Business and Marketing (SMUnit VI-4of 4)

Explain why strategy evaluation can be a complex and sensitive undertaking. Your response should be at least 200 words in length. All sources used, including the textbook, must be referenced; paraphrased and quoted material must have accompanying citations.

Learning Objectives
Upon completion of this unit, students should be able to:
1. Explain the process of reviewing strategy.
2. Describe the strategy review, evaluation, and control process.
Written Lecture
Strategic Evaluation
Did your strategy work? One very clear indicator of strategic success is the stock
price of the company. Why should this be so? There are a number of reasons.
For example, if the stock price is going up, then more investors are buying it.
Why do investors buy shares of a company? A share of stock earns the
shareholder the right to a share of future company growth in the form of capital
appreciation, or a share of future company earnings in terms of cash flows
associated with dividends. Because of this, investors only buy stock and spend
more on the price of the stock if they believe that the company is growing, will
grow, and will earn more profits over time. An increasing stock price, therefore,
is a general vote of confidence in the strategic direction of the company. Since
the CEO leads the company and is the largest single contributor to the strategy
of the company, a CEO’s career typically rises or falls in step with the stock
price.
Evaluation Beyond the Stock Price
Although the stock price may be an indicator of progress, it could be said that it
is a lagging indicator of success. In other words, the stock price evaluates the
strategy after you have already done it. A more ideal form of strategic evaluation
may seek to measure interim strategic results and make course corrections as
necessary. One way to do this is by using a dashboard to monitor progress of
the objectives cascaded throughout the organization. A dashboard is an “at-a-
glance” view of measures of important contributors to strategy. For example, a
dashboard may include progress to plan metrics on items such as sales
revenue, profit margins, expenses, specific strategic initiatives, new product
launches, etc. A typical effective dashboard will list metrics and highlight each
with colors, such as red for poor performance, yellowfor marginal performance,
and green for on-target performance.
The Balanced Scorecard and the Value Chain
Kaplan and Norton (1996) introduced a framework for measuring progress
against strategic objectives. The balanced scorecard framework is considered by
the authors to be balanced because it employs a more holistic approach toward
progress measurement. In addition to a focus on financial health and strategic
initiatives, the scorecard measures progress against higher level and more long-
term themes, such as organizational learning.
Reading
Assignment
Chapter 9:
Strategy review,
evaluation, and control
Supplemental
Reading
Click here to access a
PDF of the Chapter 9
Presentation.
Key Terms
1. Auditing
2. Balanced scorecard
3. Consistency
4. Consonance
5. Contingency planning
6. Feasibility
7. Future shock
8. GAAS, GAAP, and
IFRS
9. Management by
wandering around
10. Measuring
organizational
performance
11. Reviewing the
underlying bases of an
organization’s strategy
12. Revised EFE Matrix
13. Revised IFE Matrix
14. Taking corrective
actions
BBA 4951, Business Policy and Strategy  2
A similar approach to measuring and evaluating strategy is to monitor the health
of each element of the company value chain. The value chain views a company
in terms of the components that add value from the origination of raw materials
from suppliers, to the delivery of finished products to the customer. Supply chain
elements of the company are considered in terms of suppliers and inbound
logistics. The raw materials are processed in the core value creation
components of the company, such as manufacturing and R&D, but are also kept
flowing by company support services such as IT and Finance. All components of
a company’s value chain play at least some role in the strategy of the
company—so it makes sense to measure progress through the monitoring and
evaluation of each component.
Course Corrections
It is one thing to know how your company is doing in terms of strategic
implementation, but what often separates successful companies from
unsuccessful ones is in how the company responds to shortcomings identified as
a result of strategic evaluation. Where does a CEO begin? As a first step it is
important to understand the root cause of what went wrong. Those who do not
get to the root of the strategic implementation problem may end up creating a
situation where the “cure is worse than the disease.” This is not as simple as it
may sound. For example, if sales are below target, is it because salespeople are
not selling aggressively enough, or is it because the product itself was too
expensive or does not have the right features? More often than not, a firm may
react by implementing sales training or sales incentives to strengthen sales—
when in reality the company is experiencing strategic drift. Strategic drift occurs
when the company’s strategy was appropriate for a specific time and market
context, but the market has moved on and as a result—the strategy has drifted
off course.
Strategic Audit
Bringing a company back to health may require more than simply evaluating the
progress of strategy. What may be needed is a full audit of the company
strategy. Questions asked in an audit go beyond an evaluation of metrics and
progress and are instead questions such as:
 Is our strategy working?
 Do we have the right strategy?
 Should we change our current strategy and try something new? If so,
how and when?
The questions asked in a strategic audit highlight the need to make strategic
evaluation, course corrections, and audits an ongoing process. An example can
illustrate why this is so important. Consider, for instance, that the strategy of a
company is not working, and the strategic failure is reflected in weak sales and
profitability. Naturally, this condition will trigger a change in direction. However,
direction changes, especially major ones, require significant funding. If sales are
down and profitability is weak, where will the funding come from? In many cases,
additional funding is not available, and thus begins a negative downward spiral
that could lead to the potential collapse of the company. The message here is
this: if you are going to make a change, identify the need to make a change
when times are good so you can steer the company in a more healthy
direction—while you can still afford to. An annual cycle of strategic evaluation
will go a long way toward giving you an early warning in time to take action.
Such a cycle will typically be broken down into quarterly evaluations and annual
BBA 4951, Business Policy and Strategy  3
policy changes. The strategy evaluation cycle forces the company to be alert to
issues before it is too late to change the strategy. A small shift today is much
better than having to make a very risky, big shift tomorrow. To use a baseball
analogy, if you are always getting base hits, you will never have to bet your
company on making a e-time-only grand slam home run!