UNIT 2 STRATEGIC MANAGEMENT CONTROL AND
company is achieving superior efficiency, quality, innovation and customer responsiveness.
This unit will also highlight the steps of strategy evaluation and control process and the benefits of strategy evaluation and control.
2.0 OBJECTIVES
At the end this unit, you should be able to:
define strategic management control and evaluation
list the types of strategy evaluation and control process
highlight the benefits of strategy evaluation and control.
3.0 MAIN CONTENT
3.1 Definition of Strategic Control and Evaluation
In governance terms, the purpose of strategic control and evaluation is to make sure that lower-level managers- as the agents of top managers are acting in a way that is consistent with the manager’s goals, which should be to maximise the wealth of stakeholders, subject to legal and ethnic constraints. Organisation’s structure does not, by itself, provide the set of incentives through which people can be motivated to make it work, hence, there is a need for control systems.
Strategic control systems are developed to measure performance at four levels in a company, namely- (a) corporate; (b) divisional; (c) functional; and (d) individual. Managers at all levels must develop the most appropriate measures to evaluate corporate, business and functional level performances. Balanced score card model guides managers through the process of creating the right kind of strategy control system to enhance organisational performance. According to the model, managers used primarily financial measures of performance to measure and evaluate organisational performance.
Also, it is important that managers should use the four building blocks of competitive advantages, namely- efficiency, quality, innovation and
Managers develop, specifically, performance measures that assess how well the four building blocks of competitive advantages are being achieved.
Efficiency – measured by the level of productivity costs, the productivity of labour, the productivity of capital;
Quality – can be measured by number of rejects, number of defective products returned from the customer, and also the level of product reliability over time.
Innovation – this can be measured by the number of new products introduced and the percentage of revenue generated from the new products.
Responsiveness to customers – can be measured by the number of repeat customers, customers’ defection rates, level of on time delivery to customers and level of customer service.
The above measures should be tied closely, as much as possible, to the goals of achieving superior efficiency, quality, innovativeness and responsiveness to customers.
Strategic managers choose the organisational strategies and structure they hope will allow the organisation to use its resources most effectively, to pursue its business model and create value and profit.
Then they create strategic control system tools that allow them to monitor and evaluate whether in fact their strategies and structure are working as intended, how they could be improved and how they should be changed if they are not working.
Strategic control system helps managers to obtain superior efficiency, quality, innovation and responsiveness to customers which are the four basic building blocks of competitive advantage.
a. Control and efficiency – To determine how efficiently they are using organisational resources, managers must be able to measure accurately many units of inputs i.e. raw materials, human resources etc. being used to provide a unit of output.
b. Control and quality – today, competition often revolves around increasing the quality of goods and services. Strategic control is important in determining the quality of each company’s product or goods and services as it gives managers feedback on product quality.
c. Control and innovation – strategic control helps to raise the level of innovation in an organisation. Successful innovation comes when managers create an organisational setting in which employees feel empowered to create and have authority to
decentralise employees so that they feel free to experiment and take risks.
d. Control and responsiveness to customers- strategic managers can help make their organisations more responsive to customers if they develop a control system that allows them to evaluate how well employees which customers deal with are performing their jobs. Monitoring employees’ behaviour can also help managers to find ways to help increase employees performance level.
Strategic control systems are the formal target setting, measurement and feedback systems that allow strategic managers to evaluate whether a company is achieving superior efficiency, quality, innovation and customers’ responsiveness and implementing its strategy successfully.
An effective control system should have three characteristics. It should be flexible, and should provide accurate information and should supply managers with the information in a timely manner.
The model below shows an effective strategic control system, involving four steps.
Establish standards and targets
Create measuring and monitoring system
Compare actual performance against
established targets
3.2 Objectives of Strategic Management Control and Evaluation
The objectives of strategic control are as follows:
to establish standards and targets against which performance can be measured
to create systems for measuring and monitoring performance on a regular basis
to compare actual performance against the established targets
to evaluate results and take corrective action, if necessary.
3.2.1 Types of Strategic Control System
Below are the types of strategic control systems.
a. Personal control – is the desire to shape and influence the behaviour of a person in a face-to-face interaction in the pursuit of company’s goals. Supervision of workers by managers is the most obvious method. Here, managers can ask questions about problems or issues.
b. Output control – here managers forecast appropriate performance goal for each division, while departments and employees are measured against actual performance relative to these goals.
c. Behaviour control – is achieved by putting in place rules and regulations binding the organisation and to direct actions or behaviours of divisions, functions and individuals. This is to standardise a way of reaching their goals.
3.3 Strategy Evaluation
The purpose of strategy evaluation and control is to examine the effectiveness and efficiency of organisational strategy in achieving set goals and objectives (Kazmi, 1995). Therefore, organisational strategy evaluation and control may be seen as the process of determining the effectiveness and efficiency of a given organisational strategy in achieving set organisational goals and objectives and taking corrective action whenever necessary.
The final stage in strategic management process is to evaluate and control an organisation’s performance. Organisational management should ensure that the set strategies generate the performance necessary to achieve set goals and objectives. Strategic evaluation and control therefore involve the activities and decisions that keep the process on
accomplishment and giving feedback to the decision-makers on the result achieved so far.
Strategic evaluation is important because organisations face dynamic business environments in which major internal and external factors often change quickly and drastically. Strategic evaluation includes three activities, as outlined below.
Reviewing bases of strategy or setting standards of organisation performance
Measuring organisational performance
Analysing deviations between standards and measures of performance
Taking corrective actions.
According to Glueck (1980), the products of a business strategy evaluation are answers to these questions.
Are the objectives of the business appropriate?
Are the major policies and plans appropriate?
Do the results obtained to-date confirm or refute critical assumptions on which the strategy rests?
3.4 Steps of Strategy Evaluation and Control Process
The following are steps of strategic evaluation and control process.
Determine what to control and evaluate
Set control and evaluation standards
Measure performance
Compare standards and performance
Determine the reason for variations between performance and taking corrective action.
3.4.1 Benefits of Strategy Evaluation and Control
According to Albanese (1978), organisations stand to gain the following from strategy evaluation and control.
Fig. 2.2: Strategic Evaluation Process Source: Kazmi (1995).
4.0 CONCLUSION
In this unit, you have learnt that organisational strategy must be responsive to changing condition. After implementing a strategy, strategic evaluation and control are necessary in order to keep the organisational strategy on track and to make adjustments for environmental changes.
6.0 SUMMARY
In this unit, you have learnt about strategic management control and evaluation, its definition, the objectives, steps in strategic management and evaluation process and benefits.
6.0 TUTOR-MARKED ASSIGNMENT
Strategic evaluation and control are necessary in order to keep the organisational strategy on track and to make adjustments for environmental changes. Discuss.
Setting plan objectives
Setting standards of organisation’s
performance
Actual organisational
performance
Measurement of organisational
performance
Analysing variances between set standards
and actual performance
7.0 REFERENCES/FURTHER READING
Chandan, J.S. (2004 ). Management Theory & Practice.
Hofstede, G. (1980). “Motivation, Leadership and Organisation: Do American Theories Apply Abroad”. Organisational Dynamics, Vol. 9, Summary, p. 43.
UNIT 3 STRATEGIC MANAGEMENT PLANNING