HOW TO EVALUATE A STRATEGY
Is your strategy right for you? There are six criteria on which to base an answer.
These are:
1. Internal consistency.
2. Consistency with the environment.
3. Appropriateness in the light of available resources.
4. Satisfactory degree of risk.
5. Appropriate time horizon.
6. Workability.
1. Is the Strategy Internally Consistent?
Internal consistency with corporate goals.
Each policy fits into an integrated pattern.
How it relates to other policies, which the company has established and to the goals it is pursuing.
2. Is the Strategy Consistent with the Environment?
Important test of strategy is whether the chosen policies are consistent with the environment—whether they really make sense with respect to what is going on outside.
Consistency with the environment, a static and a dynamic aspect. In a static sense, it implies judging the efficacy of policies with respect to the environment as it exists now. In a dynamic sense, it means judging the efficacy of policies with respect to the environment, as it appears to be changing.
In one sense, therefore, establishing a strategy is like aiming at a moving target. You have to be concerned not only with present position but also with the speed and direction of movement.
3. Is the strategy Appropriate in View of the Available Resources?
Resources are those things that a company is or has and that help it to achieve its corporate objectives, like money, competence, and facilities; there are two basic issues which management must decide in relating strategy and resources. These are:
What are our critical resources?
Is the propose strategy appropriate for available resources?
Critical Resources –
that they represent action potential, and its capacity to respond to threats and opportunities that may be perceived in the environment. They are the factor limiting the achievement of corporate goals; and that which the company will exploit as the basis for its strategy. The three resources most frequently identified as critical are money, competence, and physical facilities. Let us look at the strategic significance of each.
Money: particularly valuable resource because it provides the greatest flexibility of response to events as they arise and considered the “safest” resource, in that safety may be equated with the freedom to chose from among the widest variety of future alternatives. Companies that wish to reduce their short-run risk will therefore attempt to accumulate the greatest reservoir of funds they can.
Competence:
Organizations survive because they are good at doing those things, which are necessary to keep them live. Companies may be good at marketing, other especially good at engineering; still others depend primarily on their financial sophistication. In determining a strategy, management must to determine where its strengths and weaknesses lie. It must then adopt a strategy, which makes the greatest use of its strengths.
Physical Facilities:
Physical facilities have significance primarily in relationship to overall corporate strategy. Any appraisal of a company’s physical facilities as a strategic resource must consider the relationship of the company to its environment. Facilities have no intrinsic value for their own sake. Their value to the company is either in their location relative to markets, or to sources impending competitive installations.
Achieving the Right Balance:
One of the most difficult issues in strategy determination is that of achieving a balance between strategic goals and available resources. The most common errors are either to fail to make these estimates at all or to be excessively optimistic about them.
4. Does the Strategy Involve an Acceptable Degree of Risk?
Strategy and resources, taken together, determine the degree of risk, which the company is undertaking and this is a critical managerial choice. Each company must decide for itself how much risk it wants to live with. Some qualitative factors to be used for evaluation of the degree of risk are:
The amount of resources (on which the strategy is based) whose continued existence or value is not assured.
The length of the time periods to which resources are committed.
The proportion of resources committed to a single venture.
The greater these quantities, the greater the risk that is involved.
5. Does the Strategy Have an Appropriate Time Horizon?
A viable strategy reveals what goals are to be accomplished along with when the aims are to be achieved. Goals, like resources, have time-based utility.
6. Is the Strategy Workable?
It would seem that the simplest way to evaluate a corporate strategy. A better way of asking: Does it work? However, if we to answer that question, we are immediately faced with criteria. What is the evidence of a strategy “working”? Quantitative indexes on performance are a good start, but they really measure the influence of two critical factors combined; the strategy selected and the skill with which it is being execute. Faced with the failure to achieve anticipated results, both of these influences must be critically examine.
These are:
1. Internal consistency.
2. Consistency with the environment.
3. Appropriateness in the light of available resources.
4. Satisfactory degree of risk.
5. Appropriate time horizon.
6. Workability.
1. Is the Strategy Internally Consistent?
Internal consistency with corporate goals.
Each policy fits into an integrated pattern.
How it relates to other policies, which the company has established and to the goals it is pursuing.
2. Is the Strategy Consistent with the Environment?
Important test of strategy is whether the chosen policies are consistent with the environment—whether they really make sense with respect to what is going on outside.
Consistency with the environment, a static and a dynamic aspect. In a static sense, it implies judging the efficacy of policies with respect to the environment as it exists now. In a dynamic sense, it means judging the efficacy of policies with respect to the environment, as it appears to be changing.
In one sense, therefore, establishing a strategy is like aiming at a moving target. You have to be concerned not only with present position but also with the speed and direction of movement.
3. Is the strategy Appropriate in View of the Available Resources?
Resources are those things that a company is or has and that help it to achieve its corporate objectives, like money, competence, and facilities; there are two basic issues which management must decide in relating strategy and resources. These are:
What are our critical resources?
Is the propose strategy appropriate for available resources?
Critical Resources –
that they represent action potential, and its capacity to respond to threats and opportunities that may be perceived in the environment. They are the factor limiting the achievement of corporate goals; and that which the company will exploit as the basis for its strategy. The three resources most frequently identified as critical are money, competence, and physical facilities. Let us look at the strategic significance of each.
Money: particularly valuable resource because it provides the greatest flexibility of response to events as they arise and considered the “safest” resource, in that safety may be equated with the freedom to chose from among the widest variety of future alternatives. Companies that wish to reduce their short-run risk will therefore attempt to accumulate the greatest reservoir of funds they can.
Competence:
Organizations survive because they are good at doing those things, which are necessary to keep them live. Companies may be good at marketing, other especially good at engineering; still others depend primarily on their financial sophistication. In determining a strategy, management must to determine where its strengths and weaknesses lie. It must then adopt a strategy, which makes the greatest use of its strengths.
Physical Facilities:
Physical facilities have significance primarily in relationship to overall corporate strategy. Any appraisal of a company’s physical facilities as a strategic resource must consider the relationship of the company to its environment. Facilities have no intrinsic value for their own sake. Their value to the company is either in their location relative to markets, or to sources impending competitive installations.
Achieving the Right Balance:
One of the most difficult issues in strategy determination is that of achieving a balance between strategic goals and available resources. The most common errors are either to fail to make these estimates at all or to be excessively optimistic about them.
4. Does the Strategy Involve an Acceptable Degree of Risk?
Strategy and resources, taken together, determine the degree of risk, which the company is undertaking and this is a critical managerial choice. Each company must decide for itself how much risk it wants to live with. Some qualitative factors to be used for evaluation of the degree of risk are:
The amount of resources (on which the strategy is based) whose continued existence or value is not assured.
The length of the time periods to which resources are committed.
The proportion of resources committed to a single venture.
The greater these quantities, the greater the risk that is involved.
5. Does the Strategy Have an Appropriate Time Horizon?
A viable strategy reveals what goals are to be accomplished along with when the aims are to be achieved. Goals, like resources, have time-based utility.
6. Is the Strategy Workable?
It would seem that the simplest way to evaluate a corporate strategy. A better way of asking: Does it work? However, if we to answer that question, we are immediately faced with criteria. What is the evidence of a strategy “working”? Quantitative indexes on performance are a good start, but they really measure the influence of two critical factors combined; the strategy selected and the skill with which it is being execute. Faced with the failure to achieve anticipated results, both of these influences must be critically examine.