Please use APA format, please use 3 scholarly references for in-text-citations with page numbers for each question.Please use the read reference listed below as one of the in-text cite references, please include page numbers in every question cite. Please write 275 words before reference is added to bottom.The information for the book is: Parnell, J. A. (2017). Strategic management: Theory and practice (5th ed.). Academic Media Solutions.
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Strategic Control and
Crisis Management
CHAPTER
12
Chapter Outline
H
I
G
G
S
,
Step 1: The Focus of
Strategic Control
Step 2: Strategic Control
Standards (Benchmarks)
Steps 3–5: Exerting
Strategic Control
Crisis Management
Trends in Strategic
Management
A
N
Source: Zadorozhnyi Viktor/Shutterstock.com.
G
E
L
The strategic management process is not complete when a strategy has been
A
executed. It is also necessary to evaluate the strategy’s success—or
failure—
and take steps to address any problems that may have occurred along the way.
Strategic control consists of determining the extent to which the organization’s
1
strategies are successful in attaining its goals and objectives. The execution process is tracked and adjustments to the strategy are made as 1
necessary.1 It is during the strategic control process that gaps between the intended
and realized
0
strategies (i.e., what was planned and what really happened) are identified and
8
addressed.
The process of strategic control can be likened to that of
T steering a vehicle.
After the strategy accelerator is pressed, the control function ensures that everyS
thing is moving in the right direction. When a simple steering adjustment is
not sufficient to modify the course of the vehicle, the driver can resort to other
means, such as applying the break or shifting gears. In a similar manner, strategic managers can steer the organization by instituting minor modifications or
resort to more drastic changes, such as altering the strategic direction altogether.
The imperative for strategic control is brought about by two key factors, the
first of which is the need to know how well the firm is performing. Without strategic control, there are no clear benchmarks and ultimately no reliable measurements of how the company is doing. A second key factor supporting the need
for strategic control is organizational and environmental uncertainty. Because
strategic managers are not always able to forecast the future accurately, strategic
strategic control The process
of determining the extent to
which an organization’s
strategies are successful in
attaining the organization’s
goals and objectives.
263
control serves as a means of accounting for last-minute changes during the implementation
process. In addition, rivals may respond immediately to a change in strategy, requiring that
managers consider additional modifications.
The focus of strategic control is both internal and external because it is top management’s role to align the internal operations of the enterprise with its external environment.
Relying on quantitative and qualitative performance measures, strategic control helps
maintain proper alignment between the firm and its environment.
Although individual firms usually exert little or no influence over the external environment, macroenvironmental and industry forces must be continuously monitored because
shifts can greatly influence the firm. The purpose of monitoring the external environment
is to determine whether the assumptions on which the strategy is based remain valid. In
this context, strategic control consists of modifying the company’s operations to defend
itself more effectively against external threats that may arise or become known.
The notion of strategic control has recently gained a “continuous improvement” dimension, whereby strategic managers seek to improve the efficiency and effectiveness of all
factors related to the strategy. In other words, control should not be seen as an action necessary only when performance declines. Rather, managers should think critically when
H look for opportunities to enhance performance even
considering strategic control and
when things seem to be going well.
I
Ultimately, strategic control can be exerted by the CEO, the board of directors, or even
G
individuals outside the top management
team. The roles played by boards of directors, institutional investors, and shareholders
who
monitor firm strategies and often instigate control
G
vary across firms. The influence of the board and others notwithstanding, ongoing strategic
S
control is largely a function performed
by the top management team. A five-step strategic
control process can be employed, to facilitate this process, as depicted in Figure 12-1:
1. Top management determines the focus of control by identifying internal factors that
A for the success or failure of a strategy, as well as
can serve as effective measures
outside factors that could trigger
N responses from the organization.
FIGURE 12-1
Five-Step Strategic
Control Process
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L
Step 1: Identify
factors to serve
A
as focus of strategic control.
1
1
Step 2: Develop
standards or
benchmarks
for
the
factors.
0
8
T
Step 3: Measure
actual performance
S
both quantitatively and qualitatively.
Step 4: Compare measurements
with standards or benchmarks.
Step 5: Take corrective action as needed
to align performance with standards.
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Chapter 12 Strategic Control and Crisis Management
2. Standards (i.e., benchmarks) are established for internal factors with which the actual
performance of the organization can be compared after the strategy is implemented.
3. Management measures or evaluates the company’s actual performance, both
quantitatively and qualitatively.
4. Performance evaluations are compared with the previously established standards.
5. If performance meets or exceeds the standards, corrective action is usually not
necessary. If performance falls below the standard, then management must take
remedial action.
Step 1: The Focus of Strategic Control
The first step of the strategic control process is to determine the focus of the control. It is
important to align the focus with the ongoing strategy to be assessed so that its success or
failure can be evaluated accordingly. For example, executives in a firm emphasizing innovation may wish to focus on factors associated with research and development (R&D)
and new product development. In contrast, strategic managers in a firm emphasizing cost
H and production processes.
containment might focus on factors associated with efficiency
Specifically, if the firm seeks to be the industry’s low-cost Iproducer, for example, its managers must compare its production efficiency with those of competitors and determine the
G
extent to which the firm is attaining its goal.
G
This step creates the context for strategic control by concentrating
management effort
on areas directly linked to strategic success.
S
,
Step 2: Strategic Control Standards (Benchmarks)
The second step of the strategic control process is to identify specific strategic control
standards directly linked to the strategy. Here, executivesA
are clarifying the specific performance measures that will be employed to evaluate strategic
success or failure. Firm
N
performance may be evaluated in a number of ways. Management can compare current
G
operating results with those from the preceding quarter or year. Profitability is the most
E a popular means of gauging
commonly utilized performance measure and is therefore
performance and exerting strategic control. A number ofLadditional financial measures
may also be helpful, including return on investment (ROI), return on assets (ROA), return
A revenues. A qualitative judgon sales (ROS), and return on equity (ROE), and growth in
ment may be made about factors such as changes in product or service quality.
A key problem with measuring performance is that one measure can be pursued to the detri1
ment of another. The common goals of growth and profitability represent an example of this
phenomenon. For example, after experiencing sales declines 1
for over a year, Walmart’s efforts
to attract more shoppers finally resulted in a 1.5 percent increase
in same-store sales in the
0
third quarter of 2015, but profits declined by 11 percent during this same period.2 Many firms
8 or by slashing prices to gain
pursue growth by investing in R&D or new product development,
customers. Either approach tends to reduce profits, at least inTthe short term.3
While control standards should be established for the internal factors identified in the
S
previous step, the focus should not consider past performance. Doing so can be myopic
because it ignores important external variables. For example, a rise in ROA from 8 to
10 percent may appear to be a significant improvement, but this measure must be evaluated in the context of industry trends. In a depressed industry, a 10 percent ROA may be
considered outstanding, but that same return in a growth industry may be disappointing
if the leading firms earn 20 percent. In addition, an increase in a company’s ROA is less
encouraging if performance continues to lag behind industry standards.
Often, strategic control standards are based on competitive benchmarking—the process of measuring a firm’s performance against that of the top performers, usually in the
same industry. After determining the appropriate benchmarks, a firm’s managers set goals
to meet or exceed them. Best practices—processes or activities that have been successful
in other firms—may be adopted as a means of improving performance.
competitive benchmarking
The process of measuring a
firm’s performance against that
of the top performers, usually
in the same industry.
best practices Processes
or activities that have been
successful in other firms.
Chapter 12 Strategic Control and Crisis Management
265
Strategic control should occur constantly at various organizational levels and within
various functions of the organization. Realistic performance targets, or benchmarks,
should be established for managers throughout the organization, and they should be specific. For example, if market share is identified as a key indicator of the success or failure
of a growth strategy, a specific market share should be identified, based on past performance and/or industry norms. Without specificity, it is difficult to assess the effectiveness
of a strategy after it is implemented if clear targets are not identified in advance.
Control at the functional level may include factors such as the number of defects in
production or composite scores on customer satisfaction surveys. Like organization-wide
benchmarks, functional targets should also be specific, such as “3 defective products
per 1,000 produced” or “97 percent customer satisfaction based on an existing survey
instrument.”
Published Information for Strategic Control
Key information required to exert strategic control is not always readily available, but access
has improved significantly in the past several decades. Fortune magazine annually publishes
the most- and least-admired U.S.Hcorporations with annual sales of at least $500 million in
such diverse industries as electronics, pharmaceuticals, retailing, transportation, banking,
I
insurance, metals, food, motor vehicles,
and utilities. Corporate dimensions are evaluated
along factors such as quality of products
and services, innovation, quality of management,
G
market share, financial returns and stability, social responsibility, and human resource manG such as Forbes, Business Week, and Financial Times
agement effectiveness. Publications
also provide performance scorecards
S based on similar criteria. Although such lists generally
include only large, publicly traded
, companies, they can offer high-quality strategic information at minimal cost to the strategic managers of all firms, regardless of size. Published
information on three measures—quality, innovation, and market share—can be particularly
useful measures, and are discussed
A in the sections that follow.
N
G
Over the years, there has been a positive relationship between product/service quality—
E a product or service to internal standards and the ultimate
including both the conformance of
consumer’s perception of quality—and
the financial performance of those firms. ConformL
ing to internal quality standards alone is not sufficient. Products and services must also meet
A both objective and subjective measures.4
the expectations of users, including
Product/Service Quality
Fortune assesses quality by asking executives, outside directors, and financial analysts
to judge outputs of the largest firms in the United States.5 Its studies consistently demon1
strate a significant relationship between product/service quality and firm performance.6
Consumer Reports is also an1excellent source of product quality data, evaluating hundreds of products from cars to medications
each year. Because Consumer Reports accepts
0
no advertising, its evaluations are relatively bias-free, rendering it an excellent source of
product quality information for 8
competing businesses. Even if the products of a particular
business are not evaluated by this
T publication, that company can still gain insight on the
quality of products and services produced by its competitors, suppliers, and buyers.
S
Specific published information may also exist for select industries. One of the best
known is the “Customer Satisfaction Index” released annually by J. D. Power for the
automobile industry. A survey of new car owners each year examines such variables as
satisfaction with various aspects of vehicle performance; problems reported during the
first 90 days of ownership; ratings of dealer service quality; and ratings of the sales, delivery, and condition of new vehicles.7 Numerous Internet sites offer quality ratings associated with a number of industries for everything from computers to university professors.
Business publications often provide detailed assessments of firms in travel-related
industries. For example, in early 2011, the Financial Times conducted an in-depth analysis of air travel worldwide, including information on fatal accidents in the 25 largest
airlines, fatalities in various parts of the world, and airlines banned for safety concerns.8
266
Chapter 12 Strategic Control and Crisis Management
Reports such as these are not only valuable to business travelers, but executives in the
industry can often use them as a means of evaluating firm performance.
Broadly speaking, the Internet serves as an excellent resource for strategic managers
seeking quality assessments for its industry. For example, a number of sites (e.g., www.
dealtime.com) provide consumer ratings of vendors. Although such information is not
always reliable, feedback forums can provide strategic managers with valuable insight
into the quality perceptions of their customers. Even Amazon.com ranks all books on sales
volume and provides opportunities for readers to post comments to prospective buyers.
Innovation
Innovation is a complex process and is conceptualized, measured, and controlled through
a variety of means. Some researchers use expenditures for product research and development and process R&D as a surrogate measure.9 Expenditures on developing new or
improved products and processes also tend to increase the level of innovation, a finding
also supported by PIMS data.10 However, it should not be assumed that all innovationrelated expenditures yield the same payback.
Some firms plan and control their programs for innovationHvery carefully. 3M, for instance,
has established a standard that 25 percent of each business unit’s sales should come from prodI surprisingly, 3M invests about
ucts introduced to the market within the past five years. Not
twice as much of its sales revenue in R&D as its competitors.
G 11 This approach is consistent
with 3M’s differentiation and prospector orientation at the business level.
G
S
Market Share and Relative Market Share
, As market share increases,
Market share is a common measure of performance for a firm.
Harvard Business
Review reports on
3M’s approach to
innovation at https://
hbr.org/2013/08/theinnovation-mindset-inacti-3/.
control over the external environment, economies of scale, and profitability are all likely to
be enhanced. In large firms, market share often plays an important role in managerial perA market share gains ultimately
formance evaluations at all levels in the organization. Because
depend on other strategic variables, such as consumer tastes,
N product quality, innovation,
and pricing strategies, changes in relative market share may serve as a strategic control
G
gauge for both internal and external factors. As discussed in Chapter 2, a firm’s relative marE group of rivals is considered.
ket share is its proportion of total revenues when only a select
For successful smaller businesses, market share may serveLas a strategic control barometer
because some businesses may strategically plan to maintain a low market share. In this event,
A are not targeted at growth and
the strategic control of market share emphasizes variables that
includes tactics that encourage high prices and discourage price discounts. Limiting the number of product/markets in which the company competes also serves to limit small market
1
share. A small market share combined with operations in limited product/markets may allow
1 Hence, for some companies,
a company to compete in domains where its larger rivals cannot.
emphasizing increases in relative market share can trigger increases
in cost or declines in qual0
ity and can actually be counterproductive.12
8
Steps 3–5: Exerting Strategic Control T
S
Exerting strategic control requires that performance be measured
(step 3), compared with
previously established standards (step 4), and followed by corrective action (step 5), if
necessary. Corrective action should be taken at all levels if actual performance is less
than the standard that has been established unless extraordinary causes of the discrepancy
can be identified, such as a halt in production when a fire shuts down a critical supplier.
It is most desirable for strategic managers to consider and anticipate possible corrective
measures before a strategy is implemented whenever possible.
Top managers should monitor the price of the company’s stock as relative price fluctuations suggest how investors value the performance of the firm. A sudden drop in price
makes the firm a more attractive takeover target, whereas sharp increases may mean that
an investor or group of investors is accumulating large blocks of stock to engineer a takeover or a change in top management.
Chapter 12 Strategic Control and Crisis Management
267
The Balanced Scorecard
Institute discusses the
basics of the scorecard,
with links to sites that
provide practical advice.
Learn more at www.
balancedscorecard.
org/BSCResources/
AbouttheBalanced
Scorecard/tabid/55/
Default.aspx.
balanced scorecard
An approach to measuring
performance based on an array
of quantitative and qualitative
factors, such as return on
assets, market share, customer
loyalty and satisfaction, speed,
and innovation.
Organizational comparisons with rivals are a key basis for exerting strategic control. For
example, the collective market share for cable television providers consistently declined
throughout the 1990s. A number of cable customers switched to less expensive satellite
providers such as DirecTV and Dish Network. By the early 2000s, cable’s competitive
advantage of simplicity and complete local network programming had eroded as Dish Network and DirectTV’s began to offer small, easy-to-install, discreet satellite dishes, including
local networks as part of the service plan. As a result, a number of cable companies began
cutting rates in the early 2000s in an effort to regain lost market share.13 Today, competition
between satellite television providers and cable firms remains intense.
Because individual measures of performance can provide a limited snapshot of the
firm, a number of companies have begun using a balanced scorecard approach to
measuring performance. When a balanced scorecard is used, performance measurement
is not based on a single quantitative factor, but on an array of quantitative and qu …
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