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Strategy Evaluation

Strategic Evaluation: concerns mainly the analysis and judgment of interventions at the level of strategic goals. One of the noteworthy aspects of strategic evaluation consists of the verification of the adopted strategy with respect to the current and likely social and economic situation.

How a firm has performed over time and relatively to its competitors, can be determined with the help of the following quantitative measures.

  • Market price of the shares
  • Market share
  • Earnings on capital employed
  • Dividend rates
  • Return on equity
  • Growth in sales volume
  • Production costs and efficiency
  • Distribution costs and efficiency
  • Employee turnover, absenteeism, and satisfaction indices.

Since there is a high correlation between progress and these indicators, we can say that a firm is successful if majority of the factors show a positive signal.

But in reality, one cannot expect a business firm to satisfy all the above mentioned criteria, as performance is also affected by unexpected variations in the external environment.

One has to trade-off between the positive and negative indicators and find suitable ways to enhance the performance levels.

strategy evaluation

Effectiveness of a Strategy:

The strategic importance of any particular criterion may not remain the same at different points of time. The short run and long run effectiveness of strategy cannot be evaluated using the same criteria.

There may be difficulties in computation and different methods of computation that may be encountered in measurement. These factors serve as the bases for firms to identify the elements of success.

Yet another way of performance evaluation is to identify critical factors that may be regarded as symptoms of decline and can be treated as early warning signals during the implementation of strategy.

If they indicate the necessity of a turnaround or retrenchment strategy, the firm should definitely go for a suitable action without further delay. Such factors may be:

  • Declining profit margin
  • Declining market share
  • Rapidly increasing debt
  • Declining working capital
  • Increasing managerial turnover
strategy evaluation

What is the Need for Strategic Evaluation?

You might be curious to know, what is the need for a strategic evaluation at all in the first instance?

See, business firms and corporate companies are always in a position to execute their action plans in the wake of severe competition and retention of market share.

strategic management

A plan without a strategy is like life without a soul and decision making is solely dependent upon strategic inputs.

What is turnaround strategy? Turnaround strategy means to convert, change or transform a loss-making company into a profit-making company.
Turnaround Strategy

The need for feedback, appraisal and reward, check on the validity of strategic choice congruence between decisions and intended strategy all these help in successful culmination of strategic management process and create inputs for new strategic planning.

A strategy is a larger, overall plan that can comprise several tactics, which are smaller, focused, less impactful plans that are part of the overall plan.
What’s the difference between Strategy and Tactic?

The evaluation need not be based only on quantitative terms, but also on qualitative aspects such as: internal consistency, consistency with the environment, appropriateness of the strategy in the light of available resources, acceptability of the degree of risk involved in the strategy, appropriateness of the time horizon of the strategy etc.