UNIT5

Strategy Evaluation & Control, Nature,

Importance
Strategy Evaluation & Control is the process of determining the effectiveness of a given strategy in achieving
the organizational objectives and taking corrective action whenever required.

Control can be exercised through formulation of contingency strategies and a crisis management team.

Nature of Strategic Evaluation

Nature of the strategic evaluation and control process is to test the
effectiveness of strategy.
During the two proceedings phases of the strategic management process, the
strategists formulate the strategy to achieve a set of objectives and then
implement the strategy.
There has to be a way of finding out whether the strategy being implemented
will guide the organisation towards its intended objectives.
Strategic evaluation and control, therefore, performs the crucial task of
keeping the organisation on the right track.
In the absence of such a mechanism, there would be no means for
strategists to find out whether or not the strategy is producing the
desired effect.

Nature of Strategic Evaluation

• Through the process of strategic evaluation
and control, the strategists attempt to answer
set of questions, as below.
Are the premises made during strategy formulation
proving to be correct?
Is the strategy guiding the organisation towards its
 Importance of Strategic
Evaluation
Strategic evaluation helps to keep a check on the validity of a stra
An ongoing process of evaluation would, in fact, provide feedback o

Importance of Strategic Evaluation

During the course of strategy implementation managers are required t
*Strategic evaluation can help to assess whether the decisions match the
In the absence of such evaluation, managers would not know explicitly ho

Organizational systems and Techniques of strategic

 evaluation & control
Strategic Evaluation & control is as important as strategy formulation. It sheds light on the efficiency
and effectiveness of the comprehensive plans in achieving the desired results.

Role of organizational systems in strategic evaluation & control: Strategic evaluation operates in
the context of various organizational systems. An organization develops various systems which help
in integrating various parts of the organization. The major organizational systems are: information
system, planning system, motivation system, appraisal system and development system. All these
organizational systems play their role in strategic evaluation and control. Some of these systems are
closely and directly related and some are indirectly related to evaluation and control. In connection
with the role of organizational systems in strategic evaluation & control, the following systems may
be important.

1. Information System

Evaluation and control action is guided by adequate information from the beginning to the end.
Management information and management control systems are closely interrelated which the
information system is designed on the basis of control system. Every manager in the organization
must have adequate information about his performance, standards and how he is contributing to the
achievement of organizational objectives. There must be a system of information tailored to the
specific management needs at every level, both in terms of adequacy and timeliness.

2. Planning System

Planning is the basis for control in the sense that it provides the entire spectrum on which control
function is based. In fact, these two terms are often used together in the designation of the
department which carries production planning, scheduling and routing. It emphasizes that there is a
plan which directs the behavior and activities in the organization. Control measures these behavior
and activities and suggests measures to remove deviation. Thus, there is a reciprocal relationship
between planning and control.

3. Motivation System

Motivation system is not only related to evaluation and control system but to the entire
organizational processes. Lack of motivation on the part of managers is a significant barrier in the
process of evaluation and control. Since the basic objective of evaluation and control is to ensure that
organizational objectives are achieved. Motivation plays a central role in this process. It energizes
managers and other employees in the organization to perform better which is the key for
organizational success.

4. Appraisal System

Appraisal or performance appraisal system involves systematic evaluation of the individual with
regard to his performance on the job and his potential for development. While evaluating an
individual, not only his performance is taken into consideration but also his abilities and potential for
better performance. Thus, appraisal system provides feedback for control system about how
individuals are performing.

5. Development System
Development system is concerned with developing personnel to perform better in their present
positions and likely future positions that they are expected to occupy. Thus, development system
aims at increasing organizational capability through people to achieve better results. These results
become the basic for evaluation and control. Role of organizational systems in strategic evaluation
should not be undermined.

Techniques of strategic evaluation & control

Strategy evaluation and control is the sixth step in the strategic management process. As we have
read that well executed strategy definitely ensures successful achievement of organizational goals
and objectives. But changes internal and external environment of an organization may not allow the
firm to achieve desired goals and objective. The environment changes may takes place at any stage of
strategy implementation. Strategy evaluation and control done after measuring results shall not help
in taking corrective action. It should be done in the early stage of strategy execution, to see whether
the strategy is successfully implemented or not and to carryout mid-course corrections whenever
necessary. Therefore strategists should systematically review, evaluate, and control the process of
strategy implementation.

• The SWOT a na Sys is is a not he r common strategic cvalua lio

Tech n iq ue ri scd as a pa rt of the strateg› ic ma nagel ent process. Th e
SWOT and lysis eve! uates the organization’s strength s, weaknesses,
 opportunities and

• Strengths
andand weaknesses
threats are eXterna a!
refacto
inte rna
rs. I factors, while opportunities
• This identification is essent ia! in determining how best to focus
resources to take advantage of stren gth s and opportunities and

Balanced Scorecard
A BSC is a strategy execution tool that, at the most basic level, helps companies to:

Clarify strategy: Articulate and communicate their business priorities and objectives

Monitor progress: Measure to what extent the priorities and strategic objectives are being delivered

Define and manage action plans ensure activities and initiatives are in place to deliver the priorities and strategic
objectives.

Developed by Robert Kaplan and David Norton, the Balanced Scorecard is an extremely influential management
tool that remains enduringly popular with companies around the world. At its most basic level, the Balanced
Scorecard helps organisations to clarify their strategy and communicate the business’s top strategic priorities and
objectives.

If you’ve ever seen the Balanced Scorecard in action, you’ll know it’s essentially a strategic framework, divided into
four areas (called “perspectives”) that are critical to business success. In this article, we’ll look at each of the
perspectives in more detail, and see how these perspectives can be tailored and tweaked to suit your company’s
circumstances.

The Financial perspective

For most for-profit organisations, money comes up tops. (We’ll get to non-profits later in the article.) Therefore, the
very top perspective is all about financial objectives.

Essentially, any key objective that is related to the company’s financial health and performance may be included in
this perspective. Revenue and profit are obvious objectives that most organisations list in this perspective. Other
financial objectives might include:

Cost savings and efficiencies (for example, a specific goal to reduce production costs by 10% by 2020)

Profit Margins (increasing operating profit margins, for instance)

Revenue sources (for example, adding new revenue channels)

The Customer perspective

This perspective focuses on performance objectives that are related to customers and the market. In other words, if
you’re going to achieve your financial objectives, what exactly do you need to deliver in terms of your customers and
market(s)?

Included in this perspective you might find objectives for:

Customer service and satisfaction (increasing net promoter scores, or reducing call centre waiting times, for
example)

Market share (such as, growing market share in a certain segment or country)

Brand awareness (for example, increasing interactions on social media)

The Internal Process perspective

What processes do you need to put in place to deliver your customer- and finance-related objectives? That’s the
question this perspective aims to answer. Here you would set out any internal operational goals and objectives – or,
in other words, what does the business need to have in place and what does the business need to do well in order
to drive performance?

Examples of internal process objectives might include:

Process improvements (for example, streamlining an internal approval process)

Quality optimization (such as, reducing manufacturing waste)

Capacity utilization (using technology to boost efficiency, for instance)

The Learning and Growth perspective

While the third perspective is about the concrete process side of things, this final perspective considers the more
intangible drivers of performance. Because it covers such a broad spectrum, this perspective is often broken down
into the following components:

Human capital: Skills, talent and knowledge (for example, skills assessments, performance management scores,
training effectiveness)

Information capital: Databases, information systems, networks and technology infrastructure (such as, safety
systems, data protection systems, infrastructure investments)

Organisational capital: Culture, leadership, employee alignment, teamwork and knowledge management (for
example, staff engagement, employee net promoter score, corporate culture audits)

Benchmarking

Benchmarking is a way to go backstage and watch another company’s performance from the wings, where all stage tricks and
hurried realignments are visible.

In Joseph Juran’s 1964 book Managerial Breakthrough, he asked the question:

What is that organizations do that gets result so much better than ours?

The answer to this question opens door to benchmarking, an approach that is accelerating among many firms that have adopted
the total quality management (TQM) philosophy.
The Essence of Benchmarking

The essence of benchmarking is the continuous process of comparing a company’s strategy, products, processes with those of
the world leaders and best-in-class organizations.

The purpose is to learn how the achieved excellence, and then setting out to match and even surpass it.The justification lies
partly in the question: “Why reinvent the wheel if I can learn from someone who has already done it?” However, Benchmarking
is not a panacea that can replace all other quality efforts or management processes.

Levels of Benchmarking

1. Internal benchmarking (within the company)

2. Competitive or strategic benchmarking (Industry and competitors)
3. Benchmarking outside the industry.

What benefits have been achieved by the organizations that have successfully completed their benchmarking programs?

There are three sets of benefits:

1. Cultural Change
2. Performance Improvement
3. Human Resources

(A) Cultural Change: Benchmarking allows organizations to set realistic, rigorous new performance targets, and this process
helps convince people of the credibility of these targets. It helps people to understand that there are other organizations who
know and do job better than their own organization.

(B) Performance Improvement: Benchmarking allows the organization to define specific gaps in performance and to select
the processes to improve. These gaps provide objectives and action plans for improvement at all levels of organization and
promote improved performance for individual and group participants.

(C) Human Resources: Benchmarking provides basis for training. Employees begin to see gap between what they are doing
and what best-in-class are doing. Closing the gap points out the need of personnel to be trained to learn techniques of problem
solving and process improvement.

Concept of Responsibilities Accounting: Types of

Responsibilities Centers

Responsibility accounting involves accumulating and reporting costs on the basis of individual manager who has authority to
make day-to-day decisions. Under responsibility accounting the evaluation of manager’s performance is based only on matters
directly under the manager’s control. It is also termed as profitability accounting.

In this system, the accountability is established according to the responsibility delegated to various levels of management and
they are made responsible to give adequate feedback in terms of delegated responsibility. The basic idea behind responsibility
accounting is that each manager’s performance should be judged by how he or she manages those items and only those items
under his/her control.
The best way to encourage managers to achieve the desired level of performance is to measure their performance in comparison
to budgeted results. Periodic comparisons of the actual costs, revenues and investments with the budgeted costs, revenues and
investments relating to individual managers can help management in ascertaining their performance.

Essential Features of Responsibility Accounting:

1. Information for both output and input of resources, i.e., based on cost and revenue data for financial information.
2. Information for planned and actual performance.
3. Identification of responsibility centre.
4. Transfer pricing policy.
5. Performance reporting
6. To report reasons for deviation from original plan and to what extent.

Following are the main advantages of responsibility accounting:

(i) It establishes a sound system of control because it enables top management to delegate authority to responsibility centres
while retaining overall control with itself.

(ii) It forces the management to consider the organisational structure to result in effective delegation of authority and placement
of responsibility. It will be difficult for individual manager to pass back unfavorable results. Thus, it facilitates decentralisation
of decision making.

(iii) It encourages budgeting for comparison of actual achievements with the budgeted figures. It compels management to set
realistic budget.

(iv) It increases interest and awareness among the supervisory staff as they are called upon to explain about the deviations for
which they are responsible.

(v) It simplifies the structure of reports and facilitates the prompt reporting because of exclusion of those items which are
beyond the scope of individual responsibility.

(vi) It is helpful in following management by exception because emphasis is laid on reporting exceptional matters to top
management and consequently top management is not burdened with all kinds of routine matters.

The following are the four common types of responsibility centres:

1. Cost Centre:

A cost or expense centre is a segment of an organisation in which the managers are held re sponsible for the cost incurred in that
segment but not for revenues. Responsibility in a cost centre is restricted to cost. For planning purposes, the budget estimates
are cost estimates; for control purposes, performance evaluation is guided by a cost variance equal to the difference between the
actual and budgeted costs for a given period. Cost centre managers have control over some or all of the costs in their segment of
business, but not over revenues. Cost centres are widely used forms of responsibility centres.

In manufacturing organisations, the production and service departments are classified as cost centre. Also, a marketing
department, a sales region or a single sales representative can be defined as a cost centre. Cost centre may vary in size from a
small department with a few employees to an entire manufacturing plant. In addition, cost centres may exist within other cost
centres.

For example, a manager of a manufacturing plant organised as a cost centre may treat individual departments within the plant as
separate cost centres, with the department managers reporting directly to plant manager. Cost centre managers are responsible
for the costs that are controllable by them and their subordinates. However, which costs should be charged to cost centres, is an
important question in evaluating cost centre managers.
2. Revenue Centre:

A revenue centre is a segment of the organisation which is primarily responsible for generating sales revenue. A revenue centre
manager does not possess control over cost, investment in assets, but usually has control over some of the expense of the
marketing department. The performance of a revenue centre is evaluated by comparing the actual revenue with budgeted
revenue, and actual marketing expenses with budgeted marketing expenses. The Marketing Manager of a product line, or an
individual sales representative are examples of revenue centres.

3. Profit Centre:

A profit centre is a segment of an organisation whose manager is responsible for both revenues and costs. In a profit centre, the
manager has the responsibility and the authority to make decisions that affect both costs and revenues (and thus profits) for the
department or division. The main purpose of a profit centre is to earn profit. Profit centre managers aim at both the production
and marketing of a product.

The performance of the profit centre is evaluated in terms of whether the centre has achieved its budgeted profit. A division of
the company which produces and markets the products may be called a profit centre. Such a divisional manager determines the
selling price, marketing programmes and production policies.

Profit centres make managers more concerned with finding ways to increase the centre’s revenue by increasing production or
improving distribution methods. The manager of a profit centre does not make decisions concerning the plant assets available to
the centre. For example, the manager of the sporting goods department does not make the decisions to expand the available
floor space for the department.

Enterprise Risk Management

Enterprise Risk Management (ERM) is the practice of planning, coordinating, executing and handling the activities of an
organization in order to minimize the impact of risk on investment and earnings. ERM extends the approach to incorporate not
only risks connected with unexpected losses, but also strategic, financial and operational risks.

ERM also may be identified as a risk-based process that is used to manage an enterprise, integrate internal control principles
and perform strategic planning. ERM is innovative in that it is geared toward managing the growing requirements of numerous
stakeholders who need to realize the broad range of risks faced by complex organizations, helping ensure proper management.

ERM allows enterprises to meet efficiency and productivity objectives and avoid resource shortages. It also ensures beneficial
reporting and compliance with legal guidelines. In general, ERM helps enterprises attain expected objectives by avoiding
surprises and pitfalls.

ERM provides enterprises with a framework for managing risks, including:

 Recognizing specific events or instances relevant to the objectives of the organization, such as risks and
opportunities
 Evaluating risks with respect to probability and degree of impact
 Establishing response tactics
 Monitoring progress

By recognizing and proactively handling opportunities and risks, enterprises can safeguard and build value for their
stakeholders, including entrepreneurs, staff members, clients and regulators.

Advantages of ERM include:

 More potent tactical and operational planning

 Organized risk taking and proactive risk management
 Better decision making and confidence in accomplishing functional and strategic goals
 Improved stakeholder confidence
  Better financing
 Improved organizational strength
 Better management during hindrances and failures, reducing monetary impact
 Provision for future planning to reduce and eliminate surprises
 Establishment of a structured decision-making strategy

Introduction to Activity Based Costing

ABC costing focuses on identifying activities, or production processes, that are used to process a job. These individual
activities are grouped together with similar processes into a cost pool that relates to single activity cost driver.

The cost pools are then analyzed and assigned a predetermined overhead rate that will eventually be assigned to individual jobs
and products.

As you can see, this is a multi-step process, but activity-based costing is a much more accurate way of assigning indirect costs.
It’s difficult to determine how much electricity or heat one department or job uses over another without some type of
methodical allocation process.Activity based costing has grown in importance in recent decades because:-

(1) Manufacturing overhead costs have increased significantly,

(2) The manufacturing overhead costs no longer correlate with the productive machine hours or direct labor hours,

(3) The diversity of products and the diversity in customers’ demands have grown, and

(4) Some products are produced in large batches, while others are produced in small batches.

Let’s take a look at an example

Example

Activity based costing helps allocate overhead expenses to jobs and products based on the amount of the activities required to
produce the product instead of simply estimating how much each job uses.

Properly assigning indirect costs is extremely important for management, especially in the case of downsizing or outsourcing.
Profitable departments can be assigned too much indirect cost causing them to appear unprofitable on paper. Based an
evaluation management can choice to discontinue the operations and close a profitable branch because the costs were properly
distributed.

To compound the problems, once the profitable branch is closed the only remaining branches are the unprofitable ones. By
shutting down the only profitable department, the company may not be able to cover its fixed costs.

The same scenario is true for outsourcing. Management may estimate outsourcing to be a cheaper option because costs have not
been allocated properly. In fact, outsourcing might actually be more expensive.

Problems in measuring Performance & Guidelines for

proper control
1 Disregard for the System
According to management expert Harry Hatry in his book “Performance Measurement,” putting performance metrics on an
employee does not gauge how well the rest of the system works. The employee may be achieving his performance measurement
numbers, but he may be putting in an extra effort because of an inefficient order-taking system. On the other hand, the employee
might be exceeding performance metrics because the system is extremely efficient. The employee could be even more
productive in that circumstance, but without a proper measurement of the systems in place, it can be impossible to tell how
much of the performance measurement is the employee, and how much is the system.

Quality Control

Employees might try to manipulate the system and have the metrics work in their favor and that could cause a problem with
quality control, states the Association of Chartered Certified Accountants. If no quality control is in place and performance is
based solely on achieving performance measurement metrics, then substitutions can be made to reach the numbers that could be
inferior. For example, if an inside sales representative is given a metric of having to make 20 outbound phone calls a day, then
he might choose to call his friends and family 20 times a day to reach the goal. Rigid quality control of metrics needs to be put
in place to help increase the effectiveness of the process.

Customer Perspective

Performance measurement metrics tend to be one-sided and do not give the whole story of the company and client relationship,
according to the British Department of Trade and Industry. The employee might be meeting performance numbers as far as your
company is concerned, but no measurement for the quality of the service being offered exists. It is only a measurement in
quantity. By the time the drop in quality results in a drop in quantity, the relationship with the customer might already be
damaged.

Guidelines for proper control

 Setting performance standards: Managers must translate plans into performance standards. These performance
standards can be in the form of goals, such as revenue from sales over a period of time. The standards should be
attainable, measurable, and clear.
 Measuring actual performance: If performance is not measured, it cannot be ascertained whether standards have
been met.
 Comparing actual performance with standards or goals: Accept or reject the product or outcome.
 Analyzing deviations: Managers must determine why standards were not met. This step also involves
determining whether more control is necessary or if the standard should be changed.
 Taking corrective action: After the reasons for deviations have been determined, managers can then develop
solutions for issues with meeting the standards and make changes to processes or behaviors.

Timing of Controls

Controls can be categorized according to the time in which a process or activity occurs. The controls related to time include
feedback, proactive, and concurrent controls. Feedback control concerns the past. Proactive control anticipates future
implications. Concurrent control concerns the present.

Feedback

Feedback occurs after an activity or process is completed. It is reactive. For example, feedback control would involve
evaluating a team’s progress by comparing the production standard to the actual production output. If the standard or goal is
met, production continues. If not, adjustments can be made to the process or to the standard.

An example of feedback control is when a sales goal is set, the sales team works to reach that goal for three months, and at the
end of the three-month period, managers review the results and determine whether the sales goal was achieved. As part of the
process, managers may also implement changes if the goal is not achieved. Three months after the changes are implemented,
managers will review the new results to see whether the goal was achieved.

The disadvantage of feedback control is that modifications can be made only after a process has already been completed or an
action has taken place. A situation may have ended before managers are aware of any issues. Therefore, feedback control is
more suited for processes, behaviors, or events that are repeated over time, rather than those that are not repeated.
Proactive control

Proactive control, also known as preliminary, preventive, or feed-forward control, involves anticipating trouble, rather than
waiting for a poor outcome and reacting afterward. It is about prevention or intervention. An example of proactive control is
when an engineer performs tests on the braking system of a prototype vehicle before the vehicle design is moved on to be mass
produced.

Proactive control looks forward to problems that could reasonably occur and devises methods to prevent the problems. It cannot
control unforeseen and unlikely incidents, such as “acts of God.”

Concurrent control

With concurrent control, monitoring takes place during the process or activity. Concurrent control may be based on standards,
rules, codes, and policies.

One example of concurrent control is fleet tracking. Fleet tracking by GPS allows managers to monitor company vehicles.
Managers can determine when vehicles reach their destinations and the speed in which they move between destinations.
Managers are able to plan more efficient routes and alert drivers to change routes to avoid heavy traffic. It also discourages
employees from running personal errands during work hours.

Strategic control
Managers exercise strategic control when they work with the part of the organisation they have influence over to ensure that it
achieves the strategic aims that have been set for it. To do this effectively, the managers need some decision making freedom:
either to decide what needs to be achieved or how best to go about achieving the strategic aims. Such decision making freedom
is one of the characteristics that differentiate strategic control from other forms of control exercised by managers (e.g.
Operational control – the management of operational processes).

Strategic controls take into account the changing assumptions that determine a strategy, continually evaluate the strategy as it is
being implemented, and take the necessary steps to adjust the strategy to the new requirements. In this manner, strategic
controls are early warning systems and differ from post-action controls which evaluate only after the implementation has been
completed.

Important types of strategic controls used in organizations are:

1. Premise Control: Premise control is necessary to identify the key assumptions, and keep track of any change in
them so as to assess their impact on strategy and its implementation. Premise control serves the purpose of
continually testing the assumptions to find out whether they are still valid or not. This enables the strategists to
take corrective action at the right time rather than continuing with a strategy which is based on erroneous
assumptions. The responsibility for premise control can be assigned to the corporate planning staff who can
identify key asumptions and keep a regular check on their validity.
2. Implementation Control: Implementation control may be put into practice through the identification and
monitoring of strategic thrusts such as an assessment of the marketing success of a new product after pre-testing,
or checking the feasibility of a diversification programme after making initial attempts at seeking technological
collaboration.
3. Strategic Surveillance: Strategic surveillance can be done through a broad-based, general monitoring on the
basis of selected information sources to uncover events that are likely to affect the strategy of an organisation.
4. Special Alert Control: Special alert control is based on trigger mechanism for rapid response and immediate
reassessment of strategy in the light of sudden and unexpected events called crises. Crises are critical situations
that occur unexpectedly and threaten the course of a strategy. Organisations that hope for the best and prepare for
the worst are in a vantage position to handle any crisis.
Process of Strategic Control

Strategic control processes ensure that the actions required to achieve strategic goals are carried out, and checks to ensure that
these actions are having the required impact on the organisation. An effective strategic control process should by implication
help an organisation ensure that is setting out to achieve the right things, and that the methods being used to achieve these things
are working.

Regardless of the type or levels of strategic control systems an organization needs, control may be depicted as a six-step
feedback model:

1. Determine What to Control: The first step in the strategic control process is determining the major areas to
control. Managers usually base their major controls on the organizational mission, goals and objectives developed
during the planning process. Managers must make choices because it is expensive and virtually impossible to
control every aspect of the organization’s
2. Set Control Standards: The second step in the strategic control process is establishing standards. A control
standardis a target against which subsequent performance will be compared. Standards are the criteria that enable
managers to evaluate future, current, or past actions. They are measured in a variety of ways, including physical,
quantitative, and qualitative terms. Five aspects of the performance can be managed and controlled: quantity,
quality, time cost, and behavior.

Standards reflect specific activities or behaviors that are necessary to achieve organizational goals. Goals are translated
into performance standards by making them measurable. An organizational goal to increase market share, for example, may be
translated into a top-management performance standard to increase market share by 10 percent within a twelve-month period.
Helpful measures of strategic performance include: sales (total, and by division, product category, and region), sales growth, net
profits, return on sales, assets, equity, and investment cost of sales, cash flow, market share, product quality, valued added, and
employees productivity.

Quantification of the objective standard is sometimes difficult. For example, consider the goal of product leadership. An
organization compares its product with those of competitors and determines the extent to which it pioneers in the introduction of
basis product and product improvements. Such standards may exist even though they are not formally and explicitly stated.

Setting the timing associated with the standards is also a problem for many organizations. It is not unusual for short-term
objectives to be met at the expense of long-term objectives. Management must develop standards in all performance areas
touched on by established organizational goals. The various forms standards are depend on what is being measured and on the
managerial level responsible for taking corrective action.

3. Measure Performance: Once standards are determined, the next step is measuring performance. The actual
performance must be compared to the standards. Many types of measurements taken for control purposes are
based on some form of historical standard. These standards can be based on data derived from the PIMS (profit
impact of market strategy)program, published information that is publicly available, ratings of product / service
quality, innovation rates, and relative market shares standings.

Strategic control standards are based on the practice of competitive benchmarking – the process of measuring a firm’s
performance against that of the top performance in its industry. The proliferation of computers tied into networks has made it
possible for managers to obtain up-to-minute status reports on a variety of quantitative performance measures. Managers should
be careful to observe and measure in accurately before taking corrective action.

4. Compare Performance to Standards: The comparing step determines the degree of variation between actual
performance and standard. If the first two phases have been done well, the third phase of the controlling process –
comparing performance with standards – should be straightforward. However, sometimes it is difficult to make
the required comparisons (e.g., behavioral standards). Some deviations from the standard may be justified because
of changes in environmental conditions, or other reasons.
5. Determine the Reasons for the Deviations: The fifth step of the strategic control process involves finding out:
“why performance has deviated from the standards?” Causes of deviation can range from selected achieve
organizational objectives. Particularly, the organization needs to ask if the deviations are due to internal
 shortcomings or external changes beyond the control of the organization. A general checklist such as following
can be helpful:

 Are the standards appropriate for the stated objective and strategies?
 Are the objectives and corresponding still appropriate in light of the current environmental situation?
 Are the strategies for achieving the objectives still appropriate in light of the current environmental situation?
 Are the firm’s organizational structure, systems (e.g., information), and resource support adequate for
successfully implementing the strategies and therefore achieving the objectives?
 Are the activities being executed appropriate for achieving standard?

6. Take Corrective Action: The final step in the strategic control process is determining the need for corrective
action. Managers can choose among three courses of action: (1) they can do nothing (2) they can correct the
actual performance (3) they can revise the standard.

Strategic Audit of a Corporation

A strategic audit is an in-depth review to determine whether a company is meeting its organizational objectives in the most
efficient way. Additionally, it examines whether the company is utilizing its resources fully. A successful strategic audit is
beneficial to any company. It assesses various aspects of a business and evaluates and determines the most appropriate direction
for the company to move toward in achieving its goals.

SWOT Analysis

A SWOT analysis stands for strengths, weaknesses, opportunities and threats. Utilize a SWOT analysis to assess the company,
its resources and its environment by examining internal and external influences. Internal influences are the company’s strengths
and weaknesses. External influences contain opportunities and threats. A SWOT analysis yields information and direction to
transform weaknesses into strengths, emphasize opportunities for improvement and minimize threats.

Performance Analysis

Evaluate the performance of the company against established information obtained in the earlier phases. For example, with full
knowledge of all company resources, gauge whether the business is utilizing those completely or whether there are areas that
need improvement. Performance evaluations can consist of comparing past performance with current performance or assessing
and measuring against competitors.

Value Chain Analysis

Inspect all business activities to determine how each one contributes or hinders organizational objectives. M.E. Porter separated
activities into two categories: primary and support activities. Primary activities consist of in-bound and out-bound logistics, or
materials and products coming in and moving out of the company. Primary activities also include operations, marketing and
sales. Support activities are made up of human resources, procurement and infrastructure.

Primary Activities: Those that are directly concerned with creating and delivering a product (e.g. component assembly)

Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g.
human resource management). It is rare for a business to undertake all primary and support activities

Portfolio Analysis

Inventory the overall securities, investments and business units of the company and analyze them in relation to risk vs. return. A
portfolio analysis allows companies to understand better which areas to highlight and which areas to phase out. This criterion
can provide information through multiple resources to identify products that are not selling well. This enables you to allocate
funds and resources more efficiently to the products or services that offer a larger return.
An important objective of a strategic audit is to ensure that the business portfolio is strong and that business units requiring
investment and management attention are highlighted. This is important – a business should always consider which markets are
most attractive and which business units have the potential to achieve advantage in the most attractive markets.

Resource Audit

Conduct a full assessment of all resources owned or allocated by the business that are utilized to carry out organizational
objectives. Cash balances and capital are included in this tally. Determining resources requires accounting for physical property
such as buildings and lots. Additionally, categorize human resources by assessing staffers’ skill set. Also account for intangible
resources such as reputations and brand name power.

Core Competence Analysis

Determine the core competence that distinguishes your company from its competitors. Traditionally, there are four core
competencies: quality, service, cost and flexibility. Quality-driven organizations focus on carving a niche by supplying the best
quality products and developing a reliable and trustworthy reputation. Alternatively, a cost-driven strategy involves offering
products or services more cost-effective than the competition.