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How to Create a Strategic Plan
Looking for a way to take your company in a new and profitable direction? It starts with strategic planning. Keep reading to learn what a strategic plan is, why you need it and how you can strategically create one.
What Is a Strategic Plan?
When it comes to business and finance, strategic planning will help you allocate your resources, energy and assets. When implemented, a strategic plan will begin to move your operations in a more profitable direction. The primary goal of the plan is to ensure you and any other stakeholders are on the same page and striving to reach the same goal.
Creating a strategic plan requires a disciplined effort. Once you put the plan into action, it will influence the segment of customers that you target, how you serve those customers and the experience those customers have.
Assess the Current Infrastructure and Operations
The first step in creating a strategic plan is to carefully assess your existing infrastructure and operations. You can do this through a SWOT analysis, which is an analysis of the company’s strengths, weaknesses, opportunities and threats. The goal here is to pinpoint the resources that you use to carry out your day-to-day operations, to look at your monthly revenue patterns, to list any company challenges related to the customer experience and, most importantly, to look at your marketing methods and ways to improve the overall customer experience.
Creation of Mission Statement and Objectives
The next step is to create a mission statement. You may already have one, but it’s important to note your mission at the top of the strategic plan document you create. This ensures everyone is focused on the same goal. Your mission statement should cover why you started the company and what you intend to accomplish through the products and services that you offer.
In addition to the mission statement, make sure to outline both short- and long-term objectives. List the objectives according to their priority and designate certain managers or employees to be responsible for each one. Also, jot down the resources that will be used to achieve each objective.
Measure Performance
Now that you know what you’re trying to achieve and who is responsible for each goal, it’s time to deploy the plan and measure its progress. A weekly meeting is extremely important for all managers and stakeholders provide feedback. Your goal is to determine if the company is headed in the right direction. If not, you’ll need to revise the strategic plan accordingly.
Strategic Plans Are Ongoing
Once your strategic plan helps you achieve several objectives, it’s smart to regroup and set new objectives. As your company grows, you can set new goals to ensure the company keeps moving forward. You can share the success of your strategic plan with potential investors as a way to tap into new capital funding.
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- Program Evaluation Glossary
Program evaluations should be planned strategically, rather than on an ad hoc basis. Strategic evaluation planning means that the evaluation activity first considers what evidence is needed to inform decision making, and what questions need to be answered to help the organization obtain the evidence to improve the way it does business.
Focusing on evidence needed, questions to be answered, and decisions to be made is an important first step toward strategically planning evaluations.
One way to have useful and cost-effective evaluations is to strategically plan evaluation activity so it supports management activity cycles for planning, budgeting, analysis, program implementation, and benefits reporting and communication.
In this way, evaluations generate information to feed into critical decision processes and continuous improvement. Planning evaluations strategically allows the program to phase in a full range of evaluation activities over a period of years, and to spread out the cost of evaluation over multiple years.
A Strategic Evaluation Plan (also referred to as a Learning Agenda or Evidence-Building Plan) is seen as a living document that can be modified as the program evolves and changes over time.
- Program evaluation information
- Performance monitoring and analysis findings
- Foundational fact-finding information (e.g., indicators, descriptive statistics).
Taking a strategic view of evaluation means that you need to do the following:
- First, consider for your office or program what information is needed to provide evidence to support decision making (see Informed Decisions ), and
- Develop an overall strategy and lay out a plan for collecting and analyzing data that will generate the information needed.
First, Consider Your Program's Decision Information Needs and Questions
Since the idea is to have all evaluative information working together, you might start by taking stock of your decision needs and questions that need to be addressed to obtain information necessary to support those decisions.
The illustrative table below is one way to begin to take stock of these considerations. Complete the second and third columns and decide what program areas require management attention and need to be evaluated (third column).
For your program, fill in the cells (with details on known decision points, timing needs, expected key audiences, type of evaluation, etc.) for the program areas for which you will need evaluation information to inform critical decisions.
Second, Develop an Overall Evaluation Strategy that Includes Use of Results
Ideally, an EERE Office should have an overall evaluation strategy and supporting multi-year evaluation plan that addresses each critical program area, including a schedule for the planned evaluation activities and the resources set aside for them.
A mix of evaluation types may be necessary. For instance, the decision information needs for R&D programs might require several different types of evaluation be performed over a multi-year period, going beyond peer reviews alone.
A Learning Agenda approach (illustrated below) could guide the effort to develop an evaluation plan that would be prepared strategically.
(1) Formulate Prioritized Questions
After you have clarified the decisions to be informed and generally understand the evidence needed to inform the decisions, establish your program's prioritized questions that when answered will help inform the decisions.
Developing program logic models can be especially useful here. These help capture goals in a concise way and show how these goals will be achieved, thus highlighting key evaluation questions, as well as performance metrics.
The questions developed can be prioritized based on the organization/ office strategic goals and priorities. In this way, the questions will be aligned with organizational mission and operational priorities. As evaluation funding resources may be limited, you might have to focus on the top prioritized questions.
(2) Define and Execute Evaluation Activities
Try to identify the information/evidence gaps. Formulate a set of prioritized questions that must be answered to provide the evidence to inform decisions.
- Concentrate evaluation activities on areas in your program strategy where there are gaps in information/evidence needed to inform decisions.
- Surveys of probability sample populations
- Measurement and evaluation (M&V)
- Semi-structured interviews
- Expert elicitation
- Database mining
- Use of administrative data
- Evaluation research designs (e.g., Randomized Control Trials, Quasi-experimental, counterfactual analysis techniques)
- Statistical analysis
- Text analytics
- Regression discontinuity analysis
- Cluster analysis
- Discounted cash flow valuation method to estimate the economic value of an investment
- Mixed method analysis techniques
- Case study approach
(3) Produce and Disseminate the Results of the Evaluations Activity(ies)
Disseminating results/ findings from an evaluation activity could include publishing reports and making them publicly available; giving briefings to key stakeholders; preparing Infographics, and so on. Whatever the form of the communication, it must be tailored to stakeholders at the level of detail suitable to them to ensure that the communication would be consumed.
(4) Use the Results to Fill Evidence Gaps and Inform Decision Making
Results/findings should then be used to help inform decisions , such as:
- Decisions to make program improvements (e.g., modifications, redesign)
- Decisions to revise program goals and strategy
- Resource allocation decisions
- Decisions to communicate program strategy and value
- Operational decisions
Here is a simplified example of the Learning Agenda process, as it applies to an illustrative question:
Tips for Successful Strategically Planned Evaluations
- Plan for high quality, cost-effective evaluations
- Evaluation studies often take six months or more to complete and a schedule helps ensure that all program elements are assessed on a time scale that will provide information timely for decision points.
- Avoid the trap of unnecessarily limiting or constraining the scope of an evaluation study to meet a compressed time schedule. For example, in some cases, results from an evaluation may have to become available every other budget cycle if an in-depth scope of investigation is called for.
- Put in place standard procedures for gathering and validating as much data as possible as a routine part of program record-keeping.
- Combine efforts where you can. For example, do customer satisfaction surveys for all program customers at one time.
- Set aside budget resources for evaluation, including an amount for studies that cannot be predicted. In many Federal government agencies, evaluation activity typically comprises 1% to 10% of a program's budget.
- Establish a procedure to ensure the independence of the evaluation process.
- Have a quality assurance process in place that calls for external review of the study evaluation plan and the draft report and ensures data quality and consistency (especially when evaluation data comes from multiple sources).
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Strategy Execution
Strategy Evaluation Process: Comprehensive Guide + Examples
by Tom Wright, on Mar 13, 2022
Table of Contents
The process of strategy evaluation is often overlooked in the overall strategic management process. After the flurry of activity in the initial planning stages, followed by the reality check of executing your strategy alongside business-as-usual, strategy evaluation is often neglected.
When this occurs, strategies quickly become outdated and out-of-sync with the changing face of the organization. As we found out in the state of strategy report , the process of getting your plan in the hands of your people is the hardest and most important thing you can do for your strategy - and your company’s success.
What is Strategy Evaluation?
Strategy evaluation is the process of analyzing a strategy to assess how well it's been implemented and executed. A strategy evaluation is an internal analysis tool and should be used as part of a broader strategic analysis for the organization when making decisions about your strategy.
Typically, the strategy evaluation process involves answering questions such as:
- How much progress have we made towards our Vision?
- Are our Strategic Focus Areas still relevant?
- Which of our Objectives have we completed?
- Which Objectives are no longer needed?
- Do we have sufficient Projects to deliver incomplete Objectives?
- Are our KPIs still effective for measuring progress towards our Objectives?
- Where we fell short of our targets, why did this happen?
At the very least, you need to evaluate your strategy twice a year - or better yet, every quarter. Even if you feel as though your existing strategy is 'too far gone' and needs a fresh start, you'll want to perform a thorough strategy evaluation of what went wrong last time around.
The mistake that people often make when it comes to strategy execution , is thinking of their strategy as a linear set of steps. I'm sure you've all seen those PowerPoint slides with the strategy running from left to right on the page?
In reality, strategy is a circular process of constant iteration and evolution. A good strategy should never really 'end'. Rather, it should morph into something more ambitious and sophisticated as goals are met.
Strategy Evaluation Process
Step 1- evaluation starts at the start.
It may sound counter-intuitive but ideally, you'll be kicking off your strategy evaluation process back in the planning stage. Strategy evaluation is essentially the process of figuring out:
- What did we do well?
- How can we improve upon what we did well?
- What did we learn about ourselves and the environment along the way?
One of the best ways to answer these questions is by setting effective KPIs in your planning stage. We'll look at an example:
Let's say that your vision is "to become the number one provider of strategy software in the world."
Then let's say that you have a focus area which is "Becoming the primary source of strategic knowledge on the internet".
To be able to effectively evaluate progress, you're going to need a KPI of some kind. So you might set a KPI of "Achieve a top 5 Google search ranking for 80% of the most common strategy search terms."
Right away when you kick-off your strategic planning process, you'll be able to assess:
- Did we meet our KPI?
- Why did we fall short?
- Was this even the right KPI?
That last point is critical - but more on that a little later.
Step 2- Implement consistent processes and tools
Not to sound too much like a broken record, but effective strategy evaluation requires planning that goes beyond the setting of good KPIs. You'll also need to plan out your 'strategy rhythm' - things like:
- How often will I measure progress against my goals?
- What standardized set of reports will be used throughout my business?
- What level of detail shall we capture in our written commentary of progress against the plan?
This is of course where a platform like Cascade can really shine through in terms of value. Even if you're going old-school with your strategy evaluations, you'll want to determine these types of things upfront.
Then, implement a regime of meetings and reports throughout the organization to match. We like to call this process your ' strategy rhythm '. As it should form the backbone of your organization's activities, and be maintained regularly and consistently throughout the year.
Step 3- Empower teams to evaluate their own strategies
Empowerment plays a critical role in strategy execution regardless. However, it's especially important as part of the strategy evaluation process. Rather than have the leadership team alone participate in your strategy evaluation, invite a team from each functional area.
Each team should prepare their own evaluation of how they think their area performed against the strategy. There are a number of benefits of doing so:
- You'll have the opportunity to assess your team's understanding of the strategy. Does it match your own?
- Your team will realize how seriously you take the process of strategy and value it more as part of their day-to-day roles.
- You'll gain additional insights that you wouldn't have thought of yourself.
You'll want to provide them with a basic framework to perform the analysis, and have them answer the key questions we posed above:
- Did we meet our goals?
- What was it that helped us to succeed?
- What challenges made us fall short?
- Were our goals well set, and have they brought us closer to achieving our overall vision?
Ideally, you'll have your team present using the tools you gave them as part of step 2. This includes any strategic dashboards or standardized reports that you set up in the planning stage.
Step 4- Take corrective action
Steps 4 and 5 (below) are somewhat intertwined and should be performed largely in conjunction with each other. If you find that you're not meeting one of your goals, you'll want to do two things:
- Start by figuring out if the goal is still the right one (see below).
- If it is, take corrective action to address any shortcomings.
Assuming you're still convinced the goal you've set is the right one, you need to implement an action plan to get yourself back on track.
There are many reasons why you might be struggling to hit your goals, ranging from relatively simple issues such as:
- A lack of resourcing (human or financial)
- Conflicting priorities
- Ineffective tracking of targets
- Misalignment or understanding of the goal
Or your challenges may be more complex and relate to:
- Increased competition
- A significant capital shortfall
- Regulatory pressures
- A lack of internal innovation
Whatever the case, the sooner you can identify these issues, the sooner you can start to take corrective action. This once again highlights the importance of a robust strategy evaluation process.
Step 5- Iterate your plan
There are two scenarios where you'll want to iterate your plan as part of your strategy evaluation - one being significantly more positive than the other:
Strategy evaluation example 1: You've achieved your goals
In an ideal world, you'll be iterating because you met some or all of your strategic goals. Remember, your plan is a living, breathing entity and may evolve in irregular and unexpected ways.
Specifically, you'll find yourself hitting some goals far earlier than you expected and you'll need to replace those goals with new ones, without waiting for all elements of the plan to be completed.
It's actually not that hard to do this, as long as you have a robust strategy evaluation routine:
You've achieved all your goals. Great - have you therefore achieved your focus area? No? Then you need more goals within that focus area.
You've achieved all your focus areas. Great - have you therefore achieved your vision? No? Then you need new focus areas.
The best strategies are the ones that never truly end, but are instead agile to the needs of the business with the focus areas constantly changing, whilst always being guided by the overall vision.
Strategy evaluation example 2: You've failed to meet some of your goals
This is where we continue directly from the start of step 4 above. Just because you failed to meet a goal, don't actually assume that the right thing to do is to take corrective action.
One of the most common outcomes of effective strategy evaluations is the redefinition of KPIs.
Cast your mind back to our example at the top of this article. Let's say that you did in fact meet your KPI around Google search rankings, and yet despite that, found no significant uptick in the number of people starting free trials of your software.
In that case, it's likely that the KPI you set was incorrect. But you wouldn't have known that without either the KPI in the first place or the process of strategic evaluation.
You need to find a balance between not being afraid to redefine your goals, versus constantly changing them without ever really achieving anything. Failure to find this balance is one of the main reasons why so many strategies fail.
Step 6- Celebrate successes
We've saved the most fun part of the strategy evaluation process for last - celebrating success. We're written previously on the importance of celebrating success to drive engagement in your strategy. The strategy evaluation process is the time to implement those celebrations.
Given that your strategy will never ‘finish’ – it’s important to celebrate the successes along the way. The first time you achieve a KPI or even focus areas - enjoy it!
Don't do so privately, but rather share that success with the entire organization. Whether it’s a simple email of thanks or a full-blown party, the fact that you’re so notably celebrating the success of a strategic goal is not only great for morale, but it also sends a strong message that the execution of the plan really really matters .
Strategy Evaluation Framework Example
To help you get started with your own strategy evaluation process, take a look at how our Customer Success team here at Cascade handled it for an example strategic marketing plan.
First, they looked back on the strategy for the year and updated each of the goals to show which ones were completed and which weren't...
The Focus Areas they evaluated were: Performance, Cyber Risk, and Digital. With this in mind, they then proposed a survey be conducted within the team to ask how each person thought they performed against these Focus Areas...
Finally, once they'd finished the strategic evaluation, they started work on the new strategic plan...
Don't Be Afraid of Strategy Evaluation
What is the central purpose of strategic evaluation? So often organizations shy away from the process of evaluating their strategy because they're scared of uncovering the depth of their 'failure'. But strategy is hard - and you're not meant to ever deliver against it 100%.
Business strategy is not that different from life. It's not so much about success or failure - rather it's about continual improvement and self-awareness. That's why strategy evaluation is so important to your continued growth as an organization.
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The importance of knowing how to evaluate a strategic plan
Now that you know more precisely what strategic planning is and what it is for – with the help of Peter Drucker’s ideas – let’s take a look at some strategic planning objectives.
3 main objectives of strategic planning
Below are the main objectives and benefits of monitoring your organization’s strategic plan:
1- Ensuring that activities are being performed within the defined parameters
During the development of strategic planning, for each activity planned for the organization, necessary parameters for their accomplishment are considered.
Costs, execution time, financial, material and human resources needed, among others.
Now, while the plan is being put in place, the manager must make sure that all activities are being carried out within the proper parameters.
Rather than assessing, the manager must look at whether a change of course is required, and whether the parameters for any activity need to be rethought.
Ensuring activity progress helps set performance standards that indicate progress towards long-term goals, assesses people’s performance, and provides input for feedback.
2- Ensuring activities are consistent with company DNA
The soul of the organization is closely linked to its vision, mission and values.
Monitoring strategic planning is also a way to ensure that activities are being developed in accordance with the values that guide the organization and its organizational culture.
Since they are directly related to the organizational climate and the corporate image of the company.
Check out this unique Siteware infographic that shows the consequences of a misaligned organizational culture of strategic planning:
3- Assessing ability to achieve goals and identify problems
Analyzing both the internal and external workforce and the exchange of ideas is also important in measuring how well a company is able to achieve what was set for the period.
By comparing performance data with established standards, it is possible to visualize or anticipate possible bottlenecks in corporate daily life.
Why is monitoring strategic planning important?
When a company monitors its strategic planning closely, it ensures that its teams are doing a good job, committed to maintaining progress, and with proper records so they can be evaluated.
Here is another quote from a master, Ram Charan , to illustrate how monitoring strategic planning is critical.
“ 70% of strategies fail due to ineffectiveness. They rarely fail due to lack of intelligence or vision.”
That is, at the time of executing the plan, it is crucial to carry out strategic monitoring and evaluation of the planning systematically and constantly.
After all, if 70% of planning activities fail in execution, only strategic planning control and evaluation – with metrics – will allow errors to be detected and adjustments made.
The metrics a company uses to measure also indicate the quality of the year or period the company is in.
If necessary, from what is evaluated, it is possible to correct the current path, make investments, hire staff, seek technological tools, build partnerships, among many other solutions.
Monitoring is part of the strategic planning system primarily to keep track of what is happening.
And this is usually done through an analysis of regular operational and financial reports on a company’s activities.
The results of a strategic planning follow-up are:
- Incentive for continuous improvement;
- Provision of data on the impact of activities;
- Information for decision making.
The monitoring of strategic planning should be carried out based on the same indicators used when preparing strategic planning.
This also allows for process review as the company realizes that activities, internal and external relationships, customer approaches, etc. need to be modified.
Is it clear to you how important strategic planning and the control of action plans and activities are?
Examples of strategic planning indicators
You have seen that there is no way to monitor strategic planning without the use of indicators.
There are actually three types of indicators to consider in a company:
- Strategic Indicators: They point to the future, the path the company is expected to follow, and are linked to the mission and vision of the business. They will be reached in the long term, between 3 and 5 years. After an analysis of internal and external scenarios and company differentials, with the help of SWOT analysis, strategic indicators are usually defined.
- Tactical Indicators: are related to the actions of each area of the company. They make up an action plan that is effective in a shorter period than the strategic objectives, but should contribute to it. If tactical indicators are being met, there is a good chance that strategic objectives will also be met successfully.
- Operational Indicators: short term. They are directly linked to the day-to-day operations in a company and the progress of the processes. Operational indicators are assigned to each employee to achieve the desired performance level that will make it possible to achieve tactical and strategic goals.
How do you define strategic planning indicators, anyway?
We have seen in the paragraphs above that strategic indicators have the following characteristics:
- Point to the future
- Achieved in the long term
- Linked to a company’s mission and vision
- Based on competitive differences
So, for example, it would make no sense to define strategic indicators like the following:
- Improve the efficiency of our production line by 15% next year.
- Increase sales by 10% by the end of June
- Hire new talent to fill 6 positions on the board by year’s end
These are typical examples of tactical indicators.
To get examples of strategic planning indicators, one must think of changes more linked to the company’s DNA, its mission to society.
Here is a short list of examples of strategic planning indicators:
- Launch 3 new product lines each year over the next 4 years to gain 35% more Share in Market X.
- Create a corporate university that meets our needs within a maximum of 2 years and institute university study support plans to enable our employees to have 85% of the workforce with a college degree and 50% with a postgraduate degree. 5 years.
- Deactivate business units with less than 20% profitability and use the proceeds from the sale of these assets to start an international expansion project by opening 1 unit in countries X, Y and Z and 3 units in country W within 4 years.
Challenges of following strategic planning
Now that it’s clear to you how to evaluate a strategic plan, let’s look at the challenges inherent in doing it.
If we consider that strategic planning is the consolidation of ideas, it is in the implementation of these ideas that the organization will obtain its results, as Charan pointed out.
That’s why it needs to be constantly reevaluated and rethought as corporate progresses.
The biggest challenge of strategic management is related to the ability to move the organization and keep it connected with what was proposed by the strategic plan, with the adaptability that this process requires.
Like every management function, this presupposes a permanent dynamic of planning, execution, monitoring, evaluation, adjustments and readjustments.
And if you want to know how to evaluate a strategic plan even more quickly and assertively, check out STRATWs One strategic planning software.
It enables a friendly view of your strategy map, making it easy to track indicators and goals and creating action plans for each one.
It makes it much easier to understand how to evaluate a strategic plan and monitor internal activities.
Revolutionize the management of your company with STRATWs One
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How to Evaluate Corporate Strategy
- Seymour Tilles
No good military officer would undertake even a small-scale attack on a limited objective without a clear concept of his strategy. No seasoned politician would undertake a campaign for a major office without an equally clear concept of his strategy. In the field of business management, however, we frequently find men deploying resources on a […]
No good military officer would undertake even a small-scale attack on a limited objective without a clear concept of his strategy. No seasoned politician would undertake a campaign for a major office without an equally clear concept of his strategy. In the field of business management, however, we frequently find men deploying resources on a large scale without any clear notion of what their strategy is. And yet a company’s strategy is a vital ingredient in determining its future. A valid strategy will yield growth, profit, or whatever other objectives the managers have established. An inappropriate strategy not only will fail to yield benefits, but also may result in disaster.
In this article I will try to demonstrate the truth of these contentions by examining the experiences of a number of companies. I shall discuss what strategy is, how it can be evaluated, and how, by evaluating its strategy, a management can do much to assure the future of the enterprise.
Decisive Impact
The influence of strategy can be seen in every age and in every area of industry. Here are some examples:
From the time it was started in 1911 as the Computing-Tabulating-Recording Co., International Business Machines Corporation has demonstrated the significance of a soundly conceived strategy. Seeing itself in the data-system business at a time when most manufacturers were still preoccupied with individual pieces of equipment, IBM developed a set of policies which resulted in its dominating the office equipment industry.
By contrast, Packard in the 1930’s was to the automobile industry everything that IBM is today to the office machine industry. In 1937, it sold over 109,000 cars, compared with about 11,000 for Cadillac. By 1954 it had disappeared as an independent producer.
Strategy is, of course, not the only factor determining a company’s success or failure. The competence of its managerial leadership is significant as well. Luck can be a factor, too (although often what people call good luck is really the product of good strategy). But a valid strategy can gain extraordinary results for the company whose general level of competence is only average. And, conversely, the most inspiring leaders who are locked into an inappropriate strategy will have to exert their full competence and energy merely in order to keep from losing ground.
When Hannibal inflicted the humiliating defeat on the Roman army at Cannae in 216 b.c. , he led a ragged band against soldiers who were in possession of superior arms, better training, and competent “noncoms.” His strategy, however, was so superior that all of those advantages proved to be relatively insignificant. Similarly, when Jacob Borowsky made Lestoil the hottest-selling detergent in New England some years ago, he was performing a similar feat—relying on strategy to battle competition with superior resources.
Strategy is important not only for aspiring Davids who need an offensive device to combat corporate Goliaths. It is significant also for the large organization faced with a wide range of choice in domestic and international operations. For instance, the following corporations are all in the midst of strategic changes, the implications of which are worldwide in scope:
- Massey-Ferguson, Ltd., with 26 factories located around the world, and vying for leadership in the farm-equipment industry.
- General Electric Company and Westinghouse Electric Corporation, the giant producers of electrical equipment who are recasting their competitive policies.
- Singer Sewing Machine Company, trying to make its vast assets yield a greater return.
Dynamic Concept
A strategy is a set of goals and major policies. The definition is as simple as that. But while the notion of a strategy is extremely easy to grasp, working out an agreed-upon statement for a given company can be a fundamental contribution to the organization’s future success.
In order to develop such a statement, managers must be able to identify precisely what is meant by a goal and what is meant by a major policy. Otherwise, the process of strategy determination may degenerate into what it so often becomes—the solemn recording of platitudes, useless for either the clarification of direction or the achievement of consensus.
Identifying Goals
Corporate goals are an indication of what the company as a whole is trying to achieve and to become . Both parts—the achieving and the becoming—are important for a full understanding of what a company hopes to attain. For example:
- Under the leadership of Alfred Sloan, General Motors achieved a considerable degree of external success; this was accomplished because Sloan worked out a pattern for the kind of company he wanted it to be internally.
- Similarly, the remarkable record of Du Pont in the twentieth century and the growth of Sears, Roebuck under Julius Rosenwald were as much a tribute to their modified structure as to their external strategy. 1
In order to state what a company expects to achieve, it is important to state what it hopes to do with respect to its environment. For instance:
Ernest Breech, chairman of the board of the Ford Motor Company, said that the strategy formulated by his company in 1946 was based on a desire “to hold our own in what we foresaw would be a rich but hotly competitive market.” 2 The view of the environment implicit in this statement is unmistakable: an expanding overall demand, increasing competition, and emphasis on market share as a measure of performance against competitors.
Clearly, a statement of what a company hopes to achieve may be much more varied and complex than can be contained in a single sentence. This will be especially true for those managers who are sophisticated enough to perceive that a company operates in more external “systems” than the market. The firm is part not only of a market but also of an industry, the community, the economy, and other systems. In each case there are unique relationships to observe (e.g., with competitors, municipal leaders, Congress, and so on). A more complete discussion of this point is contained in a previous HBR article. 3
If you ask young men what they want to accomplish by the time they are 40, the answers you get fall into two distinct categories. There are those—the great majority—who will respond in terms of what they want to have . This is especially true of graduate students of business administration. There are some men, however, who will answer in terms of the kind of men they hope to be . These are the only ones who have a clear idea of where they are going.
The same is true of companies. For far too many companies, what little thinking goes on about the future is done primarily in money terms. There is nothing wrong with financial planning. Most companies should do more of it. But there is a basic fallacy in confusing a financial plan with thinking about the kind of company you want yours to become. It is like saying, “When I’m 40, I’m going to be rich .” It leaves too many basic questions unanswered. Rich in what way? Rich doing what?
The other major fallacy in stating what you want to become is to say it only in terms of a product. The number of companies who have got themselves into trouble by falling in love with a particular product is distressingly great. 4 Perhaps the saddest examples are those giants of American industry who defined their future in terms of continuing to be the major suppliers of steam locomotives to the nation’s railroads. In fact, these companies were so wedded to this concept of their future that they formed a cartel in order to keep General Motors out of the steam locomotive business. When the diesel locomotive proved its superiority to steam, these companies all but disappeared.
The lesson of these experiences is that a key element of setting goals is the ability to see them in terms of more than a single dimension. Both money and product policy are part of a statement of objectives; but it is essential that these be viewed as the concrete expressions of a more abstract set of goals—the satisfaction of the needs of significant groups which cooperate to ensure the company’s continued existence.
Who are these groups? There are many—customers, managers, employees, stockholders, to mention just the major ones. The key to corporate success is the company’s ability to identify the important needs of each of these groups, to establish some balance among them, and to work out a set of operating policies which permits their satisfaction. This set of policies, as a pattern, identifies what the company is trying to be.
The Growth Fad
Many managers have a view of their company’s future which is strikingly analogous to the child’s view of himself. When asked what they want their companies to become over the next few years, they reply, “bigger.”
There are a great many rationalizations for this preoccupation with growth. Probably the one most frequently voiced is that which says, “You have to grow or die.” What must be appreciated, however, is that “bigger” for a company has enormous implications for management. It involves a different way of life, and one which many managers may not be suited for—either in terms of temperament or skills.
Moreover, whether for a large company or a small one, “bigger,” by itself, may not make economic sense. Companies which are highly profitable at their present size may grow into bankruptcy very easily; witness the case of Grayson-Robinson Stores, Inc., a chain of retail stores. Starting out as a small but profitable chain, it grew rapidly into receivership. Conversely, a company which is not now profitable may more successfully seek its survival in cost reduction than in sales growth. Chrysler is a striking example of this approach.
There is, in the United States, a business philosophy which reflects the frontier heritage of the country. It is one which places a high value on growth, in physical terms. The manager whose corporate sales are not increasing, the number of whose subordinates is not growing, whose plants are not expanding, feels that he is not successful. But there is a dangerous trap in this kind of thinking. More of the same is not necessarily progress. In addition, few managers are capable of running units several times larger than the ones they now head. The great danger of wholehearted consumer acceptance or an astute program of corporate acquisition is that it frequently propels managers into situations that are beyond their present competence. Such cases—and they are legion—emphasize that in stating corporate objectives, bigger is not always better. A dramatic example is that of the Ampex Corporation:
From 1950 to 1960, Ampex’s annual sales went from less than $ 1,000,000 to more than $ 73,000,000. Its earnings went from $ 115,000 to nearly $ 4,000,000. The following year, the company reported a decline in sales to $ 70,000,000, and a net loss of $ 3,900,000. The Wall Street Journal reported: “As one source close to the company put it, Ampex’s former management ‘was intelligent and well-educated, but simply lacked the experience necessary to control’ the company’s rapid development.” 5
Role of Policy
A policy says something about how goals will be attained. It is what statisticians would call a “decision rule,” and what systems engineers would call a “standing plan.” It tells people what they should and should not do in order to contribute to achievement of corporate goals.
A policy should be more than just a platitude. It should be a helpful guide to making strategy explicit, and providing direction to subordinates. Consequently, the more definite it is, the more helpful it can be. “We will provide our stockholders with a fair return,” is a policy no one could possibly disagree with—or be helped by. What is a fair return? This is the type of question that must be answered before the company’s intentions become clear.
The job of management is not merely the preparation of valid policies for a standard set of activities; it is the much more challenging one of first deciding what activities are so strategically significant that explicit decision-rules in that area are mandatory. No standard set of policies can be considered major for all companies. Each company is a unique situation. It must decide for itself which aspects of corporate life are most relevant to its own aspirations and work out policy statements for them. For example, advertising may be insignificant to a company which provides research services to the Defense Department, but critical to a firm trying to mass-merchandise luxury goods.
It is difficult to generalize about which policies are major, even within a particular industry, because a number of extraordinarily successful companies appear to violate all the rules. To illustrate:
In the candy industry it would seem safe to generalize that advertising should be a major policy area. However, the Hershey Company, which is so successful that its name is practically the generic term for the product, has persistently followed a policy of no advertising.
Similarly, in the field of high-fidelity components, one would expect that dealer relations would be a critical policy area. But Acoustics Research, Inc., has built an enviable record of sales growth and of profitability by relying entirely on consumer pull.
Need to Be Explicit
The first thing to be said about corporate strategy is that having one is a step forward. Any strategy, once made explicit, can quickly be evaluated and improved. But if no attempt is ever made to commit it to paper, there is always the danger that the strategy is either incomplete or misunderstood.
Many successful companies are not aware of the strategy that underlies their success. It is quite possible for a company to achieve initial success without real awareness of its causes. However, it is much more difficult to successfully branch out into new ventures without a precise appreciation of their strategic significance. This is why many established companies fail miserably when they attempt a program of corporate acquisition, product diversification, or market expansion. One illustration of this is cited by Myles L. Mace and George G. Montgomery in their recent study of corporate acquisitions:
“A basic resin company…bought a plastic boat manufacturer because this seemed to present a controlled market for a portion of the resin it produced. It soon found that the boat business was considerably different from the manufacture and sale of basic chemicals. After a short but unpleasant experience in manufacturing and trying to market what was essentially a consumer’s item, the management concluded that its experience and abilities lay essentially in industrial rather than consumer-type products.” 6
Another reason for making strategy explicit is the assistance it provides for delegation and for coordination. To an ever-increasing extent, management is a team activity, whereby groups of executives contribute to corporate success. Making strategy explicit makes it far easier for each executive to appreciate what the overall goals are, and what his own contribution to them must be.
Making an Evaluation
Is your strategy right for you? There are six criteria on which to base an answer. These are:
1. Internal consistency.
2. Consistency with the environment.
3. Appropriateness in the light of available resources.
4. Satisfactory degree of risk.
5. Appropriate time horizon.
6. Workability.
If all of these criteria are met, you have a strategy that is right for you. This is as much as can be asked. There is no such thing as a good strategy in any absolute, objective sense. In the remainder of this article I shall discuss the criteria in some detail.
1. Is the Strategy Internally Consistent?
Internal consistency refers to the cumulative impact of individual policies on corporate goals. In a well-worked-out strategy, each policy fits into an integrated pattern. It should be judged not only in terms of itself, but also in terms of how it relates to other policies which the company has established and to the goals it is pursuing.
In a dynamic company consistency can never be taken for granted. For example:
Many family-owned organizations pursue a pair of policies which soon become inconsistent: rapid expansion and retention of exclusive family control of the firm. If they are successful in expanding, the need for additional financing soon raises major problems concerning the extent to which exclusive family control can be maintained.
While this pair of policies is especially prevalent among smaller firms, it is by no means limited to them. The Ford Motor Company after World War II and the New York Times today are examples of quite large, family-controlled organizations that have had to reconcile the two conflicting aims.
The criterion of internal consistency is an especially important one for evaluating strategies because it identifies those areas where strategic choices will eventually have to be made. An inconsistent strategy does not necessarily mean that the company is currently in difficulty. But it does mean that unless management keeps its eye on a particular area of operation, it may well find itself forced to make a choice without enough time either to search for or to prepare attractive alternatives.
2. Is the Strategy Consistent With the Environment?
A firm which has a certain product policy, price policy, or advertising policy is saying that it has chosen to relate itself to its customers—actual and potential—in a certain way. Similarly, its policies with respect to government contracts, collective bargaining, foreign investment, and so forth are expressions of relationship with other groups and forces. Hence an important test of strategy is whether the chosen policies are consistent with the environment—whether they really make sense with respect to what is going on outside.
Consistency with the environment has both a static and a dynamic aspect. In a static sense, it implies judging the efficacy of policies with respect to the environment as it exists now . In a dynamic sense, it means judging the efficacy of policies with respect to the environment as it appears to be changing . One purpose of a viable strategy is to ensure the long-run success of an organization. Since the environment of a company is constantly changing, ensuring success over the long run means that management must constantly be assessing the degree to which policies previously established are consistent with the environment as it exists now; and whether current policies take into account the environment as it will be in the future. In one sense, therefore, establishing a strategy is like aiming at a moving target: you have to be concerned not only with present position but also with the speed and direction of movement.
Failure to have a strategy consistent with the environment can be costly to the organization. Ford’s sad experience with the Edsel is by now a textbook example of such failure. Certainly, had Ford pushed the Falcon at the time when it was pushing the Edsel, and with the same resources, it would have a far stronger position in the world automobile market today.
Illustrations of strategies that have not been consistent with the environment are easy to find by using hindsight. But the reason that such examples are plentiful is not that foresight is difficult to apply. It is because even today few companies are seriously engaged in analyzing environmental trends and using this intelligence as a basis for managing their own futures.
3. Is the Strategy Appropriate in View of the Available Resources?
Resources are those things that a company is or has and that help it to achieve its corporate objectives. Included are money, competence, and facilities; but these by no means complete the list. In companies selling consumer goods, for example, the major resource may be the name of the product. In any case, there are two basic issues which management must decide in relating strategy and resources. These are:
- What are our critical resources?
- Is the proposed strategy appropriate for available resources?
Let us look now at what is meant by a “critical resource” and at how the criterion of resource utilization can be used as a basis for evaluating strategy.
Critical Resources
The essential strategic attribute of resources is that they represent action potential. Taken together, a company’s resources represent its capacity to respond to threats and opportunities that may be perceived in the environment. In other words, resources are the bundle of chips that the company has to play with in the serious game of business.
From an action-potential point of view, a resource may be critical in two senses: (1) as the factor limiting the achievement of corporate goals; and (2) as that which the company will exploit as the basis for its strategy. Thus, critical resources are both what the company has most of and what it has least of.
The three resources most frequently identified as critical are money, competence, and physical facilities. Let us look at the strategic significance of each.
Money is a particularly valuable resource because it provides the greatest flexibility of response to events as they arise. It may be considered the “safest” resource, in that safety may be equated with the freedom to choose from among the widest variety of future alternatives. Companies that wish to reduce their short-run risk will therefore attempt to accumulate the greatest reservoir of funds they can.
However, it is important to remember that while the accumulation of funds may offer short-run security, it may place the company at a serious competitive disadvantage with respect to other companies which are following a higher-risk course.
The classical illustration of this kind of outcome is the strategy pursued by Montgomery Ward under the late Sewell Avery. As reported in Fortune :
“While Sears confidently bet on a new and expanding America, Avery developed an idée fixe that postwar inflation would end in a crash no less serious than that of 1929. Following this idea, he opened no new stores but rather piled up cash to the ceiling in preparation for an economic debacle that never came. In these years, Ward’s balance sheet gave a somewhat misleading picture of its prospects. Net earnings remained respectably high, and were generally higher than those of Sears as a percentage of sales. In 1946, earnings after taxes were $ 52 million. They rose to $ 74 million in 1950, and then declined to $ 35 million in 1954. Meanwhile, however, sales remained static, and in Avery’s administration profits and liquidity were maintained at the expense of growth. In 1954, Ward had $ 327 million in cash and securities, $ 147 million in receivables, and $ 216 million in inventory, giving it a total current-asset position of $ 690 million and net worth of $ 639 million. It was liquid, all right, but it was also the shell of a once great company.” 7
Competence.
Organizations survive because they are good at doing those things which are necessary to keep them alive. However, the degree of competence of a given organization is by no means uniform across the broad range of skills necessary to stay in business. Some companies are particularly good at marketing, others especially good at engineering, still others depend primarily on their financial sophistication. Philip Selznick refers to that which a company is particularly good at as its “distinctive competence.” 8
In determining a strategy, management must carefully appraise its own skill profile in order to determine where its strengths and weaknesses lie. It must then adopt a strategy which makes the greatest use of its strengths. To illustrate:
The competence of The New York Times lies primarily in giving extensive and insightful coverage of events—the ability to report “all the news that’s fit to print.” It is neither highly profitable (earning only 1.5 % of revenues in 1960—far less than, say, the Wall Street Journal ), nor aggressively sold. Its decision to publish a West Coast and an international edition is a gamble that the strength of its “distinctive competence” will make it accepted even outside of New York.
Because of a declining demand for soft coal, many producers of soft coal are diversifying into other fields. All of them, however, are remaining true to some central skill that they have developed over the years. For instance:
- Consolidation Coal is moving from simply the mining of soft coal to the mining and transportation of soft coal. It is planning with Texas Eastern Transmission Corporation to build a $ 100-million pipeline that would carry a mixture of powdered coal and water from West Virginia to the East Coast.
- North American Coal Company, on the other hand, is moving toward becoming a chemical company. It recently joined with Strategic Materials Corporation to perfect a process for extracting aluminum sulfate from the mine shale that North American produces in its coal-running operations.
James L. Hamilton, president of the Island Creek Coal Co., has summed up the concept of distinctive competence in a colorful way:
“We are a career company dedicated to coal, and we have some very definite ideas about growth and expansion within the industry. We’re not thinking of buying a cotton mill and starting to make shirts.” 9
Physical facilities.
Physical facilities are the resource whose strategic influence is perhaps most frequently misunderstood. Managers seem to be divided among those, usually technical men, who are enamored of physical facilities as the tangible symbol of the corporate entity; and those, usually financial men, who view physical facilities as an undesirable but necessary freezing of part of the company’s funds. The latter group is dominant. In many companies, return on investment has emerged as virtually the sole criterion for deciding whether or not a particular facility should be acquired.
Actually, this is putting the cart before the horse. Physical facilities have significance primarily in relationship to overall corporate strategy. It is, therefore, only in relationship to other aspects of corporate strategy that the acquisition or disposition of physical facilities can be determined. The total investment required and the projected return on it have a place in this determination—but only as an indication of the financial implications of a particular strategic decision and not as an exclusive criterion for its own sake.
Any appraisal of a company’s physical facilities as a strategic resource must consider the relationship of the company to its environment. Facilities have no intrinsic value for their own sake. Their value to the company is either in their location relative to markets, to sources of labor, or to materials; or in their efficiency relative to existing or impending competitive installations. Thus, the essential considerations in any decision regarding physical facilities are a projection of changes likely to occur in the environment and a prediction about what the company’s responses to these are likely to be.
Here are two examples of the necessity for relating an evaluation of facilities to environmental changes:
- Following the end of World War II, all domestic producers of typewriters in the United States invested heavily in plant facilities in this country. They hypothesized a rapid increase of sales throughout the world. This indeed took place, but it was short-lived. The rise of vigorous overseas competitors, especially Olivetti and Olympia, went hand in hand with a booming overseas market. At home, IBM’s electric typewriter took more and more of the domestic market. Squeezed between these two pressures, the rest of the U.S. typewriter industry found itself with a great deal of excess capacity following the Korean conflict. Excess capacity is today still a major problem in this field.
- The steady decline in the number of farms in the United States and the emergence of vigorous overseas competition have forced most domestic full-line manufacturers of farm equipment to sharply curtail total plant area. For example, in less than four years, International Harvester eliminated more than a third of its capacity (as measured in square feet of plant space) for the production of farm machinery.
The close relationship between physical facilities and environmental trends emphasizes one of the most significant attributes of fixed assets—their temporal utility. Accounting practice recognizes this in its treatment of depreciation allowances. But even when the tax laws permit generous write-offs, they should not be used as the sole basis for setting the time period over which the investment must be justified. Environmental considerations may reveal that a different time horizon is more relevant for strategy determination. To illustrate again:
As Armstrong Cork Company moved away from natural cork to synthetic materials during the early 1950’s, management considered buying facilities for the production of its raw materials—particularly polyvinyl chloride. However, before doing so, it surveyed the chemical industry and concluded that producers were overbuilding. It therefore decided not to invest in facilities for the manufacture of this material. The projections were valid; since 1956 polyvinyl chloride has dropped 50 % in price.
A strategic approach to facilities may not only change the time horizon; it may also change the whole basis of asset valuation:
Recently a substantial portion of Loew’s theaters was acquired by the Tisch brothers, owners and operators of a number of successful hotels, including the Americana in Florida. 10 As long as the assets of Loew’s theaters were viewed only as places for the projection of films, its theaters, however conservatively valued, seemed to be not much of a bargain. But to a keen appraiser of hotel properties the theater sites, on rather expensive real estate in downtown city areas, had considerable appeal. Whether this appraisal will be borne out is as yet unknown. At any rate, the stock, which was originally purchased at $ 14 (with a book value of $ 22), was selling at $ 23 in October 1962.
Achieving the Right Balance
One of the most difficult issues in strategy determination is that of achieving a balance between strategic goals and available resources. This requires a set of necessarily empirical, but critical, estimates of the total resources required to achieve particular objectives, the rate at which they will have to be committed, and the likelihood that they will be available. The most common errors are either to fail to make these estimates at all or to be excessively optimistic about them.
One example of the unfortunate results of being wrong on these estimates is the case of Royal McBee and the computer market:
In January 1956 Royal McBee and the General Precision Equipment Corporation formed a jointly owned company—the Royal Precision Corporation—to enter the market for electronic data-processing equipment. This joint operation was a logical pooling of complementary talents. General Precision had a great deal of experience in developing and producing computers. Its Librascope Division had been selling them to the government for years. However, it lacked a commercial distribution system. Royal McBee, on the other hand, had a great deal of experience in marketing data-processing equipment, but lacked the technical competence to develop and produce a computer.
The joint venture was eminently successful, and within a short time the Royal Precision LPG-30 was the leader in the small-computer field. However, the very success of the computer venture caused Royal McBee some serious problems. The success of the Royal Precision subsidiary demanded that the partners put more and more money into it. This was no problem for General Precision, but it became an ever more serious problem for Royal McBee, which found itself in an increasingly critical cash bind. In March 1962 it sold its interest in Royal Precision to General Precision for $ 5 million—a price which represented a reported $ 6.9 million loss on the investment. Concluding that it simply did not have sufficient resources to stay with the new venture, it decided to return to its traditional strengths: typewriters and simple data-processing systems.
Another place where optimistic estimates of resources frequently cause problems is in small businesses. Surveys of the causes of small-business failure reveal that a most frequent cause of bankruptcy is inadequate resources to weather either the early period of establishment or unforeseen downturns in business conditions.
It is apparent from the preceding discussion that a critical strategic decision involves deciding: (1) how much of the company’s resources to commit to opportunities currently perceived, and (2) how much to keep uncommitted as a reserve against the appearance of unanticipated demands. This decision is closely related to two other criteria for the evaluation of strategy: risk and timing. I shall now discuss these.
4. Does the Strategy Involve an Acceptable Degree of Risk?
Strategy and resources, taken together, determine the degree of risk which the company is undertaking. This is a critical managerial choice. For example, when the old Underwood Corporation decided to enter the computer field, it was making what might have been an extremely astute strategic choice. However, the fact that it ran out of money before it could accomplish anything in that field turned its pursuit of opportunity into the prelude to disaster. This is not to say that the strategy was “bad.” However, the course of action pursued was a high-risk strategy. Had it been successful, the payoff would have been lush. The fact that it was a stupendous failure instead does not mean that it was senseless to take the gamble.
Each company must decide for itself how much risk it wants to live with. In attempting to assess the degree of risk associated with a particular strategy, management may use a variety of techniques. For example, mathematicians have developed an elegant set of techniques for choosing among a variety of strategies where you are willing to estimate the payoffs and the probabilities associated with them. However, our concern here is not with these quantitative aspects but with the identification of some qualitative factors which may serve as a rough basis for evaluating the degree of risk inherent in a strategy. These factors are:
1. The amount of resources (on which the strategy is based) whose continued existence or value is not assured.
2. The length of the time periods to which resources are committed.
3. The proportion of resources committed to a single venture.
The greater these quantities, the greater the degree of risk that is involved.
Uncertain Term of Existence
Since a strategy is based on resources, any resource which may disappear before the payoff has been obtained may constitute a danger to the organization. Resources may disappear for various reasons. For example, they may lose their value. This frequently happens to such resources as physical facilities and product features. Again, they may be accidentally destroyed. The most vulnerable resource here is competence. The possible crash of the company plane or the blip on the president’s electrocardiogram are what make many organizations essentially speculative ventures. In fact, one of the critical attributes of highly centralized organizations is that the more centralized they are, the more speculative they are. The disappearance of the top executive, or the disruption of communication with him, may wreak havoc at subordinate levels.
However, for many companies, the possibility that critical resources may lose their value stems not so much from internal developments as from shifts in the environment. Take specialized production know-how, for example. It has value only because of demand for the product by customers—and customers may change their minds. This is cause for acute concern among the increasing number of companies whose futures depend so heavily on their ability to participate in defense contracts. A familiar case is the plight of the airframe industry following World War II. Some of the companies succeeded in making the shift from aircraft to missiles, but this has only resulted in their being faced with the same problem on a larger scale.
Duration of Commitment
Financial analysts often look at the ratio of fixed assets to current assets in order to assess the extent to which resources are committed to long-term programs. This may or may not give a satisfactory answer. How important are the assets? When will they be paid for?
The reasons for the risk increasing as the time for payoff increases is, of course, the inherent uncertainty in any venture. Resources committed over long time spans make the company vulnerable to changes in the environment. Since the difficulty of predicting such changes increases as the time span increases, long-term projects are basically more risky than are short ones. This is especially true of companies whose environments are unstable. And today, either because of technological, political, or economic shifts, most companies are decidedly in the category of those that face major upheaval in their corporate environments. The company building its future around technological equipment, the company selling primarily to the government, the company investing in underdeveloped nations, the company selling to the Common Market, the company with a plant in the South—all these have this prospect in common.
The harsh dilemma of modern management is that the time span of decision is increasing at the same time as the corporate environment is becoming increasingly unstable. It is this dilemma which places such a premium on the manager’s sensitivity to external trends today. Much has been written about his role as a commander and administrator. But it is no less important that he be a strategist .
Size of the Stakes
The more of its resources a company commits to a particular strategy, the more pronounced the consequences. If the strategy is successful, the payoff will be great—both to managers and investors. If the strategy fails, the consequences will be dire—both to managers and investors. Thus, a critical decision for the executive group is: What proportion of available resources should be committed to a particular course of action?
This decision may be handled in a variety of ways. For example, faced with a project that requires more of its resources than it is willing to commit, a company either may choose to refrain from undertaking the project or, alternatively, may seek to reduce the total resources required by undertaking a joint venture or by going the route of merger or acquisition in order to broaden the resource base.
The amount of resources management stands ready to commit is of particular significance where there is some likelihood that larger competitors, having greater resources, may choose to enter the company’s field. Thus, those companies which entered the small-computer field in the past few years are now faced with the penetration into this area of the data-processing giants. (Both IBM and Remington Rand have recently introduced new small computers.)
I do not mean to imply that the “best” strategy is the one with the least risk. High payoffs are frequently associated with high-risk strategies. Moreover, it is a frequent but dangerous assumption to think that inaction, or lack of change, is a low-risk strategy. Failure to exploit its resources to the fullest may well be the riskiest strategy of all that an organization may pursue, as Montgomery Ward and other companies have amply demonstrated.
5. Does the Strategy Have an Appropriate Time Horizon?
A significant part of every strategy is the time horizon on which it is based. A viable strategy not only reveals what goals are to be accomplished; it says something about when the aims are to be achieved.
Goals, like resources, have time-based utility. A new product developed, a plant put on stream, a degree of market penetration, become significant strategic objectives only if accomplished by a certain time. Delay may deprive them of all strategic significance. A perfect example of this in the military sphere is the Sinai campaign of 1956. The strategic objective of the Israelis was not only to conquer the entire Sinai peninsula; it also was to do it in seven days. By contrast, the lethargic movement of the British troops made the operation a futile one for both England and France.
In choosing an appropriate time horizon, we must pay careful attention to the goals being pursued, and to the particular organization involved. Goals must be established far enough in advance to allow the organization to adjust to them. Organizations, like ships, cannot be “spun on a dime.” Consequently, the larger the organization, the further its strategic time horizon must extend, since its adjustment time is longer. It is no mere managerial whim that the major contributions to long-range planning have emerged from the larger organizations—especially those large organizations such as Lockheed, North American Aviation, and RCA that traditionally have had to deal with highly unstable environments.
The observation that large corporations plan far ahead while small ones can get away without doing so has frequently been made. However, the significance of planning for the small but growing company has frequently been overlooked. As a company gets bigger, it must not only change the way it operates; it must also steadily push ahead its time horizon—and this is a difficult thing to do. The manager who has built a successful enterprise by his skill at “putting out fires” or the wheeler-dealer whose firm has grown by a quick succession of financial coups is seldom able to make the transition to the long look ahead.
In many cases, even if the executive were inclined to take a longer range view of events, the formal reward system seriously militates against doing so. In most companies the system of management rewards is closely related to currently reported profits. Where this is the case, executives may understandably be so preoccupied with reporting a profit year by year that they fail to spend as much time as they should in managing the company’s long-term future. But if we seriously accept the thesis that the essence of managerial responsibility is the extended time lapse between decision and result, currently reported profits are hardly a reasonable basis on which to compensate top executives. Such a basis simply serves to shorten the time horizon with which the executive is concerned.
The importance of an extended time horizon derives not only from the fact that an organization changes slowly and needs time to work through basic modifications in its strategy; it derives also from the fact that there is a considerable advantage in a certain consistency of strategy maintained over long periods of time. The great danger to companies which do not carefully formulate strategies well in advance is that they are prone to fling themselves toward chaos by drastic changes in policy—and in personnel—at frequent intervals. A parade of presidents is a clear indication of a board that has not really decided what its strategy should be. It is a common harbinger of serious corporate difficulty as well.
The time horizon is also important because of its impact on the selection of policies. The greater the time horizon, the greater the range in choice of tactics. If, for instance, the goals desired must be achieved in a relatively short time, steps like acquisition and merger may become virtually mandatory. An interesting illustration is the decision of National Cash Register to enter the market for electronic data-processing equipment. As reported in Forbes :
“Once committed to EDP, NCR wasted no time. To buy talent and experience in 1953 it acquired Computer Research Corp. of Hawthorne, California… For speed’s sake, the manufacture of the 394’s central units was turned over to GE… NCR’s research and development outlays also began curving steeply upwards.” 11
6. Is the Strategy Workable?
At first glance, it would seem that the simplest way to evaluate a corporate strategy is the completely pragmatic one of asking: Does it work? However, further reflection should reveal that if we try to answer that question, we are immediately faced with a quest for criteria. What is the evidence of a strategy “working”?
Quantitative indices of performance are a good start, but they really measure the influence of two critical factors combined: the strategy selected and the skill with which it is being executed. Faced with the failure to achieve anticipated results, both of these influences must be critically examined. One interesting illustration of this is a recent survey of the Chrysler Corporation after it suffered a period of serious loss:
“In 1959, during one of the frequent reorganizations at Chrysler Corp., aimed at halting the company’s slide, a management consultant concluded: ‘The only thing wrong with Chrysler is people. The corporation needs some good top executives.’ ” 12
By contrast, when Olivetti acquired the Underwood Corporation, it was able to reduce the cost of producing typewriters by one-third. And it did it without changing any of the top people in the production group. However, it did introduce a drastically revised set of policies.
If a strategy cannot be evaluated by results alone, there are some other indications that may be used to assess its contribution to corporate progress:
- The degree of consensus which exists among executives concerning corporate goals and policies.
- The extent to which major areas of managerial choice are identified in advance, while there is still time to explore a variety of alternatives.
- The extent to which resource requirements are discovered well before the last minute, necessitating neither crash programs of cost reduction nor the elimination of planned programs. The widespread popularity of the meat-axe approach to cost reduction is a clear indication of the frequent failure of corporate strategic planning.
The modern organization must deploy expensive and complex resources in the pursuit of transitory opportunities. The time required to develop resources is so extended, and the time-scale of opportunities is so brief and fleeting, that a company which has not carefully delineated and appraised its strategy is adrift in white water.
In short, while a set of goals and major policies that meets the criteria listed above does not guarantee success, it can be of considerable value in giving management both the time and the room to maneuver.
1. For an interesting discussion of this relationship, see A. D. Chandler, Jr., Strategy and Structure (Cambridge, Massachusetts Institute of Technology Press, 1962), pp. 1–17.
2. See Edward C. Bursk and Dan H. Fenn, Jr., Planning the Future Strategy of Your Business (New York, McGraw-Hill Book Company, Inc., 1956), p. 8.
3. Seymour Tilles, “The Manager’s Job—A Systems Approach,” HBR January–February 1963, p. 73.
4. See Theodore Levitt, “Marketing Myopia,” HBR July–August 1960, p. 45.
5. “R for Ampex: Drastic Changes Help Solve Big Headache of Fast Corporate Growth,” Wall Street Journal, September 17, 1962, p. 1.
6. Management Problems of Corporate Acquisitions (Boston, Division of Research, Harvard Business School, 1962), p. 60.
7. “Montgomery Ward: Prosperity Is Still Around the Corner,” Fortune, November 1960, p. 140.
8. Leadership in Administration (Evanston, Illinois, Row, Peterson & Company, 1957), p. 42.
9. Wall Street Journal, September 11, 1962, p. 30.
10. See “The Tisches Eye Their Next $ 65 Million,” Fortune, January 1960, p. 140.
11. “NCR and the Computer Sweepstakes,” Forbes, October 15, 1962, p. 21.
12. “How Chrysler Hopes to Rebound,” Business Week, October 6, 1962, p. 45.
- ST Seymour Tilles is Lecturer on Business Administration at the Harvard Business School, teaching in the area of business policy. He has been a consultant to the United Nations, as well as to business, and a repeat contributor to HBR.
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The Complete Guide to Strategy Evaluation
Updated on: 4 November 2022
All organizational strategies are constantly reviewed and revised. As the internal and external environments of an organization change, so should the company strategy to aid in the survival and growth of an organization. A standard process to evaluate the effectiveness of an organizational strategy is therefore essential. It ensures that the organization is on the right path and is constantly adapting in a dynamic market.
In this post, we will be explaining what strategy evaluation is and how to effectively implement the process.
What is Strategy Evaluation
Strategic evaluation constitutes the final stage of strategic management and is considered one of the most vital steps in the process.
Strategy evaluation is the process by which the management assesses how well a chosen strategy has been implemented and how successful or otherwise the strategy is. To simply put, strategy evaluation entails reviewing and appraising the strategy implementation process and measuring organizational performance.
In the instance, the implementation of the strategy is not taking place as planned, say due to the limitations in the strategy that are blocking the achievement of organizational goals, necessary corrective actions should be identified and applied.
At the end of the evaluation, you’ll have gathered insight to either reformulate the strategy or to plan and develop new ones.
Evaluating the strategy helps improve it, distinguish between what works and what doesn’t, and contribute to the ongoing development and adaptation of the strategy to the changing conditions and complexities in the industry.
Strategy evaluation operates at two levels; strategic and operational. At the strategic level, the focus is given to the consistency of the strategy with the environment, and at the operational level, how well the organization is pursuing the strategy is assessed.
Through the process of strategy evaluation, strategists can make sure that the,
- Premises made during strategy formulation are correct
- Strategy is guiding the organization towards accomplishing its objectives
- Managers are doing what they are supposed to be doing to effectively implement the strategy
- The organization is performing well, schedules are being followed, and resources are being properly utilized
- Whether there’s a need to reformulate or change the strategy
Participants of the Strategy Evaluation
The stage of strategy evaluation requires the contribution of several participants who will be playing different roles throughout the process.
The board of directors: takes on the formal role of reviewing and screening the executive decisions in light of their environmental, business, and organizational implications. Although they are not directly involved in the evaluation and control of the strategy implementation process, they periodically take part in reviewing the organization’s performance and results.
Chief executives: are responsible for all the administrative tasks of strategy evaluation and control.
The SBU or profit-center heads: monitor strategy implementation at the business unit level and give feedback to the corporate parent who can intervene as necessary.
Financial controller, company secretaries, and external and internal auditors: responsible for operational control based on financial analysis, budgeting, and reporting.
Middle-level managers: carry out tasks assigned to them by SBU heads or the strategic planning group, and provide them with feedback and information. They will also be participating in the corrective actions, in the case of mid-term revisions in the implementation process.
Importance of Strategic Evaluation
The phase of strategy evaluation helps ensure that the implementation of the particular strategy will help the organization achieve its objectives. Without this step in the strategy management process, it would prove difficult to identify whether the strategy implemented is generating the desired effect. In addition, strategy evaluation also helps,
- Check the validity of the strategic choices the organization makes
- Assess whether the decisions made during the strategy implementation stage meet the intended strategy requirements
- Provide insight and experience into the strategists that can be used in reformulating or planning new strategies
- Shed light on issues caused by changes in the internal and external environment and take precautions and avoid making wrong decisions
Strategy Evaluation Process
The strategy evaluation is carried out in order to determine that the strategy is helping the organization achieve its objectives. It compares the actual performance of the organization with desired results and provides the necessary insight into the corrective action that needs to be taken to improve the performance of the organization. Following are the steps in the process of evaluating strategy.
Establish standards
This step starts with determining what standards to set, how to set them, and the terms used to express the standards. To do this,
- Identify the key areas of performance which are usually based on the key managerial tasks pertaining to strategic requirements. Standards should be set within these identified key performance areas.
- The special requirements needed to perform each of these key tasks can be used to determine the type of standard to be set.
- Performance indicators that can satisfy these special requirements can then be identified for evaluation.
Performance indicators have to be set on the basis of quantitative or qualitative criteria in order to make measuring performance easier.
- Quantitative criteria – on the basis of this criteria, performance can be evaluated in two ways: Either by comparing how the company has performed against its past achievements or against the performance of the industry average or that of the competitors.
- Consistency (evaluating strategy against company objectives, environmental assumptions, and internal conditions)
- Appropriateness (evaluating strategy with regard to resource capabilities, risk preference, and time horizon)
- Workability (evaluating the feasibility and simulation of the strategy)
Measure Performance
The standards of performance set will serve as the benchmark against which the actual performance will be evaluated. Based on these standards, managers should decide how to measure the performance and how often to do so.
The methods used to measure performance may vary on the standard set; usually, data such as the number of materials used, units produced, the monetary amount of services utilized, the number of defects found, processes followed, quality of output, and return on investment, are used.
Once the methods of measuring performance are identified, how often it should be done for control purposes needs to be then decided. Whether it should be on a daily, weekly, monthly, or annual basis is decided on factors such as how important the objective is to the organization, how quickly the situation might change, and how difficult or costly it would be to fix a problem once it has actually occurred.
Analyze Variances
Evaluating the actual performance against the standards of performance will reveal whether;
- The actual performance matches the budgeted performance
- The actual performance differs from the budgeted performance in a positive way
- The actual performance differs from the budgeted performance in a negative way
A predetermined set range of tolerance limits can be used to determine whether the results can be accepted satisfactorily. If the actual performance deviates from the budgeted performance within the set tolerance limit, the performance can be considered acceptable and the variance insignificant.
On the other hand, if the performance is below standards, effort must be directed to finding the root causes of the deviation and coming up with corrective action to fix it.
Take Corrective Action
In the case the actual performance falls out of the tolerance limit, corrective action must be taken to solve it. The deviation can be caused internally or externally, predicted or random, or temporary or permanent.
If the actual performance is below the standards consistently, a thorough analysis should be carried out to find the root causes. If the organizational potential can’t meet the performance requirements, consider adopting attainable performance standards. In the case of an extreme deviation, you might have to consider formulating the strategy, which might require you to start from the beginning of the strategic management process.
Strategic Evaluation Technique
Evaluating the effectiveness of a strategy entails assessing the internal and external forces that affect strategy implementation . Following are a few techniques that you can use to examine these factors and make well-informed strategic decisions.
Gap analysis
A gap analysis is performed to identify and measure the gap between your current state of organizational performance and the desired state. It can be utilized to evaluate various aspects of the business from production to marketing.
Learn more on how to conduct a gap analysis and the tools you can use to accelerate the process and the gap analysis templates to simplify the steps.
SWOT analysis
A SWOT analysis is another helpful tool that strategists use to assess the current situation -both internal and external environments – of an organization. It helps you gain insight into your internal landscape by analyzing strengths and weaknesses, and insight into your external landscape by scanning opportunities and threats.
Learn how to effectively use a SWOT analysis .
Value chain analysis
This analysis examines the set of activities the company performs to produce and market a product or service. It helps identify which activities are most valuable to the company and which needs to be improved to help perform better.
Ready to Evaluate Your Strategy?
Strategy evaluation plays a significant role in assessing the effectiveness of a strategy in achieving organizational objectives and helping in the successful culmination of the strategic management process.
This guide gives an introduction to strategy evaluation and the steps to evaluating a strategy effectively, and we hope it will help you carry out the process seamlessly.
Let us know your experience in the comments section below.
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Strategy evaluation - what it is and how to build an effective evaluation process.
Strategy evaluation is an integral part of any business’s development. It helps identify where the company is strong and where it could improve and help make informed decisions about future courses of action. There are several factors to consider when designing an effective evaluation process, including the purpose of the evaluation, the target audience, the methodology employed, and the level of detail desired. However, building an effective evaluation process can take time and effort.
This article discusses what strategy evaluation is, what are the elements and steps, and it provides tips on how to achieve success with your strategy evaluation. Following these guidelines will ensure that your evaluation efforts are efficient and effective.
What Is Strategy Evaluation?
Strategy evaluation assesses whether a particular strategy or set of plans effectively achieves its intended goals. The goal of assessment is to improve the effectiveness of a company's strategy by identifying opportunities for improvement and providing feedback to management. Any company can assess any stage of the strategy-making process, from conceptualization to implementation. Moreover, different evaluation methods may be appropriate depending on the type and complexity of the strategy under evaluation. Typical evaluation approaches include problem-solving, decision analysis, and feedback loops.
Evaluations can identify areas in a strategy that need improvement or change. It can also provide valuable insights into why specific actions yielded positive results while others did not. In addition to helping managers make informed decisions about future activities, this information can also help build a stronger case for funding and other resources associated with the strategy.
Why Is Strategy Evaluation Important?
1. evaluation is essential for ensuring that a company’s plans and goals succeed..
Evaluation is essential for ensuring that a company's plans and goals succeed. Evaluation can provide critical feedback about a company's strategies' effectiveness and help identify areas where the company could improve. Through evaluation, companies can learn what works best and where to make adjustments to reach their objectives. Additionally, evaluation can help identify potential problems that may prevent the company from achieving its goals by using evaluation as part of its overall strategy to ensure that its plans are successful.
2. Evaluation can help identify areas where further improvement is needed and provide guidance for future action.
Many organizations today realize the importance of evaluation and use it to identify areas where further improvement is needed. Evaluation can help identify areas where employees may need more training or guidance and identify inefficiencies in processes. Businesses can use this information to make necessary changes. In addition, evaluation can provide insights into an organization's effectiveness, uncover any patterns that may exist, and give managers a snapshot of their organization's performance at any given time. All of this information is invaluable in helping an organization achieve its goals.
3. It can also help to improve decision-making by assessing how well strategies align with overall corporate goals and objectives.
Evaluation helps improve decision-making by assessing how well strategies align with overall goals—knowing what works and what doesn't is vital for making informed choices that lead to improved outcomes. Evaluation can help identify the effectiveness of a strategy, measure progress toward goals, and determine whether changes are necessary. It also allows for the effective allocation of resources and better course correction when needed. Evaluations provide a detailed understanding of what works best in specific situations, which can help improve future decisions.
4. Evaluation provides a valuable perspective on past performance, helping to understand better what worked well and what might improve.
Evaluations help develop or revise plans, measure progress and determine whether changes are needed. They also can provide information about the costs and benefits of proposed actions. The use of evaluations in decision-making has been an essential management tool for many years. Several factors contribute to this, including that assessments account for the effects of decisions on people, resources, and the environment. They also help identify problems and opportunities, evaluate alternative courses of action, and provide feedback to help individuals learn from their mistakes. Evaluations also can improve our understanding of how people behave in different situations, which is useful when designing training or setting standards.
5. It highlights potential risks associated with current or proposed strategies, helping managers make informed decisions accordingly.
Strategies for mitigating potential risks associated with current or proposed techniques can be helpful for managers in making informed decisions accordingly. Evaluating the potential risks associated with a proposed strategy can help identify potential vulnerabilities and ensure that the system's overall risk profile is manageable. It also helps to identify areas where further research or analysis may be needed to provide a more comprehensive and accurate picture of the risks involved. Additionally, evaluating potential risk mitigation strategies can help to avoid unnecessary exposure to risk factors, which could ultimately lead to adverse consequences for an organization.
What Are The Goals Of Strategy Evaluation?
Strategy evaluation is a process by which an organization can measure the effectiveness of its strategic planning and execution. Evaluation can help identify where improvement is needed and provide valuable insights into how different decisions have affected performance.
1. Assessing the effectiveness of implementation: It guarantees that the strategy aligns with its objectives and goals and that any changes made since its inception are still valid.
2. Measuring outcomes: It is essential to measure how well the strategy has achieved the desired results, as this will help determine whether it was successful or needs further refinement.
3. Identifying areas for improvement: The evaluation process provides an opportunity to identify weaknesses in existing strategies and develop plans for their progress or elimination.
4. Developing future strategies: By understanding what works and doesn’t, we can formulate new techniques or refine existing ones more effectively.
5. Enhancing organizational performance: With a precise evaluation of the success and potential of existing strategies, organizations can make decisions that will improve their overall performance and reach their desired goals.
6. Monitoring progress: Strategy evaluation provides an opportunity to assess how well a strategy regularly works, which helps ensure the making of appropriate adjustments.
7. Increasing stakeholder involvement: By involving stakeholders in the evaluation process, they gain insights into the organization’s strategic direction and become more invested in its success. It may also include getting feedback from outside sources, such as customers or competitors, who can provide valuable perspectives on improving the strategy.
8. Improving decision-making capability: People involved in the evaluation process are likely to be better informed and equipped with data-driven decision-making capabilities, which can lead to more vital strategies that achieve tremendous success.
9. Ensuring accountability: Through strategy evaluation, organizations can ensure that their strategies achieve desired results and hold personnel accountable for outcomes. It helps to protect organizational resources and maintain trust with stakeholders.
10. Driving innovation: By understanding what works and what doesn’t, strategy evaluation encourages teams to think of innovative solutions and develop new approaches to help the organization reach its goals faster and more efficiently.
By consistently evaluating their strategies, organizations can take the necessary steps toward achieving their long-term objectives while gaining insights into where they may need improvement. It will enable them to act swiftly and adjust accordingly, which is vital for successful organizational performance.
Organizations can ensure that they constantly improve and grow toward their goals by adequately evaluating their strategies. It also provides an opportunity to identify potential growth areas and risks or pitfalls they must avoid to reach the organization’s long-term objectives. Ultimately, strategy evaluation is a vital part of success for any business and should be a priority for all organizations.
Building An Effective Evaluation Process
The evaluation process is an integral part of managing any organization. It ensures that employees perform up to expectations and can help identify improvement areas. If done correctly, the evaluation process can be a valuable tool for both the employer and the employee. Here are some tips on how to build an effective evaluation process:
1. Establish clear objectives. Everyone involved in the evaluation must know what they need to do. Establishing clear objectives will ensure everyone understands their role and responsibilities in evaluating performance.
2. Identify criteria. Clearly define the criteria against which performance you will have to evaluate so that all parties understand what they need to focus on during the review process. It should include specific skills or traits required for the position and objectives.
3. Gather information. Before evaluating an employee’s performance, gathering all relevant information about their work is vital. It should include colleagues' observations and feedback from customers or other stakeholders. Evaluations should be from hard evidence rather than opinions.
4. Communicate expectations . Make sure to communicate expectations about performance clearly before starting the evaluation process so everyone involved knows what to expect going forward. If specific goals are ready, ensure to discuss them at this stage. A timeline would help track when to achieve the goals.
5. Be fair and objective. Companies should always objectively and fairly evaluate. Avoid personal biases or assumptions when assessing performance, and provide employees with appropriate feedback.
6. Always follow up. The evaluation process continues after completing the review. It is essential to follow up after the evaluation process to ensure the achievement of any objective and address any areas for improvement. It will demonstrate commitment to helping employees succeed in their roles.
By following these tips, employers can create a comprehensive and effective evaluation process that ensures everyone involved understands what they need to do and how the management will evaluate their performance. With an effective evaluation system, employers can ensure that their organization runs efficiently and that employees perform up to expectations.
What Are The Steps Of Strategy Evaluation?
The process of strategy evaluation is essential for any organization to assess the effectiveness of its strategic plans and take corrective action if needed. It consists of five key steps:
1) Assessing performance - Strategy Evaluation
Performance assessment is a step in strategy evaluation. It helps managers understand how their organization is performing and identifies areas where they can improve. There are several types of performance assessments, including financial, operational, and customer satisfaction.
An essential part of performing a performance assessment is gathering data. One can do it through interviews, surveys, observations, and data collection systems. After collecting the data, analysis is vital to create an accurate picture of the organization's performance. This analysis will give managers insights into where to focus their efforts to improve performance.
Once done with the analysis, management can decide what they need to do to improve performance. Companies can also determine the changes necessary for the organizational structure or how to conduct the work.
2) Analyzing results - Strategy Evaluation
Many organizations evaluate their strategies by analyzing results. It allows for identifying if the chosen method is working and if there’s a need for any changes. This process has three main parts: planning, execution, and assessment.
Planning involves creating a strategic plan and determining the organization's goals. Execution ensures the goals are met by executing the strategy and allocating all resources accordingly. Assessment is evaluating whether or not the organization is achieving its stated objectives. Each of these steps helps to analyze the strategy's effectiveness comprehensively.
3) Identifying trends - Strategy Evaluation
Strategy evaluation is the process of determining whether a current strategy is effective and if changes are needed. One step in this evaluation process is to identify trends. Identifying trends can help you understand how your plan works and if changes are necessary.
There are many ways to identify trends. You can use surveys, market research, or data analysis. The most important thing is to use data that is accurate and relevant to your business. If you need the appropriate data, you can consult with experts who can provide you with information that will help you improve your strategy.
Identifying trends is integral to strategy evaluation because it helps you understand how your strategy works and if changes are necessary.
4) Determining root causes - Strategy Evaluation
The root cause analysis process is an essential step in strategy evaluation. This process helps identify and evaluate the underlying causes of problems so that they can be corrected or avoided in the future. Determining root causes is critical in any practical problem-solving, as it allows corrective action without redoing entire projects from scratch.
There are several ways to approach this task. One common approach is using flow charts and diagrams to visually represent how different factors influence each other. Other techniques involve interviewing critical players involved in the problem, taking into account their perspectives, and tracing back the steps that led up to the issue. Determining root causes is a complex but essential step in achieving success with any strategic project.
5) Taking corrective action - Strategy Evaluation
When analyzing a business strategy, it is essential to take corrective action as a step of the evaluation process. Corrective action can improve a plan's effectiveness and ensure it meets the business goals.
Corrective action has two categories: preventive and remedial. Preventive disciplinary action helps to avoid problems in the future. For example, a company might adopt new marketing strategies to increase its sales in the upcoming season. This type of corrective action is proactive and helps to steer the company away from potential problem areas.
Remedial corrective action takes place after problems have already arisen. For example, suppose a company's product fails to meet customer expectations. In that case, remedial corrective action might include issuing refunds or offering better customer service to make up for the inconvenience caused by the product failure.
What Are The Elements Of Strategy Evaluation?
Strategy evaluation is the fourth and final step of a strategic management process. It involves assessing the efficacy of existing strategies and whether they are achieving their desired outcome. To do this effectively, the organization needs to evaluate all four elements of the system: environmental scanning, strategy formulation, strategy implementation, and strategy evaluation.
Environmental Scanning - Element Of Strategy Evaluation
Environmental scanning is collecting, analyzing, and interpreting external data related to the organization’s environment. It involves identifying and assessing potential opportunities or threats that could affect the organization's strategy. Environmental scanning helps organizations monitor market, industry, and regulatory environment change to anticipate future business needs. Environmental scanning aims to recognize trends and capitalize on available opportunities while mitigating risks associated with external changes.
Environmental scanning allows an organization to identify customer preferences, competition, political/legislative developments, public opinion, technological advances, and economic conditions that may impact its operations. As part of the strategic evaluation process, management can use this information to assess current strategies and make decisions about potential changes.
By monitoring the external environment, management can identify key trends that could impact their organization’s strategy. These could include opportunities for growth or areas of risk that they need to address. This information helps develop a new plan or revise existing strategy to take advantage of changing conditions in the market. Environmental scanning also helps organizations prepare for unexpected events and anticipate future needs, allowing them to remain competitive and relevant in their industry.
2. Strategy Formulation - Element Of Strategy Evaluation
Strategy formulation is developing a strategic plan to achieve organizational objectives. It involves analyzing internal and external factors, choosing a strategy, and implementing it. Strategy formulation should be ongoing for the organization to stay competitive and reach its desired goals. The critical components of strategy formulation include:
Analyze the internal and external environments. It involves examining your organization's internal environment and current market conditions. The internal analysis includes looking at resources available within the company, ranging from financial reserves to human capital or technological capabilities. The external study looks at options outside your organization that may impact your business, such as competitors, customers, suppliers, regulations, etc.
Choose a strategy. Once done analyzing the internal and external environment, it’s essential to identify ways to capitalize on strengths and opportunities while minimizing risks. It involves selecting strategies that best align with the company’s objectives and capabilities.
Implement the strategy. After choosing an appropriate method, it is essential to develop an implementation plan that sets out specific actions needed for successful execution. It includes assigning resources, determining timelines, delegating responsibilities, and monitoring progress to ensure effective strategy implementation over time.
3. Strategy Implementation - Element Of Strategy Evaluation
Strategy implementation is an essential part of the strategy evaluation process. It involves putting into practice the strategic plan and ensuring its effective execution as intended. Successful implementation of a strategy requires careful planning and execution. During this process, management must ensure that all resources are allocated following the plan and remain aligned with organizational goals and objectives. Additionally, stakeholders must be aware throughout the process to provide consistent support for the program.
The primary goal of strategizing implementation is to achieve desired results from implementing a strategy. During this phase, management identifies how different parts of the organization will carry out the tasks associated with executing their plans. It includes identifying necessary resources, setting completion timelines, and assigning charge responsibility. Additionally, management must plan how to communicate the strategy with each stakeholder and how they will monitor them to ensure it meets organizational objectives.
4. Strategy Evaluation - Element Of Strategy Evaluation
Strategy evaluation is an essential element of any strategic planning process. It helps to ensure that the strategies developed are appropriate and effective in achieving the desired outcome. It requires assessing the performance of each approach and understanding how well they have been implemented and sustained over time. Strategy evaluation also examines whether a given method has successfully met organizational goals and objectives. It allows organizations to identify weaknesses and areas for improvement, making it possible for them to make changes if needed.
Strategy evaluation involves two key elements: assessment and feedback. The review focuses on measuring progress made against established targets, while feedback aims to help leaders understand how their efforts influence outcomes. Data from different sources, such as surveys, customer feedback, and financial performance, are reviewed during the assessment. It helps to determine how well the strategies are working and which ones need more attention. Feedback provides insights into what is working, what isn’t, and areas for improvement.
Companies should undertake the strategy evaluation process regularly to ensure that any objectives set can be achieved promptly. It is also vital to track progress over time to ensure that changes made as part of the evaluation process impact outcomes. By evaluating strategies on an ongoing basis, organizations can ensure they stay on track with their strategic plan and achieve their desired goals in the most efficient way possible.
By understanding the four strategy elements, organizations can evaluate their strategies effectively and make any necessary adjustments to maximize success. It is essential for organizational growth, improved performance, and long-term sustainability.
The Four Criteria Of Strategy Evaluation
An evaluation of a strategy is essential to assess its effectiveness and to ensure that it achieves the desired objectives. Thus, most companies use these four criteria to evaluate a method or process: feasibility, acceptability, suitability, and results.
Feasibility
Feasibility is a critical component in evaluating the success of a strategy. It looks at the likelihood of a successful implementation of the system. An organization must consider its resources and capabilities and external environmental factors such as market dynamics and legal or regulatory restrictions to determine whether a method is feasible. The organization must also consider how much time and money it will take to complete the project. If the organization needs more time or money to accomplish the goal, it may not be feasible to move forward with that strategy.
Additionally, if the skills or technology needed to implement the strategy are unavailable within the organization, it could prove unfeasible for successful implementation. Ultimately, feasibility considers all these factors to conclude whether a company can execute a process successfully. It is important to note that feasibility does not necessarily evaluate the effectiveness of a system but rather its ability to be carried out and implemented as planned.
2. Acceptability
Acceptability is an essential criterion of strategy evaluation. It examines whether or not the objectives and strategies are acceptable to the stakeholders in an organization and if they support the company's overall mission. Acceptability involves reviewing all elements that make up a strategy, including goals, resources, timeframe, and implementation plan. Additionally, it requires looking at the potential benefits to stakeholders such as employees and customers. The factors taken into account in this evaluation include public perception, ethical considerations, financial impacts, risk management, legal compliance, and customer satisfaction. Ultimately acceptability measures how well the proposed strategy fits within organizational values and goals while providing sustainable long-term value for internal and external stakeholders.
Organizations can make informed decisions on moving forward with their strategic initiatives by determining whether a particular strategy is acceptable. If a system is deemed unacceptable, there must be adjustments until it meets the criteria set forth by the organization. In this sense, acceptability provides necessary guidance to ensure the successful implementation and execution of strategies aligned with organizational goals and values.
3. Suitability
Suitability is the second criterion used in evaluating a strategy. It refers to how well the process fits with the business goals and objectives and its strengths, weaknesses, opportunities, and threats (SWOT). It involves assessing whether the proposed strategy is realistic given the context of the company’s current situation. For example, it would not likely be suitable for a small start-up business to pursue a high-growth strategy when they lack capital or access to critical resources. Similarly, an established organization might not have enough resources or competitive advantage to successfully implement a low-cost leadership strategy. Managers should consider these factors when evaluating processes to determine suitability.
Managers need to weigh up the pros and cons of a strategy before deciding if it is suitable. One should consider the proposed plan if the pros outweigh the cons. If not, the manager may want to explore alternative options or modify their current approach. Suitability is essential in ensuring that an organization’s strategies are practical and supportive of its goals and objectives.
Results refer to the outcome of any strategic implementation carried out. It is essential to measure how successful a strategy has been by analyzing the outcomes. A process should be evaluated based on its output, allowing an organization to assess whether or not its investment in the process produced tangible outcomes. Results are also significant when determining if a strategy effectively achieves its goal. It can include financial performance, customer satisfaction, operational efficiency, and market share gains.
For an organization to determine that its strategy has achieved success, they need to prove that it has provided measurable improvements and positive results for the business. Any plan evaluation should include an analysis of the overall results achieved and assess how close these have come to meeting the strategy's objectives. It will indicate how effective the process has been and whether or not it is worth continuing with in the future.
Tips For A Successful Strategy Evaluation
Following a rigorous and systematic process is essential when undertaking a strategy evaluation. Here are a few tips for a successful strategy evaluation:
1. Define the purpose of the evaluation.
When developing a strategy evaluation, it is vital to understand the purpose of the assessment. Evaluations can help managers and executives improve decision-making by identifying potential risks and opportunities. Additionally, evaluations can provide feedback on how an organization performs about its goals. Ultimately, an assessment should help the decision-maker make better choices that support the organization's objectives.
2. Identify the stakeholders involved in the strategy.
A successful strategy evaluation should identify the stakeholders involved and assess their interests. It is essential for two reasons: first, it helps to ensure that the strategy is likely to be practical, and second, it helps to ensure that the stakeholders are informed and engaged in the process.
The key stakeholders in a strategy typically include those who will benefit from its implementation (e.g., customers, employees, shareholders) and those who could pose obstacles or challenges (e.g., competitors, government officials). Considering these different perspectives when developing a strategy is essential because they can influence the plan's success.
3. Conduct interviews with key personnel and analyze data collected from performance reviews, surveys, and focus groups.
When conducting strategy evaluations, it is essential to interview key personnel and analyze data collected from performance reviews, surveys, and focus groups to understand the organization's performance thoroughly. By doing so, businesses can identify areas to improve and potential success factors. Conducting interviews with key personnel can be time-consuming, but it is essential to understand the organization's performance accurately.
4. Collect and analyze financial data to understand how investments impact bottom-line results.
Understanding how investments impact bottom-line results is integral to any successful strategy evaluation. Financial data can provide essential insights into a company's financial health and potential growth opportunities. By collecting and analyzing data, investors can identify areas where investments could improve profitability and broaden their exposure to new markets. Additionally, understanding the correlation between financial performance and underlying assets can help managers make sound business decisions.
5. Create an action plan based on findings from the evaluation, including recommendations for changes or improvements to the strategy.
When conducting a strategy evaluation, it is essential to follow the principles of evidence-based decision-making and create an action plan based on the assessment findings. It will help to ensure the implementation of the most effective strategies, and those future decisions are from sound data. Following these guidelines can help reduce wasted time and resources, improve decision-making processes, and optimize results. Here are some tips for creating an action plan based on a strategy evaluation:
Identify key findings from the evaluation. It will help to prioritize strategies and determine which ones to implement first.
Assess the effectiveness of each strategy using data collected during the evaluation. It will provide a more accurate picture of how well each tactic is working and whether or not there’s a need for changes.
6. Monitor progress toward implementing the action plan and revise it as necessary.
Evaluating the effectiveness of a strategy is an integral part of ensuring its success. However, evaluation can often be complex due to the time and resources required. One way to make assessment easier is to create a monitoring plan that outlines what the company needs to do to track progress and revise the plan as necessary. This article provides tips on how to create a successful monitoring plan.
Strategy Evaluation - What It Is And How To Build An Effective Evaluation Process - Conclusion
Strategy evaluation is necessary because it provides essential information about the effectiveness of a company's current strategy and allows for improvements if necessary. The key to creating an effective evaluation process is to organize and analyze data systematically and make actionable recommendations. A practical evaluation process must be well-planned, systematic, and reflective of the organization's objectives. Some resources, such as assessment tools and software, are available to help build an evaluation process. Most importantly, it is vital to ensure that the process is periodically updated and revised in line with organizational changes and priorities.
Strategy Evaluation - Recommended Reading
Strategic Pillars: What Are They, Why They Matter (benjaminwann.com)
The Costs of Poor Strategy Execution (benjaminwann.com)
What is the difference between strategy implementation and evaluation? (benjaminwann.com)
Strategy Evaluation Process: Comprehensive Guide + Examples (cascade.app)
Strategy Evaluation: Meaning, Process, Criteria, Steps, Factors, Difficulties (businessmanagementideas.com)
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Your Complete Guide To Strategy Evaluation Tips & Techniques
So you’ve created your organizational strategy and have a good idea of where your company should be going in the next five years. Awesome.
But… now what? How do you actually evaluate your progress toward your strategy?
We get calls regularly from people who have finished their strategic planning process and are suddenly confronted with the fact that their executive team (or board of directors, city council, etc.) wants regular updates on their progress.
If you’ve been struggling to evaluate your strategy, goals, measures, and initiatives, you’re in the right place. We have outlined the techniques you should use to get your strategy evaluation process whipped into shape below. (After all, your executive team is right—evaluating strategy is simply critical to executing on it!)
6 Strategy Evaluation Tips & Techniques
1. ensure that the most important components are in place..
In order for your strategy evaluation framework to work effectively, you need to have a few things in place first:
Accountability : First, you need to have a clear owner for all of your goals, measures, and projects. But you don’t want to make your leadership team accountable for everything in your strategy—only the big-picture goals.
- Pro Tip: Measure analysts and project owners should provide updates on everything so executives can then take that data and work with it instead of wasting time tracking it down.
Responsiveness : Measure and project owners need to respond to requests in a timely manner. If you’re reporting quarterly, owners should have a 2-3 day window for turnaround—but if you’re reporting monthly, owners should only have a one-day turnaround.
- Pro Tip: Celebrate those who turn in their work on time, and let those who are not as quick to respond fail once. If this happens again, you can take action—but more likely than not, those who did not turn in their work in the appropriate time will act accordingly and get things turned in at the right time the next month or the next quarter.
Leadership : It’s absolutely crucial that your executive team is on board with your strategy evaluation framework. Leadership should ensure that they take the time each month or quarter and review the strategy. They should communicate the importance that this document and process have in the organization, and should constantly interact with staff about key elements of the strategy and draw the connection back to the strategy. This speaks volumes to the criticality of your strategy.
- Pro Tip: When you’re getting started with strategy evaluation, you’ll likely have one person on the leadership team who is heavily involved—and the rest of the leadership may not be. This individual should focus on translating the strategy evaluation process into a valuable scenario for every leadership team member. For example, someone in HR needs to know how this process supports their strategic values in HR.
Strategy Review Calendar: Your strategy review calendar ensures everyone is on the same page. It should list when your report meetings will be scheduled so you can work backward and evaluate your strategy at a measured pace.
- Pro Tip: Having a complete strategy review calendar will increase your transparency. This means everyone can see when strategic elements are due on a day-to-day basis, and everyone understands fully that in order for the process to continue, they need to stay up-to-date with their deadlines.
2. Update your measures and projects first.
Your measures and projects are the building blocks of a successful strategy. If you run active reporting meetings, you might also have action items that need updating—but at a minimum, you need to know the current status of each of your projects and the current data for each of your measures. This can and should be done by a data analyst (if it isn’t automatically updating using a tool like ClearPoint’s Data Loader).
- Pro Tip For Updating & Evaluating Measures: Keep all of your measure charts consistent so those involved can evaluate the status quickly and easily. You may consider using a uniform color code throughout. For example, blue would indicate actual results and orange would indicate your target.
- Pro Tip For Updating & Evaluating Projects : Consider how you can summarize key project milestones to best suit the needs of the executive team. This summary may include a status indicator, percentage complete, and a paragraph summary. If you want to include details of the project that may be important to you but aren’t so important to the leadership team, include a link to those details in your software or add the details in an attachment.
3. Evaluate your measures and projects second.
Once you’ve gotten an update on the percentage that each project is complete and you’ve collected data for all measures, you need to evaluate the RAG status of each. Depending on your organization, you may have defined the rules for a red, an amber, and a green status, or the information might be completed manually. The latter is often the case for initiatives, because you could have a project that is on track but over budget or a project that is on budget but off track with quality. Whatever you choose, the key is consistency in your evaluations.
- Pro Tip : Depending on where data lives in your organization, you may want to have one person gathering and updating data and another person evaluating that data. For example, the information technology department may update their measure and project data, and someone from marketing may be tasked with evaluating that data.
4. Update your goals.
Goals are based on the performance of your projects and measures, so once those are updated, your goal update will become much easier. Your goals can be automatically evaluated based on project and measure performance, but most companies—particularly those in the U.S.—manually evaluate their goals. To evaluate your goals successfully, you should be sure appropriate members of the leadership team provide a RAG status for quick evaluation and a qualitative assessment (which is sometimes referred to as the “analysis and recommendations”).
- Pro Tip: You’ll have several measures and projects that tie into your goals. The best way to present this information is to highlight the data that best tells the story of how you’re doing during that reporting period. You don’t need to repeat evaluations of the measures and projects supporting each goal.
5. Determine the “strategy story” for the reporting period.
Once you’ve looked at your goals, you can start determining the key changes and drivers in your strategy for this reporting period. Are you doing well in innovation for a new product but struggling to manage costs? Are you seeing high turnover on your customer management team that is affecting customer satisfaction? By examining such situations, you start to determine the “strategy story” that hits on the key changes—including both major challenges and successes—over the month or the quarter. Additionally, once you’ve decided what needs to be highlighted, you can go back and gather more data and details.
While the goal is to hone in on areas you may need to improve on, your team is going to react best if you can celebrate a success. So if you’ve fixed a manufacturing issue, which caused your quality and sales to rise from last quarter, you’ll want to make that very clear to help cheer everyone involved on.
- Pro Tip: While going through this strategy evaluation process, you may begin noticing that one person is charged with coordinating the entire effort—from goals, to measures, to projects. This can be very overwhelming. If this is the case, start figuring out ways to involve analysis from additional individuals.
6. Create your report.
Depending on your organization and structure, this report could be for your stakeholders (shareholders, council, board of directors, etc.) or it could be for an internal strategy meeting. Your report template should allow you to add information consistently on a month-to-month or quarter-to-quarter basis. ClearPoint, for example, has a wide template library so you can create reports for varied audiences. Regardless of format, be sure your report shows how you have evaluated your strategy and highlights both successes and key action steps. In simple terms, it should show the good, the bad, and the ugly so you can use it to make an on-target action plan.
- Pro Tip : Keep in mind, your report may be a bit more generic, while your strategy story will be the place to highlight an executive summary and some details on successes and challenges.
In Conclusion
The importance of strategy evaluation cannot be understated. You need the right support and parameters in place to allow you to carry out the process above. Your leadership team should understand, value, and appreciate the impact this technique can have on your organization—and once they do, they will be far more likely to follow through with it.
And while this process is a lot of work, there are tools that can help make it easier. Software like ClearPoint is designed to support you in your efforts from start to finish.
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Ted Jackson
Ted is a Founder and Managing Partner of ClearPoint Strategy and leads the sales and marketing teams.
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Strategic Management
Strategy evaluation process and its significance.
Strategy Evaluation is as significant as strategy formulation because it throws light on the efficiency and effectiveness of the comprehensive plans in achieving the desired results. The managers can also assess the appropriateness of the current strategy in todays dynamic world with socio-economic, political and technological innovations. Strategic Evaluation is the final phase of strategic management .
The significance of strategy evaluation lies in its capacity to co-ordinate the task performed by managers, groups, departments etc, through control of performance .
Strategic Evaluation is significant because of various factors such as - developing inputs for new strategic planning, the urge for feedback, appraisal and reward, development of the strategic management process, judging the validity of strategic choice etc.
The process of Strategy Evaluation consists of following steps-
The organization can use both quantitative and qualitative criteria for comprehensive assessment of performance. Quantitative criteria includes determination of net profit, ROI, earning per share, cost of production, rate of employee turnover etc. Among the Qualitative factors are subjective evaluation of factors such as - skills and competencies, risk taking potential, flexibility etc.
The measurement must be done at right time else evaluation will not meet its purpose. For measuring the performance, financial statements like - balance sheet, profit and loss account must be prepared on an annual basis.
The positive deviation indicates a better performance but it is quite unusual exceeding the target always. The negative deviation is an issue of concern because it indicates a shortfall in performance. Thus in this case the strategists must discover the causes of deviation and must take corrective action to overcome it.
Another rare and drastic corrective action is reformulating the strategy which requires going back to the process of strategic management, reframing of plans according to new resource allocation trend and consequent means going to the beginning point of strategic management process.
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Authorship/Referencing - About the Author(s)
The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team . MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider . To Know more, click on About Us . The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
- Strategic Management - Introduction
- Strategy - Definition and Features
- Components of a Strategy Statement
- Vision & Mission Statements
- Strategic Management Process
- Environmental Scanning
- Strategy Evaluation
- Business Policy
- SWOT Analysis
- SWOT Analysis of Google
- SWOT Analysis of Starbucks
- SWOT Analysis of Blackberry
- Personal SWOT Analysis
- SWOT Analysis of Amazon
- SWOT Analysis of IKEA
- SWOT Analysis of Nike
- SWOT Analysis of Microsoft
- SWOT Analysis of China Mobile
- Competitor Analysis
- What is Competitive Advantage ?
- Human, Social, and Intellectual Capital as a Means of Competitive Advantage
- Porter’s Five Forces Model
- Blue Ocean Strategy and its Implications for Businesses
- Overfished Ocean Strategy: How to Drive Growth and Attain Profitability
- Porters Five Forces Analysis of the Airlines Industry in the United States
- Porters Five Forces Analysis of Samsung
- Porters Five Forces Analysis of Virgin Atlantic
- Porters Five Forces Analysis of China Mobile
- Strategic Leadership
- Some Pitfalls to be Avoided
- Corporate Governance
- Business Ethics
- Social Responsibilities of Managers
- Core Competencies
- Core Competency Theory of Strategy
- Ansoff Matrix
- Routes to Strategic Growth
- Diversification as a Viable Corporate Strategy
- 5 Configurations of Strategic Management
- Role of Planning, Plans and Planners
- Reasons for Avoiding Strategic Planning
- Strategic Management for the Millennials
- Strategizing for the Future
- PESTLE Analysis of the Global Aviation Industry
- PESTLE Analysis of Starbucks
- PESTLE Analysis of Samsung
- SWOT Analysis of Unilever
- Business Strategies to Beat the Downturn
- Analysis of Amazon’s Corporate Strategy
- How Amazon Can Improve its Corporate Strategy
- Cutting Costs Strategically
- Actualizing Business as Usual Strategies for Mission Critical Organizations and Functions
- Why Indian Firms Must Strive for Strategic Autonomy in Their Geoeconomic Strategies
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