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Strategic evaluation and control is defined as the process of determining the effectiveness of a given strategy in achieving the organisational objectives and taking corrective action whenever required. The nature strategic evaluation and control process is to test the effectiveness of the strategy.
The fact that a manager individually performs a set of functions, which are interrelated to other tasks that managers elsewhere in the organisation are performing, makes it clear that the tasks have to be correlated. The importance of strategic evaluation lies in its ability to coordinate the tasks performed by individual managers, and also groups, division, or SBUs, through the control of performance. In the absence of coordinating and controlling mechanisms, individual managers may pursue goals which are inconsistent with the overall objectives of the department, division, SBU, or the whole organisation.
Besides this reason, there could be several other factors like: the need for feedback, appraisal and reward; check on the validity of strategic choice; congruence between decisions and intended strategy; successful culmination of strategic management process; and creating inputs for new strategic plan.
The various participants in strategic evaluation and control are: the stakeholders of the organisation; the board of directors; the chief executives; the SBU or profit centre heads; the financial controllers; company secretaries, and external and internal auditors; auditors and executive committees; and middle level managers.
The five major types of barriers in evaluation are: the limits of control; difficulties in measurement; resistance to evaluation; short termism; and relying on the efficiency versus effectiveness.
A strategy is formulated on the basis of several assumptions.
These relate to environmental and organisational factors, which are dynamic and eventful. There is considerable gap between the time when a strategy is formulated and the time when it is implemented. The process of implementation is itself time consuming. During this intervening period, there is a possibility that the assumptions made while formulating a strategy will not remain valid, or at least, are no longer so relevant. Strategic controls take into account the changing assumptions that determine a strategy, continually evaluate the strategy as it is being implemented, and take the necessary steps to adjust the strategy to the new requirements. Thus the strategic controls are early warning systems and differ from the post control systems which evaluate only after the implementation has been completed.
Every strategy is based on certain assumptions about environmental and organisational factors. Some of these factors are highly significant and any change in them can affect the strategy to a large extent. Premise control is necessary to identify the key assumptions, keep track of any change in them so as to assess their impact on strategy and its implementation. Premise control serves the purpose of continually testing the assumptions to find out whether they are still valid or not. This enables the strategists to take corrective action at the right time rather than continuing with a strategy which is based on erroneous assumptions. The responsibility for premise control can be assigned to the corporate planning staff that can identify key assumptions and keep a regular check on their validity.
The implementation of a strategy results in a series of plans, programmes, and projects. Resource allocation is done to implement these. Implementation control is aimed at evaluating whether the plans, programmes, and projects are actually guiding the organisation towards its predetermined objectives or not. If, at any time, it is felt that the commitment of resources to a plan, programme or project would not benefit the organisation as envisaged, they have to be revised. Thus implementation control may lead to strategic rethinking.
Implementation control may be put into practice through the identification and monitoring of strategic thrusts such as an assessment of the marketing success of a new product after per testing, or checking the feasibility of a diversification programme after making initial attempts at seeking technological collaboration. Another method of implementation control is milestone review, through which critical points in strategy implementation are identified in terms of events, substantial resource allocation, or significant end time. This is similar to the identification of events/ activities in PERT/ CPM networks. After the identification of milestones, a comprehensive review of implementation is made to reassess its continued relevance to the achievement of objectives.
Strategic surveillance is aimed at a generalised and overarching control that is designed to monitor a broad range of events inside and outside the company that are likely to threaten the course of a firmââ‚¬â„¢s strategy. Strategic surveillance can be done through a broad based, general monitoring in the basis of selected information sources to uncover events that are likely to affect eh strategy of an organisation. Organisational learning and knowledge management systems can capture much of the information that is otherwise lost in an organisation. This information can be used for strategic surveillance.
Special alert control
Special alert control system is based on a trigger mechanism for rapid response and immediate reassessment of strategy in the light of sudden and unexpected events. Special alert control can be exercised through the formation of contingency strategies and assigning the responsibility of handling unforeseen events to crisis management teams. Crises are critical situations that occur unexpectedly and threaten the course of a strategy. Steps followed in crisis management include signal detection, preparation/ prevention, containment/ damage limitation, and recovery leading to organisational learning. Special control systems help in performing the signal detection step in crisis management.
Operational control is aimed at the allocation and use of the organisational units, such as, divisions and SBUs, to asses their contribution to the achievement of organisational objectives. Operational control is concerned with action or performance, and that is probably the reason why it is used so extensively in organisations.
The process of evaluation consists of four steps: setting of standards, measurement of performance, analysing variances, and taking corrective action.
Strategy/ plan/ objectives
Setting standards of performance
Measurement of performance
Setting of standards
The strategy plans and objectives result in a set of performance standards which form the basis for evaluation through the measurement of performance. Three questions are considered while setting the Standards. The questions are: what standards to set?; how to set the standards?, and in what terms are the standards to be expressed?
Operational control can be effectively exercised through a combination of quantitative and qualitative criteria.
Quantitative criteria: on the basis of quantitative criteria, evaluation can be done in two ways ââ‚¬" an organisation can assess how it has performed as compared to its past achievements, and it can also compare its performance with the industry average or that of major competitors.
Qualitative criteria: qualitative criteria play a major role in strategic control for evaluating strategy before implementing but these can be used in operational control too.
Measurement of performance
Standards of performance act as benchmark against with the actual performance to be compared. The other important aspects of measurement relate to the difficulties, timing, and periodicity in measuring.
The comparison of actual and standard performance leads to analysis of variances. As a result of the analysis, the following three situations may arise:
The actual performance is exactly in accordance with the budgeted performance.
The actual performance positively deviates over the budgeted performance.
The actual performance negatively deviates over the budgeted performance.
Taking corrective action
Feedback from the analysis of variances results in either a check of performance, revaluation of standards, and the reformulation of strategy plans, or objectives. Due to the inherent nature of operational control, corrective action is aimed mainly at performance and adjustment of standards rather than the reformulation of strategy. The reformulation task is usually performed on the basis of strategic control, especially implementation control.
TECHNIQUES OF STRATEGIC EVALUATION AND CONTROL
Evaluation techniques for strategic control
The essence of strategic control is to continually assess the changing environment to uncover events that may significantly affect the course of an organisationââ‚¬â„¢s strategy. Techniques for strategic control could be classified into two groups on the basis of the type of environment may use strategic momentum control, while those who face a relatively turbulent environment may find strategic leap control more appropriate.
Strategic momentum control
These types of evaluation techniques are aimed at assuring that the assumptions on whose basis strategies were formulated are still valid, and finding out what needs to be done in order to allow the organisation to maintain its existing strategic momentum. There are three techniques which can be used: responsibility control centres, underlying success factors, and generic strategies.
Strategic leap control
Where the environment is relatively unstable, organisations are required to make significant changes. Strategic leap control can assist such organisations by helping to define the new strategic requirements and to cope with emerging environmental realities. There are four techniques used in strategic leap control: strategic issue control, strategic field analysis, systems modelling, and scenarios.
Evaluation techniques for operational control
Operational control is aimed at the allocation and use of organisational resources. Evaluation techniques for operational control are based on organisational appraisal rather than environmental monitoring, as is the case with strategic control. This is done in a three step process: internal analysis, comparative analysis, and comprehensive analysis.
Internal analysis deals with the identification of the strengths and weakness of the firm in absolute terms. It consists of value chain analysis, quantitative (financial and non-financial) analysis, and qualitative analysis.
The comparative analysis compares the performance of a firm with its own past performance or with other firms. This consists of historical analysis, industry norms, and benchmarking
Comprehensive analysis includes balance scorecard and key factor rating. This analysis adopts a total approach rather than focusing on one area of activity, or a function or department.
There are four more techniques that are used by some companies to assess performance. These are network techniques, parta system, management by objectives, and the memorandum of understanding.