Everything you need to know about strategic control. Strategic controls are intended to steer the company towards its long-term strategic direction.
After a strategy is selected, it is implemented over time so as to guide a firm within a rapidly changing environment. Strategies are forward-looking, and based on management assumptions about numerous events that have not yet occurred.
Strategic control is concerned with tracking the strategy as it is being implemented, detecting problems or changes in the premises and making necessary adjustments.
In contrast to post- action control, strategic control is concerned with controlling and guiding efforts on behalf of the strategy as action is taking place.
Strategic control is related to that aspect of strategic management through which an organization ensures whether it is achieving its objectives contemplated in the strategic action. If not, what corrective actions are required for strategic effectiveness.
1. Meaning of Strategic Control 2. Definitions of Strategic Control 3. Types of Strategic Control 4. Purpose 5. Process
6. Strategic and Operational Control 7. Role 8. Participants in Strategic Control 8. Role of Organisational Systems 11. Criteria 12. Barriers.
Strategic Control: Meaning, Types, Purpose, Process, Role, Participants in Strategic Control, Barriers and a Few Others
- Meaning of Strategic Control
- Definitions of Strategic Control
- Types of Strategic Control
- Purpose of Strategic Control
- Techniques of Strategic Control
- Strategic Control Process
- Strategic and Operational Control
- Role of Strategic Control
- Participants in Strategic Control
- Role of Organisational Systems in Strategic Control
- Strategic Control Criteria
- Barriers in Strategic Control
Strategic Control – Meaning
Strategic controls are intended to steer the company towards its long-term strategic direction. After a strategy is selected, it is implemented over time so as to guide a firm within a rapidly changing environment. Strategies are forward-looking, and based on management assumptions about numerous events that have not yet occurred.
Traditional approaches to control seek to compare actual results against a standard. The work is done, the manager evaluates the work and uses the evaluation as input to control future efforts. While this approach is not useless, it is inappropriate as a means to control a strategy.
Waiting until a strategy has been fully executed often involves five or more years, during which many changes occur, that have major ramifications for the ultimate success of the strategy. Consequently, traditional control concepts must be replaced in favour of strategic controls that recognise the unique control needs of long-term strategies.
Strategic control is concerned with tracking the strategy as it is being implemented, detecting problems or changes in the premises and making necessary adjustments. In contrast to post- action control, strategic control is concerned with controlling and guiding efforts on behalf of the strategy as action is taking place.
Managers responsible for a strategy and its success are concerned with two sets of questions:
1. Are we moving in the proper direction? Are our assumptions about major trends and changes correct? Do we need to adjust this strategy?
2. How are we performing? Are we meeting objectives and schedules? How are costs, revenues and cash flows matching projections? Do we need to make operational changes?
Strategic controls are designed to answer these questions.
Control of strategy can be characterised as a form of “Steering Control”. Usually, a significant time span exists between initial implementation of a strategy and achievement of desired results. During that time, numerous projects are undertaken, investments made, and actions preformed to implement the new strategy.
In this duration, both the environmental situation and the firm’s internal situations are developing. Strategic controls are necessary to steer the firm through these events. They must provide the basis for correcting the actions and directions of the firm in implementing its strategy as developments and changes in its environmental and internal situations take place.
Strategic Control – Definitions Provided by Julian and Scifres?
Strategic control is related to that aspect of strategic management through which an organization ensures whether it is achieving its objectives contemplated in the strategic action. If not, what corrective actions are required for strategic effectiveness.
Julian and Scifres have defined strategic control as follows:
“Strategic control involves the monitoring and evaluation of plans, activities, and results with a view towards future action, providing a warning signal through diagnosis of data, and triggering appropriate interventions, be they either tactical adjustment or strategic reorientation.”
Thus, there are two aspects in strategic control—evaluation of a strategic action and its results and taking necessary corrective actions in the light of this evaluation. Sometimes, control phase of strategic management is divided into two distinct parts—strategic evaluation and strategic control.
However, because of on-going nature of strategic evaluation and strategic control, both these are intertwined. In practice, therefore, the term strategic control is used which includes evaluative aspect too because unless the results of an action are known, corrective actions cannot be taken.
It is worthwhile to make a comparison of strategic and operational control because the emphasis in both differs though an integrated control system contains both.
Strategic Control – 4 Major Types: Premise, Implementation, Strategic Surveillance and Special Alert Control
Experts on strategic management process have identified certain types of strategic controls. According to them, there are four types of strategic controls.
Every strategy is founded on certain assumptions relating to environmental and organisational forces. Certainly some of these forces or factors are very sharp and any change in them is sure to affect the strategy to a great extent. Hence, premise control is a must to identify the key postulations and keep track of any change in them in order to assess their impact on strategy and, therefore, its implementation.
For example, these presumption may relate to changing government policies, market competition. Change in composition due to sudden killing virus or widespread war conditions or natural calamities and organisational factors such as improvising? production technology, VRS scheme to get high tech employees, market innovation strategies.
Here, premise control serves to test continuously these assumptions to determine whether they are still valid or not. This facilitates the strategists to take necessary corrective action at the right time than just pulling on with the strategy based on vitiated or invalid postulations.
The responsibility for premise control is generally assigned to the corporate planning department that identifies the key assumptions and keep a regular check on their validity.
Type # 2. Implementation Control:
In order to implement a chosen strategy, there is need for preparing quite good number of plans, programs and projects. Again resources are allocated for implementing these plans, programs and projects. The purpose of implementation control is to evaluate as to whether these plans, programs and projects are actually guiding the organisation towards its pre-determined goals or not.
In case it is felt, at any time, the commitment of resources to a plan, program or project is not yielding the fruits as expected, there is need for matching revision. That is implementation control is nothing but rethinking or strategic rethinking to avoid wastes of all kinds.
One way of using implementation control may to identify and monitor the strategic beat points or throb points such as an assessment of marketing success of a new product after pretesting or checking the feasibility of a diversification programme after preliminary attempts at seeking technological collaboration.
In the first case, the company is to evaluate whether the new product launch will really benefit or it should be forgone in favour of another programme. In second case, implementation control helps to ascertain whether a diversification move is going to succeed or not.
Another tool of implementation control is the milestone reviews through which critical points in strategy implementation are identified in terms of events, major resource allocation, or even time.
This is almost similar to identification of events and activities in programme evaluation review technique (PERT)/critical path method (CPM) networks. Once the milestones are identified, a comprehensive review of implementation is made to reassess its continued relevance to attain the objectives.
If premise and implementation strategic controls are more specific by nature, strategic surveillance, is more generalised and overriding control which is designed to monitor a broad range of events both inside and outside the organisation which are likely to threaten the very course of a firm’s strategy.
Such strategic surveillance can be done through a broad- based, general monitoring based on selected information sources to uncover events that are likely to affect the strategy of an organisation.
Professor David A. Aker, in his book “Developing Business Strategies—Published by John Wiley and Sons of N.Y in 1984 P. 128, suggests a “formal yet simple strategic information scanning system which can enhance the effectiveness of the scanning effort and preserve much of the information now lost within the organisation.”
This special alert control is based on a trigger mechanism for a rapid response and immediate reassessment of a given strategy in the light of a sudden and unexpected event. Special alert control can be exercised via the formulation of contingency strategies and assigning the responsibility of handling unforeseen events to crisis management teams.
The instances of such sudden and unexpected events can be say, sudden fall of government at centre or even state, terrorist attacks, industrial disaster or any natural calamity of earthquake, floods, fire and so on.
Strategic Control – Purpose
The purpose of strategic control is to identify whether the organization should continue with its present strategy or modify it is the light of changed circumstances. Operational control should assist the organization to be both efficient and effective, and in this way help the chosen strategy to work successfully.
The basic forms of control are concerned with physical systems, so that for example a wall thermostat may be control the central healing system of a house. If the room temperature fall below the desired temperature set on the thermostat, the boiler in started so that water in the radiators is heated and the temperature rises to desired level.
Many of the quality control processes within companies are physical control mechanisms/designed 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 commodity can be checked to see if it operates art it should.
If it is rejected, it can be scraped reworked. It is obviously better 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! Modern Control techniques are based on an ‘ever free’ or ‘zero-defect’ approach and ‘doing it right first time’. At a strategic level, quality can be built into the planning of the product or service, so that it confirms to design specifications and processes are introduced to get it right time.
These process controls are also applied to 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. Doubled lazing sales are often based on this system, so that the people employed to make the initial approach to households may be rewarded according to the number of sales interviews they arrange.
The salesmen are then paid according to the value of the sales they make. In a similar way, the work of people in telesales can be monitored by a central control system so that the number of calls per hour or per day and the number of successes can be measured precisely.
More general control methods used in organization to encourage on high level of efficiency and effectiveness in employees in include 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.
QUEST is based on the idea that every individual or group in an organization is both a customer and a supplier to other people in the organization; and considers how best they can meet the needs of their ‘customer’ and ‘suppliers’ Key Result Area (KRA) is a technique aimed at focusing on realistic outcomes for each team or individual by identifying a range of quality characteristics for the team which are consistent with the company’s strategy, and the agreeing realistic standards for each of these quality characteristics and devising a system which can be measured and monitored.
Total Quality Management (TQM) is based on the idea that managers are so some of their objectives, within a broad version, that all employees in the organization have both-a clear focus on their aims and goals and an understanding of the context in which they are working as well as taking responsibility for work over which they have control.
Quality improvement and accountability then become a question of peer pressure within the ‘internal customer’ framework and quality improvement is a responsibility in which everyone actively participates “strategic control can be described as the continuous critical evaluation of plans, inputs, processes and outputs to provide information for future action” controls are concerned with what has happened but are also aimed at anticipating what may happen.
The control of manufacturing processes by sampling and testing the products occurs after the processes have taken place. Control applied through the company culture and by quality assurance systems are attempts to provide a situation where problems are anticipated.
For example, public relations is both about the quality of the relationships with customers and others, and is also about the way of achieving favorable relationships Publicity and public relations attempts 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.
Strategic Control – 4 Important Steps: Setting Performance Standards, Measuring Actual Performance, Analysing Variance and Taking Corrective Actions
In order to exercise control, managers have to take four steps.
These steps are:
1. Setting performance standards,
2. Measuring actual performance,
3. Analysing variance, and
4. Taking corrective actions.
1. Setting Performance Standards:
Every function in the organizations begins with plans which specify objectives or targets to be achieved. In the light of these, standards are established which are criteria against which actual results are measured. For setting standards for control purposes, it is important to identify clearly and precisely the results which are desired. Precision in the statement of these standards is important.
After setting the standards, it is also important to decide about the level of achievement or performance which will be regarded as good or satisfactory. The desired level of performance should be reasonable and feasible. The level should have some amount of flexibility also, and should be stated in terms of range— maximum and minimum.
2. Measuring Actual Performance:
The second major step in control process is the measurement of performance. The step involves measuring the performance in respect of a work in terms of control standards. The presence of standards implies a corresponding ability to observe and comprehend the nature of existing conditions and to ascertain the degree of control being achieved.
The measurement of performance against standards should be on a continuous basis, so that deviations may be detected in advance of their actual occurrence and avoided by appropriate actions. Appraisal of actual or expected performance becomes an easy task, if standards are properly determined and methods of measuring performance can be expressed explicitly.
3. Analysing Variance:
The third major step in control process is the comparison of actual and standard performance. It involves two steps – (i) finding out the extent of variations, and (ii) identifying the causes of such variations. When adequate standards are developed and actual performance is measured accurately, any variation will be clearly revealed. When the standards are achieved, no further managerial action is necessary and control process is complete.
However, standards may not be achieved in all cases and the extent of variations may differ from case to case. When the variation between standard and actual performance is beyond the prescribed limit, an analysis is made of the causes of such a variation. For controlling and planning purposes, ascertaining the causes of variations along with computation of variations is important because such analysis helps management in taking up proper corrective actions.
4. Taking Corrective Actions:
This is the last step in the control process which requires that actions should be taken to maintain the desired degree of control in the system or operation. An organization is not a self-regulating system such as thermostat which operates in a state of equilibrium put there by engineering design. In a business organization, this type of automatic control cannot be established because the state of affairs that exists is the result of so many factors in the total environment. Thus, some additional actions are required to maintain the control.
Such actions may be on the following lines:
a. Improvement in the performance by taking suitable actions if the performance is not up to the mark; or
b. Resetting the performance standards if these are too high and unrealistic; or
c. Change the objectives, strategies, and plans if these are not workable.
Strategic Control – Strategic and Operational Control
In an organization, control may be exercised at three stages of an action – (i) evaluation of inputs and taking corrective actions before a particular sequence of operation of an action is completed, known as feed forward control; (ii) evaluation of the action and taking corrective actions during the operation of the action, known as concurrent, real-time, or steering control; and (iii) evaluation of results of the action taking corrective actions after the action is completed so that the same type of action produces desired results in future, known as feedback control.
Traditionally, control has been based on feedback control, known as operational or management control. However, many management experts have questioned the efficacy of feedback control in the dynamic environment in which businesses operate.
In order to overcome this problem, they have suggested strategic control which operates on the principle of feed forward and concurrent control taking into account the changing assumptions, both external and internal, on which a strategy is based, continually evaluating the strategy as it is being implemented, and taking the corrective actions to adjust the strategy according to changing conditions or taking necessary actions to realign strategy implementation.
For strategic control, the following questions are relevant:
1. Are the premises made during the strategy formulation process proving to be correct?
2. Is the strategy being implemented properly?
3. Is there any need for change in the strategy? If yes, what is the type of change required to ensure strategic effectiveness?
Operational control focuses on the results of strategic action and is aimed at evaluating the performance of the organization as whole, different SBUs, and other units.
The relevant questions for operational control are:
1. How is the organization performing?
2. Are the organizational resources being utilised properly?
3. What are the actions required to ensure the proper utilisation of resources in order to meet organizational objectives?
Strategic control and operational control both differ from each other in terms of their aim, main concern, focus, time horizon, and techniques used.
Strategic Control – Contribution: Measurement of Organizational Progress, Feedback for Future Actions and Linking Performance and Rewards
Strategic control, though very important phase of strategic management is often overlooked by strategists on the premise that once they have formulated a strategy and implemented it, their role in strategic management is over. They remain mired with daily control reports which can be taken even at lower levels. This approach may be alright when there is not high stake involved in a strategy but fatal when the stake is high. Without strategic control, strategists have no means to measure whether the chosen strategy is working properly or not.
When strategic control is undertaken properly, it contributes in three specific areas:
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.”
Thus, linking performance and rewards is a big issue. If taken objectively, control provides inputs for relating performance and rewards. This linking is vital for motivating organizational personnel more so in an era when there is not only fight for market share but for human talent too. A performance-based motivation system works better than the one which considers factors other than performance.
Strategic Control – Three Groups of Personnel Actively Involved: Board of Directors, Chief Executives and Role of Other Managers
Since strategic control is a part of strategic management process, all those persons who participate in strategy formulation and implementation should also participate in strategic control, except those who act in advisory capacity. Board of directors, chief executive, other managers, corporate planning staff, and consultants participate in strategic management process. Out of these, corporate planning staff and consultants act either advisors or facilitators.
Thus, three groups of personnel are actively involved in strategic control though their areas of control differ. In some cases, outside agencies like financial institutions or government, mostly in the case of public sector enterprises, also participate in strategic control either through their participation in board of directors or having power to interfere with management practices. However, the role of financial institutions in strategic control is quite limited except through their nominees on board of directors.
In the case of public sector enterprises, the role of government in strategic control is performed through nomination of board members and through controlling ministries of particular enterprises. In some specific situations, authorities may be constituted at above the board level to evaluate the performance of group companies.
For example, Tata Group has set up Group Executive Office (GEO) and Business Review Committees (BRCs) to review the performance of group companies numbering about one hundred. If we exclude these cases, the role of board of directors, chief executive, and other managers in strategic control is quite significant.
1. Role of Board of Directors:
Board of directors of a company, being the trustee of shareholders’ property, is directly answerable to them. Thus, board should be directly involved in strategic control. However, since board does not participate in day-to-day management process, it evaluates the performance of the company concerned after certain intervals in its meetings. Therefore, the role of board of directors is limited to controlling those aspects of the organizational functioning which have long-term implications.
Such aspects are overall financial performance, overall social concern and performance, and certain key management practices having significant impact on organization’s long-term survival. Generally, the control information used by the board is concise but comprehensive as compared to control reports used at lower levels.
2. Role of Chief Executive:
The chief executive of an organization is responsible for overall performance. Therefore, his role is quite crucial in strategic control. Though he is not involved in evaluation of routine performance which is left to other managers, he focuses his attention on critical variations between planned and actual. Generally, he applies the principle of management by exception which is a system of identification and communication of that signal which is critical and needs the attention of a high-level manager.
Depending on the size of the organization, the chief executive’s role varies in the context of control on day-to-day basis. In a smaller organization, the chief executive may, perhaps, be interested in daily production and cost figures, but in a large organization, these become unimportant for him from his control point of view. Thus, in a large organization, the chief executive is more involved on controlling through return on investment, value added, and other indicators which measure performance of overall organization.
3. Role of Other Managers:
Besides board of directors and chief executive, other managers are also involved in strategic control. These are finance managers, SBU managers, and middle-level managers.
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 – Role of Various Organizational Systems in Strategic Control
Strategic control 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, development system, appraisal system, and motivation system. All these systems play their role in strategic control. Some of these systems are closely and directly related and some are indirectly related to control.
For example, information system is closely linked to evaluation as it provides clue as to how the organization is progressing. Development system, on the other hand, is not closely linked to evaluation system but undertaken as a post-control action. In the light of this, let us see how various organizational systems play their role in strategic control.
1. Information System:
Control action is guided by adequate information from the beginning to the end. Management information and management control systems are closely interrelated; 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.
Information system ensures that every manager gets adequate information. The criterion for adequacy of information to a manager is his responsibility and authority, that is, in the context of his responsibility and authority, what type of information the manager needs. This can be determined on the basis of careful analysis of the manager’s functions. If the manager is not using any information for taking certain action, the information may be meant for informing him only and not falling within his information requirement.
Thus, an effective control system ensures the flow of the information that is required by an executive, nothing more or less. There is another aspect of information for control and other functions, that is, the timeliness of information. Ideally speaking, the manager should be supplied the information when he needs it for taking action. For correcting the deviation, timely action is required by the manager concerned.
For this purpose, he must have the information at proper time and covering the functioning of a period which is subject to control. The control system functions effectively on the basis of the information which is supplied in the organization. However, the information is used as a guide and on this basis, a manager identifies what action can be taken.
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 emphasises that there is a plan which directs the behaviour and activities in the organization. Control measures these behaviour and activities and suggests measures to remove deviation, if any.
Control further implies the existence of certain goals and standards. These goals are provided by the planning process. Control is the result of particular plans, goals, or policies. Thus, planning offers and affects control. Not only that, the planning is also affected by control in the sense that many of the information provided by control is used for planning and re-planning. Thus, there is a reciprocal relationship between planning and control.
Since planning and control systems are closely interlinked, there should be proper integration of the two. This integration can be achieved by developing consistency of strategic objectives and performance measures. Prescribing performance measures which are strategically important is quite significant because often it is said “what you measure is what you get.” In developing performance measures, two considerations must be taken into account.
First, the performance measures should focus on whether short-term profitability, or growth and technological ascendancy, or logistic efficiency, or some other objectives should be of primary concern. Second, the measures should relate to the managerial domain of each of the managers as each of them is responsible to exercise control in his own domain.
3. 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, then, become the basis for control.
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. Motivation System:
Motivation system is not only related to control system but to the entire organizational processes. Lack of motivation on the part of managers is a significant barrier in the process of control. Since the basic objective of control is to ensure that organizational objectives are achieved, motivation plays a central role in this process. It energises managers and other employees in the organization to perform better which is the key for organizational success.
Strategic Control – Criteria: Casual Factors, Intervening and End-Result Criteria
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 criteria which are used for control.
These criteria are grouped into three categories:
1. Causal factors
2. Intervening criteria and
3. End-result criteria.
1. Causal Factors:
Causal factors are those that influence the course of development in an organization. These are independent variables and affect intervening criteria and through these, end-result criteria. For example, strategy formulation and its implementation affect various product, customer, and personnel related criteria. These, in turn, affect different end-result criteria which are used, generally, to measure business performance.
2. Intervening Criteria:
Intervening criteria 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 criteria are, generally, grouped into three categories- product, customer, and personnel related.
An illustrative list of intervening criteria is given below:
i. Product-Related Criteria:
a. Product quality and performance
b. Product cost and price
c. New products introduced
ii. Customer-Related Criteria:
a. Customer service
b. Customer satisfaction
c. Customer loyalty
iii. Personnel-Related Criteria:
a. Attracting and retaining human talent
b. Personnel ability and skills
c. Personnel motivation and attitudes to work
3. End-Result Criteria:
End-result criteria are those factors which are caused by causal and intervening factors and are often in terms of the criteria 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 criteria are grouped into two broad categories- financial performance and social performance.
Given below is the illustrative list of these criteria:
i. Financial Performance:
a. Rate of growth –
(a) Sales growth
(b) Asset growth
(c) Market share
(a) Profit-sales relationship
(b) Return on investment
c. Shareholder value
ii. Social performance:
Degree of satisfaction of various stakeholders.
After identifying various control criteria, let us see what criteria are adopted in practice. First, we shall see what criteria a business publication uses for measuring performance of various companies. This will be followed by criteria used by two leading companies.
Financial Express, a daily financial newspaper, uses the criteria for selecting the best company of the year.
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
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.