CHAPTER 8

Strategic Control Mechanism

 What is a Strategic Control ?

• is a 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.
 Types of Strategic control according to
purpose
1.Presupposition control
2.Implementation control
3.Strategic surveillance
4.Vigilance control
 Presupposition Control

- Is designed to check systematically and regularly whether the

arguments set during the planning and implementation
processes are still binding.
- When strategies formulated, these are based on certain premises
or assumptions.
- However since the external environments are continuously
changing, there need to closely monitor the set of strategies and
make necessary change or changes when needed.
 Implementation Control
• Is applied to evaluate whether the intermediate strategies are
consistent with the overall strategy.
• In any instances, a strategy consist of small activities that
complement each other and lead to 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.
 Strategic Surveillance
• Is a monitoring system whereby a broad range of occurrence
inside and outside the organization threatens the
implementation of an organization 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 fairing.
 Vigilance control

• Is a special type of strategic control that is applied when

immediate reconsideration of an organization’s strategies
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

• Sequential strategic control

• Interactive strategic control
• Feedback strategic control
 Sequential strategic control

• Is the traditional way of looking at strategic monitoring .

• It is sequential, in the formulation of strategy 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
 Sequential strategic control

Formulate Implement Strategic

strategies strategies control
 Interactive strategic control

• Is more appropriate approach for strategic control.

Describe as interactive, this approach shows the
communicating and collaborative natured of process of
strategy formulation, strategy implementation and
strategy control.
 Interactive strategic control

Formulate Implement
strategies strategies

Strategic
control
 Feedback strategic control

• Is a combination of sequential and interactive

approaches. Although strategy formulation,
strategy implementation and strategy monitoring
appear to be sequential .
 Feedback strategic control
Financial
performance

Formulate Implement Monitoring Maker

strategies strategies Of strategy performance

Efficiency
performance

People
performance
 Performance Metrics

• Feedback strategic control is accurately measured by

performance, market performance,
efficiency/productivity performance and people
performance

Performance = Results/Resources
 Financial Performance

• For most of all organization s intent on making

profit, or at least, continue to exist, financial
performance is most important. These modes are
expressed through financial metrics.
 Probability measures

• Are financial indicators show the organization or

the company’s ability to generate earnings as
compared to its expenses and other relevant cost
incurred during a specific period
 Probability measures
Metrics Meaning Formula

Gross Profit Margin A percentage of turnover. A high gross

profit margin is desirable, it indicates Operating profit
either that the sales prices are high or Finance cost
that production cost are low.
Net profit Margin A percentage of turnover less all
expenses. A high net profit margin is Net profit
desirable. It indicates either that the Turnover x 100
sales prices are high.
Return on Capital Shows the net profit generated from
employed (ROCE) every 1 peso of assets employed. Capital Net profit
employed is total assets less current Capital employed x 100
liabilities
Asset Turnover Shows the turnover generated from
every 1 peso of assets employed. A high Turnover
asset turnover is desirable. Capital Employed
 Liquidity measures

• Are financial indicators that measures are

extent to when a organization has a cash to
meet immediate and short term obligations .
 Liquidity measures
Metrics Meaning Formula

Current ratio Measures company ability to Current Asset

meet its short term liabilities as Current Liabilities
they fall due.

Inventory holding period Indicates the average number of

days inventory items are held. A Inventory
decrease in the inventory holding Cost of sales x 365
period is desirable . It means that
the company is able to sell.

Receivables (debtor) Shows the average period it Receivables

Collection period takes a company customers to Turnover x 365
pay their debts.
Payables (Creditor) Shows the average period that it Payables
period takes a company to pay its debts. Purchases x 365
 Gearing (Risk) Measures and Other Investor’s Measures
Metrics Meaning Formula

Gearing Ratio Shows the long-term debt as a

percentage of equity. A low level Debt
of gearing is desirable where the Equity x 100
level of risk is minimized in terms
of payment of debts.

Interest Cover The operating profit (profit

before finance charges and tax)
divided by the finance cost. A Operating profit
decrease in the interest cover is Finance cost
desirable where operating profit
is higher than the finance costs.
 Other Investor’s Measures
Earnings Per Share (EPS) Measures the profit attributable Profit after tax less preference
to each share; ideally must show dividends
an increase in earnings per share Weighted no. of ordinary shares
in issue
Dividend Cover An increase in dividend cover
means that the company is more Net Profit
able to make dividend payments Dividend
to shareholders.
Dividend Yield An increase in dividend yield
means an increase in returns to Dividend/share
shareholders Current share price x 100
 Efficiency and Productivity Performance

• Efficiency and productivity are the emphasis of every

organization that aims to achieve success.
• 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.
 Efficiency and Productivity Performance Metrics
Metrics
Productivity of Resources
Employee Labor Productivity
Individual Employee Sales
Productivity
Efficiency Ratio
Meaning Formula
The ratio of the output over
input; helps determine how a Output
company can minimize its Input x 100
resources to the fullest extent
possible to help achieve higher
sales and revenues
The ratio of the productivity of
the entire plant (total number of Total no. of products
products manufactured) by the manufactured x 100
total number of hours worked by Total no. of hours worked
workers for a specific period.
The ratio of the individual’s net Net sales
sales over the number of hours Number of hours worked x 100
they worked
Percentage of expenses over Expenses
revenues Revenues x 100
 Metrics Meaning Formula

Operating Profit Margin A measurement of what

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

Defect Resolution Rate The rate of closing the open Total no. of defects resolved
defects over a period Total effort spent x 100
 Market Performance
Metrics Meaning Formula
Market Growth Rate The increase in sales, size, or
demand observed within a Demand (before) – demand (now)
consumer group over a specified Demand (before) x 100
period
Market Share The percentage that a company Total sales for a product
has of the total sales or units Total sales of the market for the
(market) for a particular product product x 100
or service in a given period

Net Marketing Contribution A financial measure of marketing Sales revenues x gross margin %
profitability - Marketing & sales expenses
 Market Performance
Metrics Meaning Formula
Marketing Return on Sales A simple marketing profit ability
(ROS) metric that allows a business to Net marketing contribution
compare performance across the Sales
organization and other
companies.
Marketing Return on Investment A marketing probability metric Net marketing contribution
(ROI) that shows the ratio of marketing Marketing and sales expenses
contribution to marketing and X
sales expenses. 100

Customer retention A percentage of customer Total customer retained

relationships that once Total customer at the start x100
established, a business is able to of the year
maintain on a long term basis
 People Performance Indices
(Employee Engagement Index)

• Measures an organization workplace approach that is designed

to ensure that its employees are committed to the organization’s
goals and values, are motivated to contribute to organizational
success, and at the same time, are able enhance their own sense
of well being.
 People Performance Indices
(Employee Satisfaction)
• Measures employee satisfaction in terms of whether the
employees are happy and content 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.
 People Performance Indices
(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.
 People Performance Indices
(Effective Communication Index)

• Measures effectiveness of communication as being a

two-way process that involves sending right messages
that are being correctly received and understood by
other person/persons.
 People Performance Indices
(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, and not merely the absence of
disease.
 People Performance Indices
(Quality of Life Index)
• Measures quality of life from both objective and subjective
perspective. Quality of life is a broad ranging concept affected in
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.
 People Performance Indices
(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.
 Strategic Management Revisted

• In summary, strategy management discusses the salient

issues and concerns in the corporation and business
world and addresses these challenges through practical
and well-tested approaches that are constructive
functional and valuable.
 Strategic Management Revisited
Organizational Strategy
Environment Formulation
• Business
strategy
External • Corporate
Environment strategy
Strategic
Planning
Organization • Vision
• Mission Strategy
• Goals Implementation
Internal
Environment
Strategic
Control
 Facet of Strategy
Facets Continuum

Strategy Cogency to Strategy thinking need not to be too logical. To be over rational is to
Thinking creativity bring stiffness to 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.
Orientation to After all, it needs to be self-sufficient to survive it even needs to earn
Communal in return for its investment. However, organizations need to veer
Focus away from being self-serving to being socially responsible.
Strategy Purpose to Although strategies are deliberately planned and designed to
formulation Evolution achieve organizational and functional goals, they can be emergent,
something that naturally develops. New, better or more relevant
plans may be designed and formulated continuously.
 Facet of Strategy
Facets Continuum
Strategy Constraint to While strategies are strictly implemented and controlled to make
Implementation structure sure that the set plans are actualized, unintended and spontaneous
activities may be carried out to allow for more originality,
effectiveness and feasibility. There is no such thing is absolute and
strict strategy implementation.
Strategy Goal Profit Some organization may look at strategy planning and
Orientation to implementation as the be all and end all of attaining organizational
Communal success. They exhibit an attitude of inflexibility and rigidity.
Focus Although strategies carry out the goals and objectives of
organizations, an outlook of openness to strategy changes and
improvements need to be cultivated.
Strategy Purpose to While the reality of a volatile and unstable environment is a fact
formulation Evolution strategy responses mat 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.