Chapter 8: Evaluation & Control

MSK7223 STRATEGIC KNOWLEDGE MANAGEMENT I

Evaluation & Control Process

Ensures

that the company is achieving what is set out to accomplish. 5-step model:

Evaluation & Control in SM

Evaluation

and control info consists of performance data and activity reports (gathered at step 3). If undesired performance results because SM processes were inappropriately used, operational managers must be aware so that they can control employee activities. Top mgmt need not be involved. If undesired performance results from the process themselves, top mgmt and operational managers must know about it so that they can develop new implementation programmes or procedures.

Evaluation & Control in SM

Measuring Performance

Appropriate Measures
ROI: appropriate for evaluating the corporations/ divisions ability to achieve profitability objective. Inadequate for evaluating social responsibility or employee development. ROI tells what happened after the fact, not what is happening or what will happen.

Measuring Performance

Appropriate Measures

A firm need to develop measures that predict likely profitability steering control

Cost per passenger mile (airlines) Inventory turnover ratio (retail)nesbate gardeshe mojoodi Customer satisfaction

E.g. control charts in Statistical Process Control.

Measuring Performance

3 types of controls
Behaviour controls: how something is to be done through policies, rules, SOPs, orders from superior. Output controls: specify what is the be accomplished by focusing on the end result of behaviours through the use of objectives and performance targets/ milestones(noghte atf). Input controls: focus on resources, i.e. knowledge, skills, abilities, values, motives of employees.

Measuring Performance

Types of Controls Behaviour, output and input are not interchangeable.(ghabele taviz shodan) 1-Behaviour controls : most appropriate when performance results hard to measure but the cause-effect connection between activities and results is clear. E.g. ISO9000 standards. 2-Output controls: appropriate when specific output measures have been agreed on, but cause-effect connection between activities and results not clear. 3-Input controls:appropriate when output is difficult to measure and no clear cause-effect relationship.

Measuring Performance

4-Activity-Based Costing
Allocating indirect and fixed costs to individual prods/prod lines based on value-added activities going into the prod. Useful in doing value-chain analysis of a firms activities for outsourcing decision. First breaks down (tafkik)manufacturing into its activities, then calculate cost of each process and then charge it against each product that requires the process.

Measuring Performance

Primary Measures of Corp Performance

1-Traditional financial measures

ROIs:dividing net income before tax by total assets. Objective and precise, but easily manipulated. Earnings per share: divide net earnings by the no of shares of common stock issued. Can have several different values due to different accounting principles. Based on accrual(taahod) income, so conversion from income to cash can be near term or delayed. Return on equity: (bazdehe sahamdaran)divide net income by total equity. Limitations: also derived from accounting-based data.

Measuring Performance

Primary Measures of Corp Performance

2-Stakeholder Measures

Each stakeholder has own set of criteria to determine how well a corporation is performing. These criteria typically deal with the direct and indirect impact of corporation activities on stakeholder interests. Top mgmt should establish one/more simple stakeholder measures for each stakeholder category to keep track of their concerns. E.g. customers new customers, sales growth, turnover Employees no of suggestions, productivity, turnover Environmentalists no. of complaints(shekayat), legal actions etc.

Measuring Performance

Primary Measures of Corp Performance 3-Shareholder Value

Present value of the anticipated future stream in cash flows from the business plus the value of co if liquidated. Concentrate on cash flow as key measure of performance. Two measures : economic value added : measures difference between pre strategy and post-strategy(bad az strategy) value for the business. market value added : difference between market value of a corporation and capital(hameye sarmayehaye company) contributed by shareholders and lenders(gharz dahande).

Measuring Performance

Primary Measures of Corp Performance

4-Balanced Scorecard Approach

Combines financial measures that tell the results of actions already taken with operational measures on customer satisfaction, internal processes and the corporations innovation and improvement activities. Financial : how do we appear to shareholders? Customer : how do customers view us? Internal Business Perspective: what must we excel at? Innovation and Learning: can we continue to improve and create value? Can be thought of as key performance measures.

Measuring Performance

Primary Measures of Corp Performance

5-Evaluating Top Management

Through committees, the BODs closely evaluate job performance of CEO and top mgmt team. The board can evaluate CEO and top mgmt based on many areas RoI, ROE, EPS, SV etc (short-term) or strategic direction, build mgmt team, provide leadership (long run). The items to evaluate top mgmt must be specified and agreed earlier on between the BODs and top mgmt. Management audit: useful to BODs to evaluate managements handling of various corporation activities.

Measuring Performance

Primary Measures of Divisional and Functional Performance

Use of Benchmarking Continual process of measuring prods, services and practices against the toughest competitors/industry leaders. Steps:

1-Identify the area/process to be examined 2-Find behavioural and output measures of the area and obtain measurement 3-Select competitors/industry leaders to benchmark.

International Measurement Issues

3 most widely used techniques for international performance evaluation: 1-RoIs : single most important measure, but can cause problems because of different currency, rates of inflation, tax laws, use of transfer pricing. International transfer pricing used not to measure performance but minimises taxes. 2- repatriation of profits.(khorooj az soood) 3-Budget analysis. Historical comparison.

An

important issue in international trade is piracy(taghlid kardane kare digaran bedoone ejaze).

Guidelines for Proper Control

Guidelines for Proper Control Control should involve only the minimum amount of information Controls should monitor only meaningful activities and results Controls should be timely. Long-term and short-term controls should be used. Controls should aim at pinpointing exceptions. Emphasise the reward of meeting/exceeding standards.

Strategic Incentive Management(moshavegh)

Weighted-factor method
Appropriate for measuring and rewarding top SBU(strategic business unit) managers when performance vary between SBUs.????????? High-growth SBUs market share, sales growth, progress of future projects etc. Low-growth SBUs RoIs and cash generation. Medium-growth combination of the 2 methods.

Long-term evaluation method

More to top managers, receiving rewards when achieve goals after certain period of time. Looking at how much money invested for the future of the business.

Strategic-funds method

Using Strategic Audit to Evaluate Corp Performance

The strategic audit provides a checklist of questions, by area or issue that enables a systematic analysis of various corporation functions and activities to be made. Useful as diagnostic tool to pinpoint corporate-wide problem areas and to highlight org S&Ws why certain areas are creating problems and help generate solutions to problems. 1-Steps:

Evaluate current performance results Review Corporate Governance Scan and Assess Internal Environment

Using Strategic Audit to Evaluate Corp Performance

2-Steps:
Scan and Assess External Environment Analyse Strategic Factors using SWOT Generate and evaluate strategic alternatives Implement strategies Evaluate and control