Question Number Two

Explain how strategic control links the internal business environment

and the external environment. Give example in support of your
answer.

Introduction

Corporates depend heavily upon their strategy to stay ahead of their competitors. But
the effective ones are the Corporates who do not just stop with planning, but have a
regular check to see if they are moving onward on the lines of the strategy planned. In
this paper, I will be examining what strategic control is and how it is linked with the
Internal & external environments of the business

Definition:

“It is the process by which managers monitor the ongoing activities of an

organization and its members to evaluate whether activities are being performed
efficiently and effectively and to take corrective action to improve performance if they
are not” -Sam Walton

Components of business environment

There are broadly two types of environment, the internal environment, i.e. factors internal to the
firm and the external environment i.e. factors external to the firm which have relevance to it.
The internal factors are generally regarded as controllable factors while the external factors on
the other hand are, by and large, beyond the control of a company. Some of the external factors
have a direct and intimate impact on the firm like the suppliers and distributors of the firm. These
factors are classified as micro environment. There are other external factors which affect an
industry such as industrial policy, demographic factors etc. they constitute what is called macro
environment.

Internal Environment:

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The important internal factors which have a bearing on the strategy .

⇒ Value system: The value system of the founders and those at the helm of the affairs has
important bearing on the choice of business, the mission and objectives of the organisation,
business policies and practices.
⇒ Mission and Objectives: The directions of development, business philosophy, business
policy etc., are guided by the mission and objectives of the company.
⇒ Management structure and Nature: The organizational structure, the composition of the
Board of Directors, professionalisation of management etc., are important factors influencing
business decisions..
⇒ Internal power relationship: The support the top management enjoys from different levels
of employees, shareholders and Board of Directors have important influence on the decisions
and their implementation.
⇒ Human resources: The characteristics of the human resource like skill, quality, morale,
commitment, attitude etc also contribute to the strength and weaknesses of an organisation.
⇒ Company image and Brand equity: The image of the company matters while raising
finance, forming joint ventures or other alliances, entering purchase or sale contracts,
launching new products etc.
⇒ Miscellaneous Factors: There are a number of other internal factors which contribute to the
business success/ failures or influence the decision-making which are
1. Physical Assets and Facilities like the production capacity,
2. R&D and technological capabilities
3. Marketing Resources and distribution network.
4. Financial factors like financial policies, financial position and capital structure

External Environment:
The external environment is made up of micro and macro environment.
Micro Environment
The micro environment consists of the actors in the company’s immediate environment that
affects the performance of the company which includes the suppliers, marketing intermediaries,
competitors, customers and the public

Macro Environment:

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A company and the forces in its macro environment operate in a large macro environment of
forces that shape opportunities and pose threats to the company. Important macro environment
factors include economic environment, political and regulatory environment, social/ cultural
environment, demographic environment, technological environment and global environment.

Strategic Control

Controls are an integral part of any organization's business policies and procedures.
Protecting its resources against waste, fraud, and inefficiency. Controls are basically
good business practices.

1. Ensuring accuracy and reliability in accounting and operating data

2. Securing compliance with the policies of the organization
3. Evaluating the level of performance in all organizational units of the organization

4. It optimizes Organizational performance

5. Ensures competitive advantage

6. Keeps the organization on track

7. It helps anticipate events that might occur in future

8. Allows the organization to respond to new opportunities that may present itself

9. Organizational control is important because it determines the quality of goods & services

10. Can make continuous improvements to quality over time and this gives them a
competitive advantage

Model of the Strategic Control Process

Strategic control involves the monitoring and evaluation of plans, activities, and
results with a view toward future action providing a "warning bell" through diagnosis
of data. The clear intent of strategic control is the triggering of appropriate changes in
strategy, be they either tactical adjustments or strategic reorientations

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Elements of Control

There are five components of control

i. Control Environment
ii. Risk Assessment
iii. Control Activities
iv. Information and Communication
v. Monitoring
Effective controls provide reasonable assurance regarding the accomplishment of
established objectives.

A. Control Environment

The control environment, as established by the organization's administration, sets the

tone of the company. Managers of each department establish a local control
environment providing discipline and structure.

B. Risk Assessment

Every entity faces a variety of risks from external and internal sources that must be
assessed. Risk assessment is the identification and analysis of relevant risks to
achievement of the objectives, forming a basis for determining how the risks should
be managed.The process of identifying and analyzing risk is an ongoing process and
is a critical component of an effective control system. Risks can pertain to internal
and external factors. After risks have been identified they must be evaluated.

C. Control Activities
Control activities are the policies and procedures that help ensure management
directives are carried out. They help ensure that necessary actions are taken to address
risks to achievement of the entity's objectives. Control activities occur throughout the
organization, at all levels, and in all functions. They include a range of activities as
diverse as approvals, authorizations, verifications, reconciliations, reviews of
operating performance, security of assets and segregation of duties.

D.Information and Communication

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Pertinent information must be identified, captured and communicated in a form and
time frame that enables people to carry out their responsibilities. All personnel must
receive a clear message from top management that control responsibilities must be
taken seriously. They must be made to understand their own role in the internal
control system.

E.Monitoring
Control systems need to be monitored - a process that assesses the quality of the
system's performance over time. Ongoing monitoring occurs in the ordinary course of
operations, and includes regular management and supervisory activities, and other
actions personnel take in performing their duties that assess the quality of internal
control system performance.

Balance Score Card

Balance score card is an effective tool which enables organizations to monitor &
evaluate short-term progress & whether strategic objectives are being achieved. It also
helps assess whether assumptions on which strategy is based are valid

Conclusion:

Strategic control is an integral part of strategy.Without properly placed controls the

strategy of the company is bound to fail.Strategic control is a tool by which
companies check their internal business process and environment and ascertain their
progress towards their goal.So In conclusion,I say that Strategic control links the
internal as well as the external environment and is that ‘Vital link” that controls them
both

References:

1. Strategic management from theory to Implementation-David Hussey 4th ed

2. Concepts in Strategic management and business policy(Thomas
L.Wheelan,J.David ( 9ed)

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 3. Strategic management an Integrated approach(CharlesW.L.Hill,Gareth
R.Jones 6 ed)

Word Count: 1022

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