Evaluation of Strategy

Strategic Evaluation: Meaning and Definition

Strategic evaluation refers to the process of determining the effectiveness of a strategy in achieving
organizational goals. It involves measuring the actual performance of the firm against its intended
objectives and taking corrective actions if necessary.

Definition:
Strategic evaluation is “the process through which the effectiveness of a strategy is assessed in light
of the organizational objectives and environment.”

Significance of Strategic Evaluation

a. Ensures Achievement of Objectives

Strategic evaluation helps determine whether the strategic goals are being achieved. It serves as a
feedback mechanism for strategic planning.

b. Provides Feedback for Future Planning

By evaluating the current strategy, organizations gather critical insights for better future strategy
formulation.

c. Facilitates Performance Measurement

Strategic evaluation measures actual performance against predefined standards or benchmarks.

d. Enhances Adaptability

It helps companies remain flexible and responsive to environmental changes, making necessary
realignments in strategy.

e. Identifies Corrective Actions

Strategic evaluation highlights gaps and shortcomings in implementation and prompts timely
corrective measures.

Criteria for Strategic Evaluation

Several criteria are used to assess the effectiveness and appropriateness of a strategy:

a. Consistency

Strategy should not have conflicting goals or policies. It should align with the organization’s mission,
vision, and environment.

b. Suitability

The strategy should be relevant to the firm’s internal and external environment. It must align with
strengths and opportunities.
c. Feasibility

It should be realistic and implementable given the firm’s resources and competencies.

d. Acceptability

Stakeholders (owners, employees, customers) should accept the strategy. It should yield acceptable
returns and risks.

e. Flexibility

A good strategy allows room for adjustments in response to changes in the environment.

f. Competitive Advantage

The strategy should sustain or enhance the organization’s competitive advantage.

Barriers to Strategic Evaluation

Strategic evaluation is a complex process and may face several barriers:

a. Unclear Objectives

If organizational objectives are vague or not measurable, evaluation becomes difficult.

b. Complexity of Environment

Dynamic and uncertain environments make it hard to evaluate strategy effectiveness.

c. Resistance to Evaluation

Employees and managers may resist evaluation fearing criticism or accountability.

d. Inadequate Information Systems

Lack of reliable data impairs performance measurement.

e. Poor Coordination

Interdepartmental conflicts and lack of coordination reduce the effectiveness of evaluation.

f. Time Lag

Strategic outcomes are often realized over the long term, making timely evaluation difficult.

Overcoming Barriers to Strategic Evaluation

a. Set Clear and Measurable Objectives

SMART goals (Specific, Measurable, Achievable, Relevant, Time-bound) facilitate precise evaluation.

b. Develop Robust MIS

Implementing a strong Management Information System provides accurate and timely data.

c. Foster Evaluation Culture

Encouraging openness to feedback and continuous improvement helps overcome resistance.

Regular strategy reviews and mid-course corrections help in effective evaluation.

e. Training and Awareness

Educating employees and managers about the benefits of evaluation can reduce fear and increase
cooperation.

Strategic and Operational Control

Strategic Control: Meaning and Types

Strategic control focuses on the implementation of strategic plans. It ensures the alignment of
organizational performance with strategic intent.

a. Premise Control

Monitors assumptions made during strategy formulation. If assumptions change, the strategy might
need adjustment.

b. Implementation Control

Checks whether strategic programs, projects, or tactics are being implemented properly.

c. Strategic Surveillance

A broad-based control that scans all aspects of the environment to detect unforeseen events.

d. Special Alert Control

Activated in response to unexpected major events (e.g., economic crisis, competitor’s disruptive
innovation).

Operational Control: Meaning and Process

Operational control deals with ensuring that day-to-day tasks and operations are carried out
efficiently and effectively.

Process of Operational Control:

a. Setting Standards

Define performance standards and KPIs aligned with operational goals.

b. Measuring Actual Performance

Collect real-time data through systems like ERP, dashboards, etc.

c. Comparing with Standards

Assess deviations between actual performance and targets.

d. Taking Corrective Action

Strategic Evaluation Tools

Strategic evaluation tools help managers assess the suitability, feasibility, and effectiveness of a
strategy and determine whether it aligns with the organizational goals. These tools are both
quantitative and qualitative and are used during and after strategy implementation.

1. Balanced Scorecard (BSC)

➤ Developed by: Robert Kaplan and David Norton

➤ Purpose: To provide a comprehensive view of organizational performance beyond traditional

➤ Four Perspectives:

1. Financial – How do we look to shareholders?

o Metrics: ROI, Operating Margin, Revenue Growth, Cost Reduction

2. Customer – How do customers see us?

o Metrics: Customer Satisfaction, Retention, Market Share

3. Internal Business Processes – What must we excel at?

o Metrics: Process Efficiency, Cycle Time, Quality

4. Learning and Growth – Can we continue to improve and create value?

o Metrics: Employee Satisfaction, Skill Development, Innovation Rates

➤ How It Works:

• Each perspective has strategic objectives, measurable KPIs, targets, and initiatives.

• Aligns day-to-day activities with the long-term vision.

➤ Advantages:

• Holistic view of performance

• Aligns vision and strategy with performance

• Encourages strategic learning

➤ Limitations:

• Complex to implement

• Requires accurate data collection

• May miss environmental dynamics if not regularly updated

➤ Purpose: To compare an organization's processes and performance metrics to industry bests or

➤ Types:

• Internal Benchmarking: Comparing within departments

• Competitive Benchmarking: Comparing with direct competitors

• Functional Benchmarking: Comparing with firms in similar functions

• Generic Benchmarking: Comparing across industries

➤ Steps Involved:

1. Identify what to benchmark

2. Choose benchmarking partners

3. Collect and analyze data

4. Set improvement goals

5. Implement and monitor changes

➤ Advantages:

• Identifies performance gaps

• Drives continuous improvement

• Adopts best practices

➤ Limitations:

• Data may be difficult to access

• May result in imitation, not innovation

• Needs constant updates to remain relevant

3. Strategic Audit

➤ Purpose: A comprehensive check-up of the organization’s strategic health.

➤ Often conducted periodically or before major strategic decisions.

➤ Key Areas Covered:

• Mission and Objectives

• External Environment Analysis (Opportunities/Threats)

• Internal Environment Analysis (Strengths/Weaknesses)

• Strategy Evaluation
 • Implementation Effectiveness

• Financial and Non-Financial Performance

➤ How It Works:

• Structured using frameworks like SWOT, PESTLE, and Porter's Five Forces.

• Ends with strategic recommendations and action plans.

➤ Advantages:

• Comprehensive and detailed

• Identifies strategic misalignments

• Objective, especially when conducted by external consultants

➤ Limitations:

• Time-consuming and costly

• May require external expertise

• Can cause internal resistance

4. Gap Analysis

➤ Purpose: Identifies the difference between current performance and desired performance.

➤ Components:

• Current State: Where the organization is now

• Future State: Where the organization wants to be

• Gap: What needs to be done to bridge the difference

➤ How It Works:

• Define business goals

• Measure current outcomes

• Identify gaps

• Develop and implement strategies to bridge gaps

➤ Advantages:

• Simple and visual tool

• Helps prioritize areas for strategic improvement

• Aligns strategic initiatives with performance gaps

➤ Limitations:
 • Oversimplified if not based on detailed analysis

• May not account for external factors or changes

5. Portfolio Analysis Tools

Used mainly in diversified organizations to evaluate different business units or product lines.

a. BCG Growth-Share Matrix (Boston Consulting Group)

➤ Dimensions:

• Market Growth Rate (Attractiveness of market)

• Relative Market Share (Competitive position)

➤ Categories:

1. Stars – High growth, High market share (Need investment)

2. Cash Cows – Low growth, High share (Generate cash)

3. Question Marks – High growth, Low share (Risky investments)

4. Dogs – Low growth, Low share (Divest or reposition)

➤ Advantages:

• Simplifies complex decisions

• Helps in resource allocation

• Highlights performance of product/business units

➤ Limitations:

• Oversimplified (ignores synergy and competition)

• Market growth and share are not the only success factors

b. GE McKinsey 9-Cell Matrix

➤ Dimensions:

• Industry Attractiveness

• Business Unit Strength

➤ 9 Cells (High/Medium/Low Combinations)

• Invest/Grow (top cells)

• Selective (middle cells)

• Harvest/Divest (bottom cells)

• Industry Attractiveness: Market size, profitability, growth, competitive intensity

• Business Strength: Market share, brand, cost structure, product quality

➤ Advantages:

• More comprehensive than BCG

• Uses multiple weighted factors

➤ Limitations:

• Subjectivity in ratings and weights

• Requires extensive data

6. Value Chain Analysis

➤ Developed by: Michael Porter

➤ Purpose: To evaluate internal activities to identify where value is added or lost in the delivery of
products/services.

➤ Primary Activities:

• Inbound Logistics

• Operations

• Outbound Logistics

• Marketing & Sales

• Services

➤ Support Activities:

• Procurement

• Technology Development

• Human Resource Management

• Firm Infrastructure

➤ How It Helps in Evaluation:

• Identifies high-cost or inefficient activities

• Evaluates alignment of operations with strategic goals

• Highlights areas for cost-cutting or differentiation

➤ Advantages:

• Internal performance focus

➤ Limitations:

• Requires detailed internal data

• Doesn’t evaluate external alignment

7. Key Performance Indicators (KPIs) for Strategy Evaluation

➤ Common KPIs Include:

• Financial: EBITDA, Net Profit Margin, ROE, Cash Flow

• Customer: NPS, Retention Rate

• Operational: Cost per unit, Capacity utilization

• Strategic: Market Share, Innovation Rate, Employee Engagement

➤ How to Use:

• Select relevant KPIs aligned with strategic goals

• Set targets and monitor regularly

• Compare with industry standards

8. Cost-Benefit Analysis (CBA)

➤ Purpose: Weighs the total expected costs against the total expected benefits of a strategy.

➤ Use Case: When evaluating new strategic initiatives like expansion, M&A, or diversification.

➤ Steps:

1. Identify all costs (initial, operational, hidden)

2. Identify all benefits (revenue, efficiency, goodwill)

3. Calculate net benefit (Benefits – Costs)

➤ Advantages:

• Rational decision-making

• Quantifies return on strategy

➤ Limitations:

• May ignore intangible benefits

• Difficult to forecast long-term outcomes

Tool Best For

Balanced Scorecard Ongoing strategic performance evaluation

Benchmarking Comparing performance with peers

Strategic Audit Comprehensive internal + external strategy review

Gap Analysis Identifying improvement areas

BCG/GE Matrix Portfolio-level resource decisions

Value Chain Analysis Internal efficiency evaluation

KPIs Daily/weekly/monthly performance tracking

CBA Investment decision support

No single tool fits all strategic evaluation needs. A combination of tools, depending on context,
complexity, and data availability, yields the most effective results.

Operational Evaluation Techniques

a. Financial Ratios

• Tools like ROI, ROE, Operating Margin, Current Ratio, etc., help assess efficiency.

b. Variance Analysis

• Compares actual performance with standards to identify deviations in cost, time, or quantity.

c. Critical Success Factors (CSFs)

• Identifies key areas essential for organizational success and monitors their performance.

d. Total Quality Management (TQM) Tools

• Includes control charts, Pareto analysis, fishbone diagrams to enhance quality in operations.

e. Key Performance Indicators (KPIs)

• Quantifiable metrics such as production output, sales conversion, delivery times.

9. Integration of Strategic and Operational Control

• Strategic control ensures the organization is heading in the right direction.

• Operational control ensures that daily operations are aligned with strategic goals.
Together, they ensure holistic performance management and sustainable growth.
Conclusion

Evaluation and control of strategy are essential for navigating a dynamic business environment. They
provide feedback, ensure performance, and enable organizations to adapt quickly. By overcoming
barriers and applying proper evaluation techniques, firms can remain competitive, responsive, and
aligned with their strategic vision.