STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants

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Strategic Management MGT603

Lesson 40

STRATEGY REVIEW, EVALUATION AND CONTROL

Learning objectives

The last step of strategy frame work model is control evaluation. In this chapter the main concern is

evaluation process its importance and porter five forces model

Evaluation

Evaluation is the systematic determination of merit, worth, and significance of something or someone.

Evaluation often is used to characterize and appraise subjects of interest in a wide range of human

enterprises, including the Arts, business, computer science, criminal justice, education, engineering,

foundations and non-profit organizations, government, health care, and other human services.

In the field of evaluation, there is some degree of disagreement in the distinctions often made between

the terms 'evaluation' and 'assessment.' Some practitioners would consider these terms to be

interchangeable, while others contend that evaluation is broader than assessment and involves making

judgments about the merit or worth of something (an evaluand) or someone (an evaluee). When such a

distinction is made, 'assessment' is said to primarily involve characterizations objective descriptions,

while 'evaluation' is said to involve characterizations and appraisals determinations of merit and/or

worth. Merit involves judgments about generalized value. Worth involves judgments about instrumental

value. For example, a history and a mathematics teacher may have equal merit in terms of mastery of

their respective disciplines, but the math teacher may have greater worth because of the higher demand

and lower supply of qualified mathematics teachers. A further degree of complexity is introduced to this

argument when working in different languages, where the terms 'evaluation' and 'assessment' may be

variously translated, with terms being used that convey differing connotations related to conducting

characterizations and appraisals.

There are many methods, techniques and approaches for conducting evaluations. The following list

includes some of the most common.

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Strategic Management MGT603

· Accelerated aging

Cost-benefit

Interview

Quantitative

· Action research

analysis

research

Marketing

· Advanced

Data mining

Questionnaire

research

Product Quality

Delphi Technique

Meta-analysis

Questionnaire

Planning

construction

Discourse analysis

Metrics

· Alternative

Root

cause

Electronic

Multivariate

assessment

analysis

portfolio

statistics

· Appreciative

Rubrics

Environmental

Naturalistic

Inquiry

scanning

observation

Sampling

· Assessment

Ethnography

Observational

School

· Axiomatic design

techniques

accreditation

Experiment

· Benchmarking

Opinion polling

Self-assessment

Experimental

· Case study

Organizational

Six Sigma

techniques

· Change

learning

Factor analysis

Standardized

management

Participant

testing

Factorial

· Clinical trial

observation

Statistical process

experiment

· Cohort study

Policy analysis

control

Feasibility study

· Competitor

Process

Statistical survey

Field experiment

improvement

Statistics

analysis

Fixtureless

In-

· Consensus

Project

Strategic planning

Circuit Test

management

decision-making

Focus group

Structured

· Consensus-

Qualitative

interviewing

Force

field

research

seeking decision-

analysis

Systems theory

making

Quality audit

Game theory

Student testing

· Content analysis

Quality circle

Grading

Total

Quality

· Conversation

Quality control

Management

Inquiry

analysis

Quality

Triangulation

management

Quality

Management

System

Strategy Evaluation

Organizations are most vulnerable when they are at the peak of their success.

R.T. Lenz

"Strategy evaluation alerts management to potential or actual problems in a timely fashion."

It is Complex and sensitive undertaking

Overemphasis can be costly and counterproductive

Systematic Review, Evaluation & Control

1. Strategies become obsolete

2. Internal environments are dynamic

3. External environments are dynamic

Michael Porter's five forces

Michael Porter's 1979 framework uses concepts developed in Industrial Organization (IO) economics

to derive 5 forces that determine the attractiveness of a market. Porter referred to these forces as the

microenvironment, to contrast it with the more general term macro environment. They consist of those

forces close to a company that affect its ability to serve its customers and make a profit. A change in

any of the forces normally requires a company to re-assess the marketplace.

Five Forces

Five forces -- the bargaining power of customers, the bargaining power of suppliers, the threat of new

entrants, and the threat of substitute products -- combine with other variables to influence a fifth force,

the level of competition in an industry. Each of these forces has several determinants:

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Strategic Management MGT603

A graphical representation of Porters Five Forces

The bargaining power of customers

o buyer concentration to firm concentration ratio

o bargaining leverage

o buyer volume

o buyer switching costs relative to firm switching costs

o buyer information availability

o ability to backward integrate

o availability of existing substitute products

o buyer price sensitivity

o price of total purchase

The bargaining power of suppliers

o supplier switching costs relative to firm switching costs

o degree of differentiation of inputs

o presence of substitute inputs

o supplier concentration to firm concentration ratio

o threat of forward integration by suppliers relative to the threat of backward integration by

firms

o cost of inputs relative to selling price of the product

o importance of volume to supplier

The threat of new entrants

o the existence of barriers to entry

o economies of product differences

o brand equity

o switching costs

o capital requirements

o access to distribution

o absolute cost advantages

o learning curve advantages

o expected retaliation

o government policies

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Strategic Management MGT603

· The threat of substitute products

o buyer propensity to substitute

o relative price performance of substitutes

o buyer switching costs

o perceived level of product differentiation

The intensity of competitive rivalry

o power of buyers

o power of suppliers

o threat of new entrants

o threat of substitute products

o number of competitors

o rate of industry growth

o intermittent industry overcapacity

o exit barriers

o diversity of competitors

o informational complexity and asymmetry

o brand equity

o fixed cost allocation per value added

o level of advertising expense

Some argue that a 6th force should be added to Porter's list to include a variety of stakeholder groups

from the task environment. This force is referred to as "Relative Power of Other Stakeholders". Some

examples of these stakeholders are governments, local communities, creditors, and shareholders.

This 5 forces analysis is just one part of the complete Porter strategic models. The other elements are

the value chain and the generic strategies.

Purpose of strategy evaluation

· Strategy evaluation is vital to the organization's well-being

· Alert management to potential or actual problems in a timely fashion

· Erroneous strategic decisions can have severe negative impact on organizations

Basic Activities 

1. Examining the underlying bases of a firms' strategy

2. Comparing expected to actual results

3. Corrective actions to ensure performance conforms to plans

In many organizations, evaluation is an appraisal of performance

· Have assets increased?

· Increase in profitability?

· Increase in sales?

· Increase in productivity?

· Profit margins, ROI and EPS ratios increased

Four Criteria (Richard Rummelt):

· Consistency

· Consonance

· Feasibility

· Advantage

Consistency

Strategy should not present inconsistent goals and policies.

· Conflict and interdepartmental bickering symptomatic of managerial disorder and

strategic inconsistency

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Strategic Management MGT603

Consonance

Need for strategies to examine sets of trends

· Adaptive response to external environment

· Trends are results of interactions among other trends

Feasibility

Neither overtax resources nor creates unsolvable sub problems

· Organizations must demonstrate the abilities, competencies, skills and talents to

carry out a given strategy

Advantage

Creation or maintenance of competitive advantage

· Superiority in resources, skills, or position

The process of evaluating Strategies

1. Strategy evaluation is necessary for all sizes and kinds of organization. Strategy evaluation should

initiate managerial questioning of expectations and assumptions should trigger a review of objectives

and values and should stimulate creativity in generating alternative and formulating criteria of

evaluation

2. Evaluating strategies on continuous rather than a periodic basis allows benchmark of progress to

established and o\more effectively monitored

3. Managers and employees of the firm should be continually aware of progress being made towards

achieving the firm's objectives. As a critical success factors change, organization members should be

involved in determining appropriate corrective action.

A Strategy-Evaluation Framework

Strategy-evaluation activities in terms of key questions that should be addressed, alternative answers to

those questions, and appropriate actions for an organization to take. Notice that corrective actions are

almost always needed except when (1) external and internal factors have not significantly changed and

(2) The firm is progressing satisfactorily toward achieving stated objectives.

Evaluation Framework

I. Review Underlying

Bases

III.

Take

Yes

Differences?

Corrective

Actions

II. Measure Firm Performance

Yes

Differences?

Continue present course

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