REVIEWING BASES OF STRATEGY
Reviewing the underlying bases of an organization's strategy
could be approached by developing a
Matrix and IFE Matrix. A
revised IFE Matrix
should focus on changes in the organization's
marketing, finance/accounting, production/operations, R&D, and
computer information systems
strengths and weaknesses. A
revised EFE Matrix
should indicate how effective a firm's strategies
in response to key opportunities and threats. This analysis
could also address such questions as the
1. How have competitors reacted to our strategies?
2. How have competitors' strategies changed?
3. Have major competitors' strengths and weaknesses changed?
4. Why are competitors making certain strategic changes?
5. Why are some competitors' strategies more successful than
6. How satisfied are our competitors with their present market
positions and profitability?
7. How far can our major competitors be pushed before
8. How could we more effectively cooperate with our competitors?
Numerous external and internal factors can prohibit firms from
achieving long-term and annual
objectives. Externally, actions by competitors, changes in
demand, changes in technology, economic
changes, demographic shifts, and governmental actions may
prohibit objectives from being accomplished.
Internally, ineffective strategies may have been chosen or
implementation activities may have been poor.
Objectives may have been too optimistic. Thus, failure to
achieve objectives may not be the result of
unsatisfactory work by managers and employees. All
organizational members need to know this to
encourage their support for strategy-evaluation activities.
Organizations desperately need to know as soon
as possible when their strategies are not effective. Sometimes
managers and employees on the front line
discover this well before strategists.
External opportunities and threats and internal strengths and
weaknesses that represent the bases of
current strategies should continually be monitored for change.
It is not really a question of whether these
factors will change, but rather when they will change and in
what ways. Some key questions to address in
evaluating strategies are given here.
1. Are our internal strengths still strengths?
2. Have we added other internal strengths? If so, what are they?
3. Are our internal weaknesses still weaknesses?
4. Do we now have other internal weaknesses? If so, what are
5. Are our external opportunities still opportunities?
6. Are there now other external opportunities? If so, what are
7. Are our external threats still threats?
8. Are there now other external threats? If so, what are they?
9. Are we vulnerable to a hostile takeover?
Measuring Organizational Performance
Another important strategy-evaluation activity is
measuring organizational performance.
This activity includes
comparing expected results to actual results, investigating
deviations from plans, evaluating individual
performance, and examining progress being made toward meeting
stated objectives. Both long-term and
annual objectives are commonly used in this process. Criteria
for evaluating strategies should be
measurable and easily verifiable. Criteria that predict results
may be more important than those that reveal
what already has happened. For example, rather than simply being
informed that sales last quarter were 20
percent under what was expected, strategists need to know that
sales next quarter may be 20 percent
below standard unless some action is taken to counter the trend.
Really effective control requires accurate
Failure to make satisfactory progress toward accomplishing
long-term or annual objectives signals a need
for corrective actions. Many factors, such as unreasonable
policies, unexpected turns in the economy,
unreliable suppliers or distributors, or ineffective strategies,
can result in unsatisfactory progress toward
meeting objectives. Problems can result from ineffectiveness
(not doing the right things) or inefficiency
(doing the right things poorly).
Determining which objectives are most important in the
evaluation of strategies can be difficult. Strategy
evaluation is based on both quantitative and qualitative
criteria. Selecting the exact set of criteria for
evaluating strategies depends on a particular organization's
size, industry, strategies, and management
philosophy. An organization pursuing a retrenchment strategy,
for example, could have an entirely
different set of evaluative criteria from an organization
pursuing a market-development strategy.
Quantitative criteria commonly used to evaluate strategies are
financial ratios, which strategists use to
make three critical comparisons: (1) comparing the firm's
performance over different time periods, (2)
comparing the firm's performance to competitors', and (3)
comparing the firm's performance to industry
averages. Some key financial ratios that are particularly useful
as criteria for strategy evaluation are as
1. Return on investment
2. Return on equity
3. Profit margin
4. Market share
5. Debt to equity
6. Earnings per share
7. Sales growth
8. Asset growth
But there are some potential problems associated with using
quantitative criteria for evaluating strategies.
First, most quantitative criteria are geared to annual
objectives rather than long-term objectives. Also,
different accounting methods can provide different results on
many quantitative criteria. Third, intuitive
judgments are almost always involved in deriving quantitative
criteria. For these and other reasons,
qualitative criteria are also important in evaluating
strategies. Human factors such as high absenteeism and
turnover rates, poor production quality and quantity rates, or
low employee satisfaction can be underlying
causes of declining performance. Marketing, finance/accounting,
R&D, or computer information systems
factors can also cause financial problems. Seymour Tilles
identified six qualitative questions that are useful
in evaluating strategies:
1. Is the strategy internally consistent?
2. Is the strategy consistent with the environment?
3. Is the strategy appropriate in view of available resources?
4. Does the strategy involve an acceptable degree of risk?
5. Does the strategy have an appropriate time framework?
6. Is the strategy workable?5
Some additional key questions that reveal the need for
qualitative or intuitive judgments in strategy
evaluation are as follows:
1. How good is the firm's balance of investments between
high-risk and low-risk projects?
2. How good is the firm's balance of investments between
long-term and short-term projects?
3. How good is the firm's balance of investments between
slow-growing markets and fast-growing
4. How good is the firm's balance of investments among different
5. To what extent are the firm's alternative strategies socially
6. What are the relationships among the firm's key internal and
external strategic factors?
7. How are major competitors likely to respond to particular
Taking Corrective Actions
The final strategy-evaluation activity,
taking corrective actions,
requires making changes to reposition a firm
competitively for the future. Examples of changes that may be
needed are altering an organization's
structure, replacing one or more key individuals, selling a
division, or revising a business mission. Other
changes could include establishing or revising objectives,
devising new policies, issuing stock to raise
capital, adding additional salespersons, allocating resources
differently, or developing new performance
incentives. Taking corrective actions does not necessarily mean
that existing strategies will be abandoned
or even that new strategies must be formulated.
The probabilities and possibilities for incorrect or
inappropriate actions increase geometrically with an
arithmetic increase in personnel. Any person directing an
overall undertaking must check on the actions of
the participants as well as the results that they have achieved.
If either the actions or results do not comply
with preconceived or planned achievements, then corrective
actions are needed.
No organization can survive as an island; no organization can
escape change. Taking corrective actions is
necessary to keep an organization on track toward achieving
stated objectives. In his thought-provoking
The Third Wave,
Alvin Toffler argued that business environments
are becoming so
dynamic and complex that they threaten people and organizations
with future shock,
which occurs when the
nature, types, and speed of changes overpower an individual's or
organization's ability and capacity to
adapt. Strategy evaluation enhances an organization's ability to
adapt successfully to changing
circumstances. Brown and Agnew referred to this notion as
Taking corrective actions raises employees' and managers'
anxieties. Research suggests that participation in
strategy-evaluation activities is one of the best ways to
overcome individuals' resistance to change.
According to Erez and Kanfer, individuals accept change best
when they have a cognitive understanding
of the changes, a sense of control over the situation, and an
awareness that necessary actions are going to
be taken to implement the changes.
Strategy evaluation can lead to strategy-formulation changes,
strategy-implementation changes, both
formulation and implementation changes, and no changes at all.
Strategists cannot escape having to revise
strategies and implementation approaches sooner or later. Hussey
and Langham offered the following
insight on taking corrective actions:
Resistance to change is often emotionally based and not easily
overcome by rational argument. Resistance
may be based on such feelings as loss of status, implied
criticism of present competence, fear of failure in
the new situation, annoyance at not being consulted, lack of
understanding of the need for change, or
insecurity in changing from well-known and fixed methods. It is
necessary, therefore, to overcome such
resistance by creating situations of participation and full
explanation when changes are envisaged.
Corrective actions should place an organization in a better
position to capitalize upon internal strengths; to
take advantage of key external opportunities; to avoid, reduce,
or mitigate external threats; and to improve
internal weaknesses. Corrective actions should have a proper
time horizon and an appropriate amount of
risk. They should be internally consistent and socially
responsible. Perhaps most importantly, corrective
actions strengthen an organization's competitive position in its
basic industry. Continuous strategy
evaluation keeps strategists close to the pulse of an
organization and provides information needed for an
effective strategic-management system. Carter Bayles described
the benefits of strategy evaluation as