actions
with the past performance.
On the basis of the variance reported, the following corrective
b. Industry Standard
actions may be taken.
is
In this type of standard, the comparison of a firm's performance
Taking steps to improve the performance.
made against similar firms in the industry. The difficulty
here is that all
Resetting thé performance if the standard fixed is unrealistic.
the firms may not be exactly the same for the purpose of comparison.
Change the objectives, strategies and plans if these are not workable.
 5.11
5.110 Strategic Management Strategic Evaluation and Control

to have access to the

who are likely
Methods / Techuiques of control People in the organisation
premises should be entrusted the
relevant information about
There are many methods / tcchniques used in strategic control premises.
responsibility for monitoring
has its of using a particular
systems. Every organisation own way
points are
characteristics of a
3. Identify the trigger points. Trigger
technique according to the requirement of the organisation. The important in strategy.
situation which necessitates changes
Premises based control
control techniques used in strategic control are
premises control can be
On the basis of environment variability,
techniques, performance control techniques, time related control
financial
Control Technique and
classified into two i.e, Strategic Momentum
techniqucs and social performance based control technique.
Strategic Leap Control Technique.
II Premises Based Control Techniques momentumn
. Strategic Momentum Control Technique: Strategic
environment in which strategy is which are suitable for the
Premises are the anticipated control techniques are the techniques
environment. It is mainly
expected to operate. Premises based control techniques
include premises organisations operating in a relatively stable
surveillance and special alert used in those.situations in which the variability of factors can be
Control, implementation control, strategic
predicted to a certain extent.
control.
ii. Straegic Leap Control Technique: Strategic leap control techniques
A. Premises Control Technique are used in relatively unstable and urbulant environment. If the
Strategies are formulated on the basis of certain assumptions. variability of factors are beyond any prediction we can adopt
the anticipated environment in which a strategy strategic leap control techniques.
Strategic premises are

is designed to check
is expected to operate. Premise control B. Implementation Control
set during
Techiique
systematically and continuously whether or not the premises
still valid. If
Implementation strategy is designed to assess whether the overall
are
strategy formulation and implementation process
strategy should be changed in the light of new events. Here, the deviations
not valid, a change in the strategy is required to
these premises are
in results expected and additional steps to be taken to reconcile the
control the following tactics may be
make it effective. For premises deviations are to be examined.
adopted. C. Strategic Surveilliance Technique
vital importance to strategy
1. Identify the key premises which are

those factors which have vital importance Strategic surveillance is non focused control technique. It is
implementation. It means
tomonitora broad range of
designed
must be selected for careful monitoring.
events that take place inside and outside the
organisation. It is a general monitoring of
multiple information sources
 5.12 Strategic Management Strategic Evaluaiion and Contro 5.13

which is undertaken to reveal unanticipated changes that have taken place

Advantages of Activity Based Costing
and outside the organisation.
hoth inside While comparing with traditional costing methods, activity based
Alert Control Technique costing has the following advantages.
D. Special
This control technique is undertaken to assess the impact of any a. it helps in understanding behaviour of overhead costs and thcir
relationship to products/services.
major change in the environment. For example when there is war.
ocurance between two Nations or when there is technological invention b. It helps in allocating the resources to those activities that are more

which makes the present technology completeiy obsolete, special alert relevant in value creation.
control techniques may be used. C It helps to spot out irelevant activities which are to be eliminated.

I1. Financial Performance Control Technique d. It provides better opporunities to control costs as each major activity

Financial performance based control technique is the most important

is divided into closely related tasks.

strategic control technique. It is because the success of anry organisation B. Budgetary Control
Financial performance
is measured in the form of financial performance.
financial control. This control
Budgetary control is one of the most widely used control methods.
based control techniques are also known as In simple terms, budget means 'a plan of income and expenditure"'.
whose outcomes
technique is used in those aspects of business operations Budget usually deals with allocation of resources to different
financial control
terms. The various
can be expressed in monetary organisational units. In budgetary control technique budgets are prepared
control and financial
techniques are: activity based costing, budgetary for the organisation as a whole and for its major activities. Based on
ratio analysis. these budgets, performance standard are set and the actual performance
is compared with the budgeted target. If there is any deviation corrective
A. Activity Based Costing
relationship in actions are taken.
and effect
Traditional costing fails to establish cause
In order
COst involved in an activity and the value
created by an activity. C. Financial Ratio Analysis
based
and Kaplan suggested activity between financial variables. In
to overcome this difficulty, Cooper It measures ihe relationship two
costs to cost center,
instead of allocating
cOsting in 1988. In this technique, strategic control, financial ratio analysis is used for measuring the overall
processing an order, attendingto
OStS are allocated to activities such
as
organisational performance. For this purpose the following ratios can
machine, etc.
d customer complaint, setting up of be used.
5.14 Strategic Management Strategic Evaluaion and Control 5.15

i. Liquidity Ratios: It indicates the organisation's ability to pay its Company. This technique uses the relationship between ratios to
short term obligations. It generally includes current ratio and quick provide charts for managerial attention. The standard ratios of the
ratio. Current ratio measures the relationship between current assets COmpany are compared to present ratios and changes in performance
and current liabilities. It indicates whether the current assets are are judged
adequate to pay current liabilities. Quick ratio indicates relation
II1. Time-Related Control Methods
between quick assets and current measures
liabilities. It
This includes useful graphical and analytical methods and these
organisation's ability to pay current liabilities without considering
methods serve as a tool in the strategic control process. The most popular
inventory
methods are Critical Path Method (CPM) and
ii. Activay Ratios: It shows how effectively the funds of an organisation Programme Evaluation
and Review Technique (PERT). These are graphical network depicting
is used. It generally includes Inventory Turnover Ratio, Asset
the different segments of work that must be
Turnover Ratio, and Receivable Turnover Ratio. Inventory Turnover completed within a given
span of time to complete a project or task. These provide
Ratio measures the number of times
inventory is replaced. information
for both project planning and control and is
Receivable Turnover Ratio measures how promptly an organisation helpful for the management
in allocating its limited
resources.
is able to collect dues from its debtors. Asset Turnover Ratio
indicates how effectively assets have been used to generate sales. V. Social Performance Control Technique
ii. Leverage Ratios: It indicates the relative amount of funds in the Social performance control technique deals with measuring social
business supplied by creditors and owners. It is expressed in the performance of an organisation and taking corrective actions.
For
form of Debt-Equity Ratio, Interest Coverage Ratio. Debt- Equity measuring social performance and taking corrective
actions social cost
Ratio indicates the proportion of outsiders fund in relation to equity benefit analysis, social indicators
and social goal
setting are used.
capital. Interest coverage ratio shows the interest burden being borme Social Cost Benefit
Analysist This method evaluates the benefits
by the organisation in relation to its profit. that accrue to the
society and the cost incurred for
profit in benefits. If the benefits enjoying the
iv. Profitability Ratio: It shows the ability of firm to earn derived from the
strategy are more than the
cost incurred that strategy is
relation to its sales/ investmert. Profitability ratios are gross profit ,
considered as effective.
and investment. b. Social Indicators: This
ratio, net profit ratio return on
approach measures social
of an
organisation in relation to various performance of
. Du Pont Control Chart: Du-Pont Control Chart is a system' social indicators, suchas
control developed by American Company
named Du-Pont employment creation, eavironmental
be used for improvement, etc. that can
determing the effectiveness of strategy.
 Strategic Management Strategic Evaluation and Control
5.16 5.17

C.
Social Goal Setting: In this approach an organisation can identify Benefits of Strategic Evaluation and Control
the social concerns to be served on the basis of its own environmental
The major benefits of strategic evaluation and control can be
those areas in
analysis. technique the firm
n this concentrates on
described as follows.
which it can contribute effectively.
I. Provide Proper Direction: Strategic Evaluation and Control enable
Problems ofControl Systems the management to ensure that the organisation is heading in the
number of problems associated with control
There are a large right direction and corrective action is taken where needed.
lot of
evaluation. An efficient system may collect a
systems for strategy II. Provide Guidance: Everyone within the organisation, both
crucial
irrelevant data whereas a sophisticated system might ignore
managers and workers alike, learn what is happening, how their
encountered in designing and
information. Some of the typical problems performance is compared with what is expected, and what needs to
control system are as follows.
managing be done to keep up the goodwill.
on the criteria for measuring the
1. There may not be a consensus
III. Inspire Confidence: Information about good performance inspires
of the strategy.
effectiveness and efficiency confidence in everybody. Those within the organisation are likely
2. The reporting data may be invalid. to be more mqtivaied to maintain and achieve better performance
relevant
may be based
on outputs which the in order to keep up their track record. Those who are outside the
3. The performance norms
business may not have any control. organisation such as customers, government authorities,
set with inherent
Often performance
standards may be shareholders etc. are likely to be impressed with the good
5.
contradictions. performance.
and therefore may
the system to be unfair
. Employees may consider Barriers or Problems of Strategic Evaluation and Control
not accept it.
make
System
on measuring short-term performance may
Over emphasis Strategic evaluation and control can be defined as the process of
has long
managers forget about the strategy which inherentdy
determining the effectiveness of a given strategy in achieving the
Connotations.
objectives and taking corrective action wherever reauired.
and "poor" levels ofganZational
8. it is very difficult to set "good', "average" The
Actually, it is a system of monitoring, supervising, and follow-up.
where the outputs are not tangible.
performance in situations are reviewing the
fundamental strategy evaluation and control activities
 5.19
5.18 Strategic Management Strategic Evaluation and Control

internal and external factors that are the bases for current strategies, QUESTIONS

measuring perfornance, and taking corrective actions.

There are some reasons or barriers for which strategic evaluation

Short Answer Questions (2 marks each)
and control (SEC) system.fails. These are as follows:
1. What is strategic evaluation?
1. Limits of control: It is never an easy task for strategists to decide 2. Define strategic control
the limits of control. Though too much control may damage the 3. What is premises control?
ability of managers, too less control may make the strategic 4 What is implementation strategy?
evaluation process ineffective. . What is strategic surveillance?

2. Difficulties in measurement: The process of strategic evaluation 6. What is special alert control?
The control system 7. What is activity based costing?
has the problem of difficulties in measurement.
measure element which is not intended to be evaluated. 8. What is budgetary contro1?
may
9. What is leverage ratio?
3. Resistance: The evaluation process involves controlling the behavior
executives.
10. What social cost benefit analysis?
of individuals. It is ikely to be resisted by
the immediate Short Essay Questions (5 marks each)
4. Short-term result: Managers often tend to measure

on performance 1. What do you

results. As a result, the extended effect of strategy meanby strategic evaluation and contro!? Why it is essential?
2. What are the techniques of strategic evaluation?
is ignored.
Who are the
participants in strategic control?
is 'doing.3.
5. Confusion on efficiency and effectiveness: Efficiency
What are the techniques used in premises based control
and effectiveness is right thing'. There is4
'doing the technique?
things right' 5. What are the tools used for financial
confusion among executives
as to what constitutes performance control technique?
often a genuine 6. What are the financial ratios usedfor
strategic control?
effective performance.
What are the techniques used for social
performance control technique?
8. What are the benefits of strategic control?
9. Write note on Du pont Chart?

10. What are the barriers of strategic evaluation and

control?