Strategic control

Strategic control

Strategic control can be defined as process of monitoring as to whether to various

strategies adopted by the organization are helping its internal environment to be matched
with the external environment. Strategic control processes allow managers to evaluate a
company's program from a critical long-term perspective. This involves a detailed and
objective analysis of a company's organization and its ability to maximize its strengths
and market opportunities.

Components or Types of strategic control

1. Premise control: is designed to check systematically and continuous whether or

not the premises set during the planning and implementation process are still valid
2. Implementation control: is designed to assess whether the overall strategy result
associated with incremental steps and actions that implement overall strategy.
3. Strategic surveillance: It is designed to monitor a broad range of events inside
and outside the company to threaten the course of firm's strategy.
4. Special alert control: is the need to thoroughly and often rapidly reconsider the
firm's basic strategy based on a sudden unexpected event.

Process of strategic control

1. Determine What to Control: The first step in the 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 organizations

2. Set Control Standards: The second step in the control process is establishing
standards. A control standard is 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 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 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.

When standards are not met, managers must carefully assess the reasons why and take
corrective action. Moreover, the need to check standards periodically to ensure that the
standards and the associated performance measures are still relevant for the future.

The final phase of controlling process occurs when managers must decide action to take
to correct performance when deviations occur. Corrective action depends on the
discovery of deviations and the ability to take necessary action. Often the real cause of
deviation must be found before corrective action can be taken. Causes of deviations can
range from unrealistic objectives to the wrong strategy being selected achieve
organizational objectives. Each cause requires a different corrective action. Not all
deviations from external environmental threats or opportunities have progressed to the
point a particular outcome is likely, corrective action may be necessary.

Benefits of strategic control

1. Measurement of organizational progress,

2. Feedback for future actions, and

3. Linking performance and rewards.

1. Measurement of Organizational Progress:

Strategic control measures organizational progress towards achievement of its objectives.

When a strategy is chosen, it specifies the likely outcomes which are relevant for

achieving organizational objectives. The strategy is not an end in itself; it is a means for

achieving something valuable to organizational success.

Therefore, measuring this success as a result of strategy implementation is a prime

concern for every strategist. This measurement should be undertaken during the process

of strategy implementation as well as after implementation to ensure the progress as

quickly as possible so that remedial actions are taken at appropriate time.
2. Feedback for Future Actions:
Strategic management being a continuous process with no apparent beginning and end,

control provides clues for recycling various actions which are relevant for achieving

organizational objectives. This is possible only when strategic planning and control are

well integrated.

Thus, control activities are undertaken in the light of criteria set by a strategic plan. But at

the same time, control provides inputs either for adjusting the same strategic plan or

taking future strategic plans. This is the way organizations progress over the period of
time. They take a strategic action, implement it, and find its results. If the results are in

tune with what were intended, the similar types of strategic actions are taken in future.

Thus, there is a chain of strategic plan, actions, and control.

3. Linking Performance and Rewards:

This is the most crucial aspect of strategic control but many organizations fail in linking

performance and rewards. This happens not only at the level of different organizations

but even for a country as a whole. For example, Abegglen has observed that ―the

dispension of part of the rewards by the organizations without regard to performances is

more common in the less modern parts of the country than in the more advanced ones,

and in less developed than in more developed countries. It is one of the reasons why

organizational control is less effective in less developed countries.‖

Their role in strategic control is as follows:

i. Finance managers are primarily concerned with finding out deviations between planned
and actual performance expressed in monetary terms. These are done through financial
analysis, budgeting, etc.

ii. SBU manners are responsible for overall control of their respective strategic business
units. In fact, they are the chief executives of their own SBUs except that they report to
the chief executive of the organization from whom they seek directions.
iii. Middle-level managers, mostly functional managers and sub-unit managers, are
responsible for control of their respective functions and sub-units. These managers are
more concerned with day-to-day operational control and prepare reports to be used by
higher-level managers. For example, a production manager is more interested in
controlling production volume, production cost, product quality, etc.

Strategic Control – Barriers: Motivational and Operational Problems

Strategic control, being an appraisal process for the organization as a whole and people
who are involved in strategic management process either at the stage of strategy
formulation or strategy implementation or both, is not free from certain barriers and
problems.

These barriers and problems centre around two factors:

1. Motivational and
2. Operational.
Let us see what these problems are and how these problems may be overcome.

1. Motivational Problems:
The first problem in strategic control is the motivation of managers (strategists) to
evaluate whether they have chosen correct strategy after its results are available. Often,
two problems are involved in motivation to evaluate the strategy –
i. Psychological barriers and
ii. Lack of direct relationship between performance and rewards.

i. Psychological Barriers:
Managers are seldom motivated to evaluate their strategies because of the psychological
barriers of accepting their mistakes. The strategy is formulated by top management which
is very conscious about its sense of achievement. It hardly appreciates any mistake it may
commit at the level of strategy formulation. Even if something goes wrong at the level of
strategy formulation, it may put the blame on the operating management and tries to find
out the faults at the level of strategy implementation.
This over-conscious approach of top management may prevent the objective evaluation
of whether correct strategy has been chosen and implemented. This may result in delay in
taking correct alternative action and bringing the organization back at satisfactory level.
This happens more in the case of retrenchment strategy, particularly divestment strategy
where a particular business has failed because of strategic mistake and in order to save
the organization from further damage, the business has to be sold.
ii. Lack of Direct Relationship between Performance and Rewards:
Another problem in motivation to evaluate strategy is the lack of direct relationship
between performance achievement and incentives. It is true that performance
achievement itself is a source of motivation but this cannot always happen. Such a
situation hardly motivates the managers to evaluate their strategy correctly. This happens
more in the case of family-managed businesses where professional managers are treated
as outsiders and top positions, particularly at the board level, are reserved for insiders.
Naturally, very bright managers are not motivated to evaluate correctness or otherwise of
their strategy. The family managers of such organizations are even more prone to
psychological problem of not evaluating their strategy and admit their mistakes.
Thus, what is required for motivating managers to evaluate their performance and
strategy is the right type of motivational climate in the organization. This climate can be
set by linking performance and rewards as closely as possible. This linking is required
not only for the top level but for the lower down in the organization too. Many forward-
looking companies, though few in number, have taken this step when they have adopted
the policy of taking board members from outside their families and friend groups.
These companies have taken this step not only to satisfy the requirements of financial
institutions of broad basing the directorship but they have taken this step to motivate their
top-level managers. Naturally, top managers in such companies can take any step to fulfil
the organizational requirements including the evaluation of their strategy.

2. Operational Problems:
Even if managers agree to evaluate the strategy, the problem of strategic evaluation is not
over, though a beginning has been made. This is so because strategic evaluation is a
nebulous process; many factors are not as clear as the managers would like these to be.
These factors are in the areas of determination of evaluative criteria, performance
measurement, and taking suitable corrective actions. All these are involved in strategic
control. However, nebulousness nature is not unique to strategic control only but it is
unique to the entire strategic management process.
PURPOSE OF STRATEGIC CONTROL

a. To identify whether the organization should continue with its present strategy or
modify it is the light of changed circumstances.

b. To indicate whether or not a particular physical process is operating at a desired

level of efficiency. At the end of a manufacturing process, for example a wall
thermostat may be control the central healing system of a house.

c. To discover any faults at an earlier stage and the usual method is to sample units
of the product in order to check that they confirm to the agreed specifications.

d. To apply people in attempting to assess those parts of their work which can be
measured. For example, salesmen are subject to sales targets which may be in
terms of the number of sales or their value. The salesmen are then paid according
to the value of the sales they make.

e. To encourage on high level of efficiency and effectiveness in employees

including quality assurance (QA) and QUEST (Quality in Every Single Task). QA
supports teams of employees with systems and resources to help them understand
the quality characteristics of their products and services and to undertake quality
controls.

f. To maintain the reputation of an organization and to enhance it, so that it is not

just concerned with reacting to problems but also with encouraging an
environment that enables the organization to work through problems without
losing its good reputation. For example some toilets soaps have strong reputation
for being reliable and when a particular brand soap proves to be unreliable this is
the ‗example that proves the rule‘ in the sense that it is seen to be very unusual
and therefore does not dent the reputation of the company.
TECHNIQUES OF STRATEGIC EVALUATION AND CONTROL

Strategic evaluation is referred to the process of the measurements and testing the
efficiency and effectiveness of strategic decisions to achieve business objectives and
taking the corrective steps and actions if desired objectives not achieved. Techniques of
Strategic Evaluation are stated below:

1. Gap Analysis:

This is one of the techniques which can identify the gap between the actual achieved
performance and expected performance of the organization as per the management
strategy. With the various business tools and ratio analyze, it can easily indentify the gap
between actual and expected performance. The gap identify with the analyses of Sales,
Market share, Competitors performance, etc.

2. SWOT Analysis:

This is one techniques of strategic evaluation to actual monitor the performance of

strategic decisions. SWOT describes as organization‘s strengths, weaknesses,
opportunities and threats. The Evaluation system should analyze the internal and external
environment of business and plan organization‘s strengths, weaknesses, opportunities and
threats for the effectively applicable business resources to achieve desired results.

3. PEST Analysis:

This is one of the techniques used for the evaluation system of strategy. The business
atmosphere is highly sensitive and complex in nature. PEST denotes Political,
Economical, Social and Technological factors directly impact on the business. These are
essential factors should be considered while framing the strategy. The success of strategic
decisions is mainly depending on these factors. Political factors are considered rules and
regulation, legislatures, and environmental norms etc. Economical factors exhibits the
economic conditions prevailed in the market to identify opportunity and threats for the
business. Social factors show the behavior of customers, demographic pattern of
customers and about the values and tradition of people for adopted best suitable strategy.
Technological factors are highly sensitive and dynamic in nature. The organization must
set the Standard performance is benchmark for the measuring actual performance. The
regular monitoring and measuring the performance of strategic plan and collection of data
that indicates actual result of the given activity and set the benchmark of activity.
FACTORS TO BE CONSIDERED IN STRATEGIC CONTROL

In putting the control process in operation, two basic issues are involved- what to control
and how to control. The first issue is related to the identification of those factors on the
basis of which degree of business success is determined. The second issue involves the
use of various control techniques. The first issue is taken here while the second issue will
be taken later. The success of any organization, whether business or non-business, is
measured in terms of its objective achievement. Since an organization may pursue a
number of objectives simultaneously, and these may be expressed in different forms,
there are a number of factors which are considered in control.

1. Causal factors
2. Intervening factors and
3. End-result factors.

1. Causal Factors:

Causal factors are those that influence the course of development in an organization.
These are independent variables and affect intervening factors and through these, end-
result factors. For example, strategy formulation and its implementation affect various
product, customer, and personnel related factors. These, in turn, affect different end-result
factors which are used, generally, to measure business performance.

2. Intervening Factors:

Intervening factors are those factors which are reflected as the internal state of the
organization. These are caused by causal factors and, therefore, cannot be changed
independently except by changing causal factors; in this case, type of strategy and its
implementation. For example, personnel attitudes and morale, an intervening criterion,
cannot be changed unless there is a suitable change in organizational design, systems, and
leadership— all being elements of strategy implementation. Intervening factors are,
generally, grouped into three categories- product, customer, and personnel related.
An illustrative list of intervening factors is given below:

i. Product-Related Factors:
a. Product quality and performance
b. Product cost and price
c. New products introduced

ii. Customer-Related Factors:

a. Customer service
b. Customer satisfaction
c. Customer loyalty

iii. Personnel-Related Factors:

a. Attracting and retaining human talent
b. Personnel ability and skills
c. Personnel motivation and attitudes to work

3. End-Result Factors:
End-result factors are those factors which are caused by causal and intervening factors
and are often in terms of the factors in which organizational success is measured. These
factors are highly dependent and, therefore, cannot be changed except by changing the
factors responsible for these. End-result factors are grouped into two broad categories-
financial performance and social performance.

Given below is the illustrative list of these factors:

i. Financial Performance:
a. Rate of growth –
(a) Sales growth
(b) Asset growth
(c) Market share

b. Profitability
(a) Profit-sales relationship
(b) Return on investment
c. Shareholder value