The Strategy-Evaluation Process, Criteria, and Methods

The strategic-management process results in decisions that can have significant, long-lasting consequences. Erroneous strategic decisions can inflict severe penalties and can be exceedingly difficult, if not impossible, to reverse. Therefore, most strategists agree that strategy evaluation is vital to an organization’s well-being; timely evaluations can alert management to problems or potential problems before a situation becomes critical. The strategy-evaluation process includes three basic activities:

1. Examine the underlying bases of a firm’s strategy.
2. Compare expected results with actual results.
3. Take corrective actions to ensure that performance conforms to plans.

Figure 9-1 illustrates the strategy-evaluation stage of the strategic-management process (see white shading). Adequate and timely feedback is the cornerstone of effective strategy evaluation. Strategy evaluation can be no better than the information on which it is based. Too much pressure from top managers may result in lower managers contriving numbers they think will be satisfac­tory. Strategy evaluation can be a complex and sensitive undertaking. Too much emphasis on evaluating strategies may be expensive and counterproductive. No one likes to be evaluated too closely! The more managers attempt to evaluate the behavior of others, the less control they have. Yet too little or no evaluation can create even worse problems. Strategy evaluation is essential to ensure that stated objectives are being achieved. Strategists need to create an organizational cul­ture where strategy evaluation is viewed as an opportunity to make the firm better, so the firm can compete better, so everyone in the firm can do better, sharing in the firm’s increased profitability.

In many organizations, strategy evaluation is simply an appraisal of how well an organiza­tion has performed. Have the firm’s assets increased? Has there been an increase in profitabil­ity? Have sales increased? Have productivity levels increased? Have profit margin, return on investment, and earnings-per-share ratios increased? Some firms argue that their strategy must have been correct if the answers to these types of questions are affirmative. Well, the strategy or strategies may have been correct, but this type of reasoning can be misleading because strategy evaluation must have both a long-run and short-run focus. Strategies often do not affect short­term operating results until it is too late to make needed changes.

Strategy evaluation is important because organizations face dynamic environments in which key external and internal factors often change quickly and dramatically. Success today is no guarantee of success tomorrow! Joseph Stalin was a ruthless leader (from 1928 on) and premier (from 1941 on) of the Soviet Union until his death in 1953. A famous quote from Stalin was:

“History shows that there are no invincible armies.” This quote reveals that even the mightiest, most successful firms must continually evaluate their strategies and be wary of rival firms. An organization should never be lulled into complacency with success. Countless firms have thrived one year only to struggle for survival the following year. according to Peter Drucker, “unless strategy evaluation is performed seriously and systematically, and unless strategists are willing to act on the results, energy will be used up defending yesterday.”

It is impossible to demonstrate conclusively that a particular strategy is optimal or even to guarantee that it will work. one can, however, evaluate it for critical flaws. Richard Rumelt offered four criteria that could be used to evaluate a strategy: consistency, consonance, feasibility, and advantage. Described in table 9-1, consonance and advantage are mostly based on a firm’s exter­nal assessment, whereas consistency and feasibility are largely based on an internal assessment.

Demise can come quickly. The Internet financial news company 24/7 Wall Street annu­ally identifies the worst companies to work for in the United States, and recently reported the worst company to be Books-A-Million, followed by Express Scripts, Frontier Communications, Jos. a. Bank Clothiers, Brookdale Senior Living, Dillards, ADT, hhgregg, Family Dollar Stores, Children’s Place, and, the 11th worst, Radio Shack.

Strategy evaluation is becoming increasingly difficult with the passage of time, for many reasons. Domestic and world economies were more stable in years past, product life cycles were longer, product development cycles were longer, technological advancement was slower, change occurred less frequently, there were fewer competitors, foreign companies were generally weak, and there were more regulated industries. other reasons why strategy evaluation is more difficult today include the following trends:

1. A dramatic increase in the environment’s complexity
2. The increasing difficulty of predicting the future with accuracy
3. The increasing number of variables
4. The rapid rate of obsolescence of even the best plans
5. The increase in the number of both domestic and world events affecting organizations
6. The decreasing time span for which planning can be done with any degree of certainty²

A fundamental problem facing managers today is how to effectively manage a workforce in light of modern organizational demands for greater flexibility, innovation, creativity, and initiative from employees.³ Managers need empowered employees acting responsibly and never putting the well-being of the business at risk. The potential costs to companies in terms of damaged reputations, fines, missed opportunities, and diversion of management’s attention are enormous, and bad news oftentimes spreads like wildfire over social media. Too much pressure to achieve specific goals can lead to dysfunctional behavior. For example, Nordstrom, the upscale fashion retailer known for outstanding customer service, was subjected to lawsuits and fines when employees underreported hours worked to increase their sales per hour—the company’s primary performance criterion.

The Process of Evaluating Strategies

Strategy evaluation is necessary for all sizes and kinds of organizations. Strategy evaluation should initiate managerial questioning of expectations and assumptions, should trigger a review of objectives and values, and should stimulate creativity in generating alternatives and formu­lating criteria of evaluation.⁴ Regardless of the size of the organization, a certain amount of “management by wandering around” at all levels is essential to effective strategy evaluation. Strategy-evaluation activities should be performed on a continuing basis, rather than at the end of specified periods of time or just after problems occur. Waiting until the end of the year, for example, could result in a firm closing the barn door after the horses have already escaped.

Evaluating strategies on a continuous rather than on a periodic basis allows benchmarks of progress to be established and more effectively monitored. Some strategies take years to imple­ment; consequently, associated results may not become apparent for years. Successful strategies combine patience with a willingness to promptly take corrective actions when necessary. There always comes a time when corrective actions are needed in an organization! Centuries ago, a writer (perhaps Solomon) made the following observations about change:

There is a time for everything,

A time to be born and a time to die,

A time to plant and a time to uproot,

A time to kill and a time to heal,

A time to tear down and a time to build,

A time to weep and a time to laugh,

A time to mourn and a time to dance,

A time to scatter stones and a time to gather them,

A time to embrace and a time to refrain,

A time to search and a time to give up,

A time to keep and a time to throw away,

A time to tear and a time to mend,

A time to be silent and a time to speak,

A time to love and a time to hate,

A time for war and a time for peace.⁵

Managers and employees of the firm should be continually aware of progress being made toward achieving the firm’s objectives. As key success factors change, organizational members should be involved in determining appropriate corrective actions. If assumptions and expecta­tions deviate significantly from forecasts, then the firm should renew strategy-formulation activi­ties, perhaps sooner than planned. In strategy evaluation, like strategy formulation and strategy implementation, people make the difference. Through involvement in the process of evaluat­ing strategies, managers and employees become committed to keeping the firm moving steadily toward achieving objectives.

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