CHAPTER 8 STRATEGIC CONTROL MECHANISMS

Strategic evaluation and control is the last phase of the strategic management process. It begins with
the organization's vision, mission, goals, and objectives and is followed by the formulation of strategies.
These strategies are then accordingly implemented. To ensure that the designed strategies are correctly
and suitably implemented, strategic control mechanisms have to be employed.

 Definition of Strategic Control

There are different ways of viewing strategic control. It is a very important component of strategy
implementation. Strategic control is the process of monitoring the various strategies of the organization
and determining whether there is a parallelism between the organizational milieu and that of the
environment. As earlier emphasized, strategic control should always be discussed and actualized in the
context of the environment, thus the word, strategic. Strategic control can be categorized from two
different perspectives: according to purpose and according to process.

 Types of Strategic Control According to Purpose

There are four types of strategic control according to purpose: presupposition control,
implementation control, strategic surveillance, and vigilance control.

1. Presupposition control is designed to check systematically and regularly whether the

arguments set during the planning and implementation processes are still binding. When
strategies are formulated, these are based on certain premises or assumptions. However, since
the external environments are continuously changing, there is a need to closely monitor the set
strategies and make the necessary change or changes when needed.

2. Implementation control is applied to evaluate whether the intermediate strategies Are

consistent with the overall strategy. In many instances, a strategy consists of small activities that
complement each other and lead to the ultimate attainment of the mother strategy. In cases
when these transitional activities become misaligned for one reason or another, then there is
need to review the reasons for such occurrence.

3. Strategic surveillance is a monitoring system broad range of occurrences inside and outside
the organization threatens the implementation of an organization’s strategy. Surveillance means
shadowing, observing, and scrutinizing the milieu. It demands constant awareness,
consciousness, and knowledge of how the implementation of the strategy/strategies is faring.

4. Vigilance control is a special type of strategic control that is applied when immediate
reconsideration of an organization's strategy/strategies is pursued. This is called for when
unusual events happen and there is no choice but for the organization to attend to it and do the
corresponding changes.
  Types of Strategic Control According to Approach

Strategic control may be from the viewpoint of approach. These strategic control approaches
employ the sequential, interactive, or feedback mechanism.

1. Sequential strategic control is the traditional way of looking at strategic monitoring. It is sequential, in
that the formulation of strategy/strategies is followed progressively by the implementation of these
designed strategies. once the strategies have been employed, it is only then that strategic monitoring is
carried out. This type of strategic control approach is shown in Figure 8.1.

Figure 8.1 Sequential Strategic Control

While sequential strategic control looks simple, straightforward, and less threatening due to its
chronological order, the approach does not lend itself to change and versatility. The order is limiting and
as a result, strategic control does not become beneficial and may sometimes be disadvantageous to the
organization. Chances of introducing urgent strategy improvements become restrictive and slow. As a
result, the interactive strategic control is presented.

2. Interactive strategic control is the more appropriate approach for strategic control. Described as
interactive, this approach shows the communicating and collaborative nature of the processes of
strategy formulation, strategy implementation, and strategy control. As shown in Figure 8.2, the
interactive strategic control presents the interrelationships of each of these processes.

Figure 8.2 Interactive Strategic Control

In other words, as strategies are being formulated, the implementation of the strategies is constantly
being evaluated. Instantaneous suggestions and improvements are implemented to better improve
what has been initially formulated. This is likewise true with strategy monitoring. strategic control is
simultaneously being carried out as a way of determining whether the strategies designed and how they
are being implemented are systematically and thoroughly assessed.

Better than sequential strategic control, interactive strategic control is advantageous in all aspects. The
approach is open, in that it takes into consideration the limitless possibilities that may occur in the
external and internal environments and thus, opportunities for improvements are easily executed.
Secondly, the interactive strategic control is flexible. It creates organization that is willing to adapt and
change for its own benefit. Thirdly, this approach minimizes the so-called "time leaks." Due to the
urgency of competition, time is not a luxury for any company. Immediacy of strategic choices and moves
is expected of every organization when situations demand for such actions. Lastly, better strategic
options can be crafted when needed.

3. Feedback strategic control is a combination of the sequential and interactive approaches. Although
strategy formulation, strategy implementation, and strategy monitoring appear to be sequential as
shown in Figure 8.3, the feedback loop is essentially interactive. Constant feedback are effected with
respect to the formulated and implemented strategies.

Figure 8.3 Feedback Strategic Control

In summary, competitive organizations implement strategic control that is greatly dependent on the
purpose of the organization and the approach that it intends to adopt. As such, organizations are able to
streamline its processes, ensure the attainment of its goals and objectives, thus, contributing to financial
viability and sustainability.

 Performance Metrics

Feedback strategic control is accurately measured by performance. Performance is the ratio of the
results derived from the resources invested by an organization or by the formula:

Performance = Results/Resources

In this framework, four parameters categorize performance: financial performance, market

performance, efficiency/productivity performance, and people performance.

 Financial Performance

For almost all organizations intent on making profit, or at the least, continue to exist, financial
performance is most important. There are different ways of measuring financial performance. These
modes are expressed through financial metrics. Some of these financial metrics include profitability
measures, liquidity measures, gearing (risk) measures, and other investor's measures.

 Profitability measures are financial indicators that show the organization or the company's
ability to generate earnings as compared to its expenses and other relevant costs incurred
during a specific period. These profitability measures are gross profit margin, net profit margin,
return on capital employed (ROCE), and asset turnover.

Table 8.1 Profitability Measures (Weygandt 2008)

Metrics Meaning Formula

Gross Profit Margin A percentage of turnover. A high gross profit margin is Operating profit
desirable. It indicates either that the sales prices are high Finance cost
or that production costs are low.
Net Profit Margin A percentage of turnover less all expenses. A high net Net profit
profit margin is desirable. It indicates either that the sales Turnover
prices are high or that all costs are well kept under
control. x 100
Return on Capital Shows the net profit generated from every P1 of assets Net profit
Employed (ROCE) employed. Capital employed is total assets less current Capital employed
liabilities.
x 100
Asset Turnover Shows the turnover generated from every P1 of assets Turnover
employed. A high asset turnover is desirable. Capital employed

 Liquidity measures are financial indicators that measure the extent to which an organization has
cash to meet immediate and short-term obligations, or the ability of its current assets to meet
liabilities. current ratio, inventory holding period, receivables (debtor) period, and payables
(creditor) period are forms of liquidity measures.

Table 8.2 Liquidity Measures (Weygandt 2008)

Metrics Meaning Formula

Current Ratio Measures the company's ability to meet its short-term Current assets
liabilities as they fall due. A ratio in excess of 1 is Current liabilities
desirable.
Inventory Holding Indicates the average number of days inventory items are Inventory
Period held. A decrease in the inventory holding period is Cost of sales
desirable. It means that the company is able to sell or
turn over its stock keeping units (SKUs). x 365
Receivables (debtor) Shows the average period it takes a company' customers Receivables
Collection Period to pay their debts. A decrease in the collection period is Turnover
desirable, It means that the collection of the company's
receivables/credit control is efficient. x 365
Payables (creditor) Shows the average period that it takes a company to pay Payables
Period its debts. A decrease in the payment period is desirable. Purchases
It means that the company is able to pay for its
purchases. x 365
  Gearing measures are the determinants of financial leverage.

Table 8.3 Gearing (Risk) Measures and Other Investor's Measures (Weygandt 2008)

Metrics Meaning Formula

Gearing Ratio Shows the long-term debt as a percentage of Debt
equity. A low level of gearing is desirable where Equity
the level of risk is minimized in terms of payment
of debts. x 100
Interest Cover The operating profit (profit before finance Operating profit
charges and tax) divided by the finance cost. A Finance cost
decrease in the interest cover is desirable where
operating profit is higher than the finance costs.
Other Investor’s Measures
Earnings Per Measures the profit attributable to each share; Profit after tax less preference
Share / EPS ideally, must show an increase in earnings per dividends
share Weighted no. of ordinary shares
in issue
Dividend An increase in dividend covet means that the Net Profit
Cover company is mote able to make dividend Dividend
payments to shareholders
Dividend Yield An increase in dividend yield means an increase Dividend/share
in returns to shareholders Current share price

X 100

Particularly, the gearing ratio measures the percentage of capital employed that is financed by debt and
long-term financing. The higher the gearing ratio, the higher the dependence on borrowing and long-
term financing, and the lower the gearing ratio, the higher the dependence on equity financing. Another
gearing measure is interest cover. Lastly, other investor's measures include earnings per share (EPS),
dividend cover, and dividend yield.

 Efficiency and Productivity Performance

Efficiency and productivity are the emphasis of every organization that aims to achieve success.
Measures of success are quantitative.
 Table 8.4 Efficiency and Productivity Performance Metrics (Weygandt 2008)

Metrics Meaning Formula

Productivity of The ratio of the output over input; helps Output
Resources determine how a company can maximize Input
its resources to the fullest extent possible
to help achieve higher sales and revenues X 100
Employee Labor The ratio of the productivity of the entire Total no. of products
Productivity plant (total number of products manufactured
manufactured) by the total number of Total no. of hours worked
hours worked by workers for a specific
period x 100
Individual Employee The ratio of the individuals net sales over Net Sales
Sales Productivity the number of hours they worked Number of hours worked

x 100
Efficiency Ratio Percentage of expenses over revenues Expenses
Revenues

x 100
Operating Profit Margin A measurement of what proportion of a Operating Income
company’s revenue is left after paying for Net Sales
variable costs of production such as wages,
raw materials, and others X 100
Defect Age The number of days since the defect is
open and not fixed
Defect/Reject Rate The ration of the no. of defects/rejects Total no. of defects/rejects
over the total number of items product Total no. of items produced

X 100
Defect Resolution Rate The rate of closing the open defects over a Total no. of defects resolved
period Total effort spent

X 100

Efficiency and productivity are measurable concepts. They are used interchangeably and may be
expressed in the form of number of units produced, number of hours consumed, number of defects
reduced, time saved, amount of pesos earned, amount of savings made, and others. These measures are
determinants of efficiency and productivity. Efficiency and productivity is normally defined as the ability
to do something or produce something without wasting materials, time, or energy. It is employing the
least amount of inputs to create the maximum amount of output. It is generally and broadly
contextualized in "percentage" calculation. Examples of efficiency and productivity metrics are as
follows: productivity of resources, employee labor productivity, individual employee sales productivity,
efficiency ratio, operating profit margin, defect age, defect/reject rate, and defect resolution rate. Note
that a number of these metrics can fall under the other types of performance metrics.
  Market Performance

In addition to financial performance, feedback can be adequately actualized through market

performance metrics. Examples include market growth rate, market share, net marketing contribution,
marketing return on sales (ROS), marketing return on investment (ROI), and customer retention.

Table 8.5 Market Performance Metrics (Weygandt 2008)

Metrics Meaning Formula

Market Growth Rate The increase in sales, size, or demand Demand (before) — demand
observed within a consumer group over a (now)
specified period Demand (before)

x 100

Market Share The percentage that a company has of the Total sales for a product
total sales or units (market) for a particular Total sales of the market for
product or service in a given period the product

x 100
Net Marketing A financial measure of marketing Sales revenues x Gross margin
Contribution profitability % - Marketing & sales
expenses
Marketing Return on A simple marketing profitability metric that Net marketing contribution
Sales / ROS allows a business to compare performance Sales
across the organization and other
companies
Marketing Return on A marketing profitability metric that shows Net marketing contribution
Investment / ROI the ratio of marketing contribution to Marketing & sales expenses
marketing and sales expenses
X 100
Customer Retention The percentage of customer relationships Total customer retained
that, once established, a business is able to Total customers at the start of
maintain on a long-term basis the year

X 100

 People Performance

Efficiency/productivity and effectiveness are significantly correlated and interrelated. Whereas

efficiency/productivity is essentially measurable, effectiveness is fundamentally qualitative and
descriptive. Because of the hypercompetition permeating in the environment, not to mention, the
dynamic outlook of organizations in dealing with their products and services and against one another,
effectiveness has incorporated today a deeper and more challenging orientation. It has adopted a
renewed, emphatic, and broader perspective, concentrating and focusing more on people and how they
operationally and uniquely do things. Gauging and analyzing differentiated people performance are
expressed through indices. Examples are presented as follows:
 Table 8.6 People Performance Indices (Weygandt 2008)

Metrics Meaning
Employee Measures an organization's workplace approach that is designed to ensure that its employees
Engagement Index are committed to the organization’s goals and values, are motivated to contribute to
organizational success, and at the same time, are able to enhance their own sense of well-
being.
Employee Satisfaction Measures employee satisfaction in terms of whether the employees are happy and content
Index and whether the organization is able to fulfill their desires, needs, and expectations at work.
Many measures purport that employee satisfaction is a factor in employee motivation.
employee goal achievement, and positive employee morale in the workplace.
Leadership Index Is an index that measures leadership in the ability of the management of an organization to
make sound decisions and inspire others to perform well.
Effective Measures effectiveness of communication as being a two-way process that involves sending
Communication Index right messages that are being correctly receives and understood by other person/persons
Health Profile Index Measures the health “lifestyle” of individuals. It generally means a pattern of individual
practices and personal behavioral choices that are related to elevated or reduced health risk;
a complete state of mental, physical, and social well-being, not merely the absence of disease
Quality of Life Index Measures quality of life from both objective and subjective perspectives. Quality of life is a
broad ranging concept affected on a complex way by a person’s physical health, psychological
state like content and happiness, personal beliefs, values, goals and needs, social relationships
and their relationship to salient features of their environment.
Motivation Index Measures the degree of motivation by which an individual or the entire organization is
inspired to do their best in any of their undertakings

In summary, performance is the primary consideration of organizations. Performance is measurable. It

comes in different forms like financial performance, where the robustness of the organization is
emphasized. Furthermore, efficiency and productivity contribute financial feasibility. Thus, organizations
endeavor to minimize wastes while enhancing lean management. In addition, people performance is
essential to the maximization of output, whether the organization is product or service-oriented. Lastly,
market performance generate more sales and consumer leverage.

 Strategic Management Revisited

In summary, the book titled Strategic Management Made Simple presents strategic management in a
clear and straightforward manner. It discusses the salient issues and concerns in the corporate and
business world and addresses these challenges through practical and well-tested approaches that are
constructive, functional, and valuable.

The book primarily presents the importance of the external, internal and organizational environments to
any organization. The external environment includes a confluence of social, political, technological,
economic, environmental, and legal forces that influence organizational direction and strategic decision-
making, while the internal environmental variables consist of the government, culture, the stakeholders,
competitors, suppliers, customers, and the community. In addition, management, employees, facilities
and equipment, financial resources, and organizational culture are referred to as organizational
components.

Figure 8.4 Strategic Management Revisited

 Given the awareness and cognizance of the impact of these independent and internal factors, an
organization can undertake strategic planning in the context of their vision, mission, goals, and
objectives. Unique to their thrust and industry orientation, organizations can determinedly craft
their business and corporate strategies. Strategies are activities that organizations prepare and
articulate to achieve their desired intents, of which are significant to their organizational
existence.
 Today, strategies cannot be framed as ordinary and prosaic. To help companies stay competitive
and achieve a high degree of organizational success, strategies need to outsmart competitors.
Speed in implementing these strategies is likewise necessary because this oftentimes makes the
much-needed difference. Another important feature of strategies is flexibility or the ability to
adapt to the changes in the industry milieu.
 While competition is that much-talked about commonality reference, organizations should
continue to possess and demonstrate a differentiated mindset that can help create both their
comparative and competitive advantages. These can be demonstrated through the products and
services they supply, the prices they offer, and the branding image they promote. Organizations
can similarly come up with products that are new when possible, or create distinct market
niches in a hypercompetitive environment. In this manner, they can initiate new customer bases
to generate better business opportunities.
 Strategy implementation almost presents premise for success. Organizations can apply varied
but ingenious modes of executing their well-planned strategies. This is the challenge to
organizations and in reality, many organizations may succeed while others do not.
 Lastly but more importantly is strategic control. The best-laid plans can end up in disarray and
failure when monitoring is left unattended. Strategic monitoring is effectively assessed through
the of quantifiable measures or performance metrics. Performance metrics are important to
measure the extent or degree of accomplishment. Otherwise, the entire process pc strategic
management becomes arbitrary, unproductive, and futile.
 In short, strategic management is a useful process in overseeing an organization and it is up to the
organization to maximize their physical resources and optimize their people resources. The extent
width, and depth to organizational success are unlimited because the endowments of human are
infinite. Ultimately, organizational leadership, characterized by a forward-looking and adaptable
paradigm with a passion that inspires and motivates and a smart outlook that creates a chasm of
creativity, distinctiveness, and monopolistic leverage is the pivotal force that will be significant to
achieving this much desired organizational success.

 Facets of Strategy

Strategy can be implemented in different modes of assessing realities as in strategy thinking; in different
degrees of emphasis as in strategy goal; in different ways of designing and implementing as in strategy
formulation and implementation; in different behaviors of perceiving and comprehending as in strategy
attitude; and in different manners of reacting as in strategy response.

Table 8.7 Facets of Strategy

Facets Continuum
Strategy Cogency to Strategy thinking need not be too logical. To be over-rational is to bring stiffness to
Thinking Creativity one’s way of thinking. What is highly suggested is the development of imagination.
originality, and inspiration in one's way of looking at, planning, assessing, and
implementing strategies.
Strategy Goal Profit- Generally, the primary goal of an organization is to make profit. After all, it needs to
Orientation to be self-sufficient to survive. It even needs to earn in return for its investments
Communal However, organizations need to veer away from being self-serving to being socially
Focus responsible.
Strategy Purpose to Although strategies are deliberately planned and designed to achieve organizational
Formulation Evolution and functional goals, they can be emergent, something that naturally develops.
New, better or more relevant plans may be designed and formulated continuously.
Strategy Constraint to While strategies are strictly implemented and controlled to make sure that the set
Implementation Structure plans are actualized, unintended and spontaneous activities may be carried out to
allow for more originality, effectiveness, and feasibility. There is no such thing as
absolute and strict strategy implementation.
Strategy Rigidity to Some organizations may look at strategy planning and implementation as the be-an
Attitude Openness and end-all of attaining organizational success. They exhibit an attitude of
inflexibility and rigidity. Although strategies carry out the goals and objectives of
organizations, an outlook of openness to strategy changes and improvements need
to be cultivated.
Strategy Reactivity to While the reality of a volatile and unstable environment is a fact, strategy responses
Response Anticipatory may vary from being reactive to being proactive. Some facts, factors, or realities are
not expected that organizations have no choice but to react. But these do not
happen all the time. In many instances, organizations should be prepared for
changes to prevent themselves from being overtaken by inevitabilities.
Each facet of strategy is unique. As discussed in this book, strategy may possess all the best
characteristics: from smart, measurable, time-bound, realistic, attainable, relevant, adaptable, flexible,
fast, open, focused, proactive, innovative, to one-of-a-kind. However, each organization is distinct. There
are no two same organizations. People may vary. Needs, goals, services, and products, as well as success
objectives may vary. Emphasizing one aspect more than the other or placing more importance on a
concern varies with each organization. In short, the adoption of the nuances of strategy is unique to the
specific organization.

Thus, an organization's way of thinking strategically, formulating, and implementing strategies are
likewise idiosyncratic. They form a continuum of extreme ends that may range from optimum minimum
to optimum maximum and may differ in reach, breadth, scope, and depth. In particular, strategy
thinking may range from cogency to creativity, while strategy goal may move from profit- orientation to
communal focus. Strategy formulation may prioritize profit maximization or communal sharing while
implementation may be purposive or emerging. Lastly, strategy attitude may range from being rigid to
being open, while strategy response may be both reactive and proactive. In summary, therefore,
strategies and strategic management in any organization are all about ownership.

Strategies

 "Internet companies, big or small, have to be aware of the industry's transformation and
cautious about every step in the wake of the mobile Internet era. We are lucky that we
experienced a smooth shift from traditional Internet to the mobile one, and we still have space
for improvement. We should create a win-win solution from multiple aspects involving
developers, platforms, and partnerships."
 "The industry is on the, rise and its beauty lies in its uncertainty, but we are passionate and
interested in exploring the unknown."
 "The leader of the market today may not necessarily be the leader tomorrow."
 "The United States is the most difficult market to tap in our global campaign."
 "The booming mobile Internet industry creates a golden opportunity for Asian countries to
shine. For the first time, we are at the same starting point and even take a minor leading
position over some of the American giants such as Facebook."