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Strategy Evaluation

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Strategy Evaluation

 

4.1 Strategy Evaluation Principles

4.1.1 Strategy evaluation basics

Strategy evaluation from a more prescriptive approach might normally be completed at the end of the strategy cycle, that is, after strategy analysis and development. However, as noted in our Modules, this would assume a more prescriptive ‘design’ school and ‘cookbook’ approach that it is possible to evaluate strategies only after the other steps are completed. Taking an RBV perspective, we can posit that evaluation might occur in concert with analysis and even strategy development. At one time we are analysing and developing but also evaluating. If strategy is emergent and competing as outlined in Module 1 as well as futuristic in the sense that strategists want to reinvent the future before it arrives, they are unlikely to achieve this if strategy is only evaluated after the event.

 Let’s look at some fundamentals however and we will revisit the notion of some critical analysis a bit later in the module. We will start by exploring what evaluation means and why it is tricky to apply evaluation methods in practice. In Chapter 12 of your text under the heading ‘What is Strategy Evaluation,’ we can see that managers are attempting to match data with business goals and objectives. Hence, strategy evaluation conceived in this way is often described as a retrospective event only after known results. The four criteria noted by Rumelt seem a good place to start (page 400, Chapter 12) because we need to determine the extent to which a strategy will achieve a competitive advantage and whether it is feasible. The last point is critical. Here, we want to be able to measure our strategies through some performance measure, both externally and internally. Firms need to be able to ‘afford’ the strategy and have the available resources to assist firm strategies to achieve a competitive advantage. At the bottom of page 401, the three evaluative tools such as strategic, financial and organisational help the firm


do this. The key results areas (KRAs) described help prioritise objectives with action related to the product or service, methods and tools, the strategic capacity related to experience and relationships, and knowledge and technology (Figure 4.1).

Four criteria:

 1)  consistency: must not present mutually inconsistent goals,

 2)  consonance: adaptive response to external environment,

3)  advantage: creation/maintenance of competitive advantage

 4)  feasibility: not overtax resources or create unsolvable sub-issues

 Groups of evaluative tools:1)Strategic: SWOT; achieving

 objectives, alternatives being evaluated,

 2)  Financial: ROI, risk assessments, other financial measures,

 3)  Organisational: acceptable, internal fit, consistency 

necessary to support development & delivery

Now refer to Reading 1 by Kaplan and Norton (2008). Note on the second page in, the authors talk about how discussions related to bad strategy tend to drive out discussions about good strategy development. They go on to outline a prescriptive model with five steps. We are not necessarily advocating the value of the model in terms of its steps, however we are advocating its component parts. Read the article as a whole and you can see the importance of these component parts. Most of these are easily explained and outlined however let’s focus on Steps 3 and 4 for a moment. Step 3 is often so poorly implemented in firms that strategies fail by stealth. That is, how to implement process improvements related to speed, quality and cost are often not transparent at the ‘action’ level and too often strategic plans gather dust. Also, sales and resource capacity plans are equally valuable if a firm is seeking to match its strategies to its overall resource inputs, for example, the activity-based costing related to processes, products and customers extending or estimating future sales forecasts into resource capacity going forward. For instance, in your case studies, you should always try to predict the demand for products and services going forward, then translate these into real-time processes, products and customer requirements. What will it take to meet these future forecasts?

 Note what the article articulates about budgeting; similarly, ‘monitor and learn,’ the idea that managers hold different kinds of meetings such as operational review meetings. Here, the most important aspect is the notion of managers meeting to assess the performance of the strategy. The authors also link this management system to the balanced scorecard (discussed next), the idea that translating the strategies developed need to be integrated into financial, customer, process and learning and growth perspectives. These cyclical activities outlined by Kaplan and Norton are interesting to the extent that they make us think and reflect about why strategy is developed in the first place. This takes us to the foundation of the RBV logic, the idea that resources can be shaped into capabilities then competencies and then sustained competencies that create competitive advantage. The purpose of evaluation is to ensure that a firm can sustain its advantage by carefully assessing the results of the business and asking the question: ‘is strategy working or not?’

 In adopting the idea of Reading 2 of both predictive and descriptive analytics, think of any traditional ways of assessing the market demand for retail shop fronts. How would a clothing manufacturer have predicted the means for selling their clothing brands? Now using the idea of Big Data analytics, how might they recalculate this demand given much more data-driven information on volume, variety, veracity and velocity? Let’s discuss this on the forum.

In Module 2, we talked of the idea of the new media citing Plesner and Gulbrandsen (2015). Here, we introduced the notion of turning greater attention to the micro by moving closer to those activities that go on inside organisational processes, in particular, paying ‘more attention to the performative role of technology in organisational processes….the range of tools, artefacts

 and objects that co-constitute strategy (2015, p. 154). This was extended by these authors to mean the influence of social media (software), smartphones (hardware) and big data (informational phenomena). Now refer to Reading 2 by Vahn (2014). The importance of Big Data analytics is becoming as apparent as the influence of social media. Put simply, big data analytics is about collecting a lot of data about relevant information e.g., of markets, of competitors, derived from many (and in many) formats, more accurately than before and more frequently. These realities point to volume, variety, veracity and the velocity of data that can be generated so that the future is not as uncertain as noted in Reading 2. While traditional post hoc analysis such as that presented in Appendix 1 of different financial ratios remains popular (and important), it is retrospective and backward-looking than progressive and avant-garde. The question then is what other analysis can be done by adopting a more thorough review of descriptive, predictive and prescriptive data about markets, competitors, industries, strategic options and so on? The author suggests a firm might start by assessing its current level of data collection and analysis. We can see here how a Big Data approach is as much a part of analysis (Module 2) as it is evaluation (Module 4) confirming our approach in this course that strategy is both prescriptive and emergent yet predictive and proactive.


4.2. Evaluative Models

4.2.1 Balanced Scorecard (BSC)

 Referring earlier to Reading 1, also page 409 of your text by Grant et al. (2014), see how the BSC is an integrated approach towards balancing strategic and financial goals. Critical to the BSC is the idea of accounting for a customer perspective (creating the customer value proposition) and internal process perspective (aligning operations, customers, innovation and regulatory and social processes). However, learning and growth perspectives cannot be ignored because they define how well the organisation uses the knowledge that is generated in respect of human, information and organisation capital. Now refer to Reading 1 again in particular the

closed loop management system described by Kaplan and Norton (2008). Notice how the BSC is both an evaluative tool or model for planning operations as it is a ‘test and adapt’ and ‘monitor and learn’ tool in an evaluative sense. Later in Reading 1 under the heading ‘mapping strategic themes,’ the authors illustrate some of the value statements inherent in the model under each of the headings related to customer, process and learning and growth perspective. For instance, if the BSC is being used as an evaluative tool, the learning and growth perspective might measure how well current firm strategies have helped to build strategic skills, capabilities and expertise. See some of the BSC perspectives and how they are measured on page 411 of your text.

Modified from Mastilak et al. (2012)

In Figure 4.2, we can see how the BSC can be used as a driver of performance. That is, in Figure 4.2, the Learning and Growth factor is the driver for the latter two customer and financial outcomes. Now refer to Reading 3 which discusses different perspectives of the Balanced Scorecard as a strategy map for evaluation. The BSC as noted by Mastilak et al. combines driver and outcome measures as a way to link them to a firm’s strategy. Strategy maps (sometimes also called action plans – see Figure 4.3) are a visual representation that connect drivers to outcomes. According to these authors, strategy maps may cause evaluators - such as General Managers - to rely on the specific strategies stated thus influencing the kind of assessment made of other managers - such as Business Managers. Their study was based on analysing evaluators, that is, those managers making an evaluation of a strategy. Evaluations made with strategy maps rely on information presented in them which are often related to diagrams, charts, graphs and so on. Thus, when there is a ‘match between the format in which information is displayed and the manner in which information is represented in memory’ (Mastilak et al. 2012, p.102), the map itself focuses the evaluators attention on the driver(s) and outcome. Accordingly, the evaluator will construe that the outcome was less to do with uncontrollable factors. Interestingly, when no such strategy map exists, Reading 3 highlights how uncontrollable factors play a much larger part in insulating and protecting managers from negative and poor outcomes. The latter in particular is consistent with much prior research which has found that many firms do not use cause-and-effect diagrams to verify strategy maps. Overall, when uncontrollable factors such as high environment risk and conflict exist, evaluators take these into consideration in their evaluations of the driver-outcome link. However, when strategy maps exist, they ‘increase the likelihood that BSC users hold managers responsible for achieving outcomes in the face of uncontrollable factors’ (p.11).



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