Characteristics of an Effective Strategy Evaluation System

The strategy-evaluation process must exhibit several characteristics to be effective. First, strat­egy-evaluation activities must be economical; too much information can be just as bad as too little information, and too many controls can do more harm than good. Strategy-evaluation activ­ities also should be meaningful; they should specifically relate to a firm’s objectives. They should provide managers with useful information about tasks over which they have control and influ­ence. Strategy-evaluation activities should provide timely information; on occasion and in some areas, managers may need information on a daily or even continuous basis. For example, when a firm has diversified by acquiring another firm, evaluative information may be needed frequently. In contrast, in an R&D department, daily or even weekly evaluative information could be dys­functional. Approximate information that is timely is generally more desirable as a basis for strategy evaluation than accurate information that does not depict the present. Frequent measure­ment and rapid reporting may frustrate control rather than give better control. The time dimen­sion of control must coincide with the time span of the event being measured.

Strategy-evaluation processes should be designed to provide a true picture of what is happening. For example, in a severe economic downturn, productivity and profitability ratios may drop alarm­ingly, although employees and managers are actually working harder. Strategy evaluations should fairly portray this type of situation. Information derived from the strategy-evaluation process should facilitate action and should be directed to those individuals in the organization who need to take action based on it. Managers commonly ignore evaluative reports that are provided only for infor­mational purposes; not all managers need to receive all reports. Controls need to be action-oriented rather than information-oriented. The strategy-evaluation process should not dominate decisions; it should foster mutual understanding, trust, and common sense. No department should fail to cooper­ate with another in evaluating strategies. Strategy evaluations should be simple, not too cumbersome, and not too restrictive. Complex strategy-evaluation systems often confuse people and accomplish little. The test of an effective evaluation system is its usefulness, not its complexity.

Large organizations require a more elaborate and detailed strategy-evaluation system because it is more difficult to coordinate efforts among different divisions and functional areas. Managers in small companies often communicate daily with each other and their employees and do not need extensive evaluative reporting systems. Familiarity with local environments usually makes gathering and evaluating information much easier for small organizations than for large businesses. But the key to an effective strategy-evaluation system may be the ability to convince participants that failure to accomplish certain objectives within a prescribed time is not necessar­ily a reflection of their performance.

There is no one ideal strategy-evaluation system. The unique aspects of an organization, including its size, management style, purpose, problems, and strengths, can determine a strategy- evaluation and control system’s final design. Robert Waterman offered the following observation about successful organizations’ strategy-evaluation and control systems:

Successful companies treat facts as friends and controls as liberating. Morgan Guaranty and Wells Fargo not only survive but thrive in the troubled waters of bank deregulation, because their strategy evaluation and control systems are sound, their risk is contained, and they know themselves and the competitive situation so well. Successful companies have a voracious hunger for facts. They see information where others see only data. Successful companies maintain tight, accurate financial controls. Their people don’t regard controls as an imposition of autocracy but as the benign checks and balances that allow them to be creative and free.¹²

Source: David Fred, David Forest (2016), Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Pearson (16th Edition).