EVALUATION AND

CONTROL

M. Toha, Ph. D.
MBA Programme

MT

AGENDA

EVALUATION AND
CONTROL PROCESS.

TRADITIONAL
MEASURES

BALANCED
SCORECARD
APPROACH

BENCHMARKING
PROCESS

IMPACT PROBLEMS
WITH MEASURING
PERFORMANCE.

APPROPRIATE
CONTROS SYSTEM FOR
SPECIFIC STRATEGIES

MBA Programme

MTohaMT
MT

EVALUATION AND CONTROL PROCESS

OBJECTIVES

1
DETERMINE
WHAT TO
MEASURE

ENSURES THAT THE COMPANY IS ACHIEVING WHAT IT

SET OUT TO ACCOMPLISH.

2
ESTABLISH
PREDETERMINED
STANDARDS

3
MEASURE
PERFORMANCE

DOES
PERFORMANCE
MATCH
STANDARDS?

No

TAKE
CORRECTIVE
ACTION

Yes
STOP

Wheelen, T.L. & Hunger, J.D. (2013). Strategic Management and Business Policy: Achieving Sustainability, 13th Edition, Pearson
MBA Programme

MT

TABLE TO EVALUATE AND CONTROL

Return on Investment (ROI)

MBA Programme

20%

PL

AN

IO
N

PE
RF
5%

AC
T

OR
M
AN
GA
CE
PS

M
EA
SJ
UR
E
TA
RG
ET

DE
SC
R

NO

IP

TI

ON

15%

MT

EVALUATING AN IMPLEMENTED STRATEGY

MBA Programme

MT

MEASURING PERFORMANCE
APPROPRIATE
MEASURES

APPROPRIATE FOR EVALUATING THE CORPORATES ABILITY TO

ACHIEVE A PROFITABILITY OBJECTIVE, BUT IT CANNOT MEASURE
OTHER OBJECTIVES LIKE SOCIAL OBJECTIVE.
FIRM NEEDS TO DEVELOP MEASURES.

TYPES OF
CONTROLS

ACTIVITY-BASED
COSTING

BEHAVIOR CONTROLS OUTPUT CONTROL.

INPUT CONTROL FOCUS ON RESOURCES SUCH AS KNOWLEDGE,
SKILL, ABILITIES, VALUES, AND MOTIVES OF EMPLOYEES.

MEASURE COST ACCURATELY; IT ALLOCATE THE COST TO THE

ACTIVITIES.

Wheelen, T.L. & Hunger, J.D. (2013). Strategic Management and Business Policy: Achieving Sustainability, 13th Edition, Pearson
MBA Programme

MT

PRIMARY MEASURES OF CORPORATE

PERFORMANCE
TRADITIONAL
MEASURES

STAKEHOLDER
MEASURES

SHAREHOLDER
MEASURES

ROI, DEVIDING NET INCOME BEFORE TAXES BY TOTAL ASSET.

EPS, DEVIDING NET EARNING BY THE NUMBER OF SHARE OF COMMON
STOCK ISSUED
TOP MANAGEMENT SHOULD
STAKEHOLDER MEASURES.

ESTABLISH

ONE

OR

MORE

SIMPLE

SHARE HOLDER VALUE (PRESENT VALUE OF ANTICIPATED FUTURE

STREAM OF CASHFLOW).

ECONOMIC VALUE ADDED (EVA) = AFTER TAXED OPERATING INCOME

INVESTMENT X WEIGHTED AVERAGE COST OF CAPITAL.

MARKET VALUE ADDED (MVA) APPROACH, MEASURES THE STOCK

MARKET ESTIMATE OF THE NET PRESENT VALUE OF FIRMS PAST AND
EXPECTED CAPITAL INVESTMENT PROJECT.

Balanced Score card (see strategic

MAPs)
MBA Programme

MT

A SAMPLE SCORECARD FOR KEEPING SCORE WITH

STAKEHOLDERS

MBA Programme

MT

STRATEGY MAP
Long-term share
holder value

Productivity Strategy

Financial
Perspective

Customer
Perspective

Improve cost
structure

Increase Asset
Utilization

Growth Strategy

Expand Revenue
Opportunities

Customer Value Proposition

Price

Quality

Availability

Selection

Functionality

Operation Management
Processes

Creating
Alignment

Learning
and Growth
Perspective
MBA Programme

Supply
Production
Distribution
Risk Management

Relationship

Customer Management
Processes

Selection
Acquisition
Retention
Growth

Strategic Job
Families

Skills
Training
Knowledge

Opportunity ID
R&D Portfolio
Design/Develop
Launch

Information
Capital
Systems
Databases
Networks

Image

Environment
Safety and Health
Employment
Community

Organization
Change Agenda

Brand

Regulatory and Social

Processes

Innovation Processes

Strategic IT
Portfolio

Human Capital

Partnership

Service

Product/Service Attribute

Internal
Perspective

Enhance
Customer Value

Creating
Readiness

Organizational
Capital
Culture
Alignment
Leadership
Teamwork
MT

THE BALANCED SCORECARD: MEASURES, TARGETS, AND

INITIATIVES TRANSLATE STRATEGY INTO ACTION
Balanced Scorecard

Strategy Map
Process: Operation Management
Thema: Ground Turnaround
Profits and
Financial
RONA
Perspective
Grow
revenues

Customer
Perspective

Fewer
planes
Attract and
retain more
customers

On-time
service

Internal
Perspective
Learning and
Growth
Perspective

Lowest
prices

Fast ground
turnaround

Strategic job
Ramp agent
Strategic systems
Crew scheduling
Ground
crew
alignment

MBA Programme

Objectives

Measurement

Target

Action Plan
Initiative

Budget

Implement CRM System

Quality management
Customer loyalty
program

$ xxx
$ xxx

Profitability
Grow revenues
Fewer planes

Market value
Seat revenue
Plane lease cost

30% CAGR
20% CAGR
5% CAGR

Attract and retain

more customers.
Flight is on time.

70%
12% p.a.
1

Lowest prices

Repeat customers
Customers growth
FAA on-time arival
rating
Customer ranking

Fast ground
turnaround

On-ground time
On-time depature

30 minutes
90%

Cycle time optimization

$ xxx

Develop the
necesary skills
Develop the support
system
Ground crew
aligned with strategy

Strategic job rediness

Yr1-70%; Yr390%; Yr-3-100%

100%

Ground new training

$ xxx

Crew scheduling system

rollout
Communication
program
Employee stock
ownership

$ xxx

Total budget

$ xxx

Info system
availability

100%
Strategic awareness
% ground crew
stockholders

$ xxx

100%

$ xxx
$ xxx

MT

INTEGRATED BUSINESS MODEL

OFFER

INFRASTRUCTURE
KEY
ACTIVITIES

PARTNER
NETWORK

CUSTOMER
CLIENT
RELATIONSHIPS

VALUE
PROPOSITION

CLIENT
SEGMENTS

KEY
RESOURCES

DISTRIBUTION
CHANNELS

COST
STRUCTURE

REVENUE FLOWS
FINANCE

MBA Programme

MT

DEVELOP YOUR IDEAL BUSINESS MODEL

KEY PARTNERS

KEY ACTIVITIES

KEY RESOURCE

COST STRUCTURE

MBA Programme

VALUE
PROPOSITION

CUSTOMER
RELATIONSHIP

CUSTOMER
SEGMENTS

CHANNELS

REVENUE STREAM

MT

STRATEGY AND MEASURES

CORPORATE
STRATEGY

FINANCIAL
PERSPECTIVE

BUSINESS
STRATEGY

CUSTOMER
PERSPECTIVE

INTERNAL PROCESS
PERSPECTIVE

INTERNAL PROCESS
PERSPECTIVE

MBA Programme

MT

PRIMARY MEASURES OF DIVISIONAL AND

FUNCTIONAL PERFORMANCE
STANDARD COST CENTERS

RESPONSIBILITY
CENTERS

REVENUE CENTERS
EXPENSE CENTER
PROFIT CENTERS TRANSFER PRICING.

INVESTMENT CENTERS

USING
BENCHMARKING
TO EVALUATE
PERFORMANCE

IDENTIFY THE AREA OR PROCESS TO BE EXAMINED

FIND BEHAVIORAL AND OUTPUT MEASURES OF AREA OR PROCESS AND OBTAIN
MEASUREMENT.
SELECT AN ACCESSIBLE SET OF COMPETITORS AND BEST-IN-CLASS COMPANIES AGAINST
WICH TO BANCHMARK.
CALCULATE THE DIFFERENCES AMONG THE COMPANYS PERFORMANCE MEASUREMENT AND
THOSE OF BEST-IN-CLASS AND DETERMINE WHY THE DIFFERENCES EXIST
DEVELOP TACTICAL PROGRAMS FOR CLOSING PERFORMANCE GAPS.
IMPLEMENT THE PROGRAMS AND THEN COMPARE THE RESULTING NEW MEASUREMENTS WITH
THOSE OF THE BEST-IN-CLASS COMPANIES.

MBA Programme

MT

INTERNATIONAL MEASUREMENT ISSUES

THREE MOST
WIDELY USED
TECHNIQUES

RETURN ON INVESTMENT (ROI)

BUDGET ANALYSIS
HISTORICAL COMPARISONS
NOTE: INTERNATIONAL TRANSFER PRICING NOT TO EVALUATE
PERFORMANCE BUT TO MINIMIZE TAXES. IT RESUULT REPATRIATION
OF PROFITS THROUGH DIVIDENDS, ROYALTIES, AND MANAGEMENT
FEES.

PIRACY

REWARD SYSTEM

MAKE MONEY BY MAKING COUNTERFEIT COPIES OF WELL-KNOWN

NAME BRAND PRODUCTS AND SELLING THEM GLOBALLY

DIFFERENT REWARD SYSTEMS ARE IMPLEMENTED BY GLOBAL MNC

AND MULTIDOMESTIC MNC.
PROFIT IS SOMETIME NOT RELIABLE, THEN THEY USE MARKET
SHARE, PRODUCTIVITY, PUBLIC IMAGE, EMPLOY MORALE, AND
RELATION WITH HOST COUNTRY GOVERNMENT.

Wheelen, T.L. & Hunger, J.D. (2013). Strategic Management and Business Policy: Achieving Sustainability, 13th Edition, Pearson
MBA Programme

MT

STRATEGIC INFORMATION SYSTEM

ENTERPRISE
RESOURCE
PLANNING (ERP)

DIVISIONAL AND
FUNCTIONAL IS
SUPPORT

UNITED ALL OF COMPANYS MAJOR BUSINESS ACTIVITIES FROM

OEDER PROCESSING TO PRODUCTION WITHIN A SINGLE FAMiLY OF
SOFTWARE MODULES.

THE SYSTEM PROVIDES INSTANT ACCESS TO CRITICAL INFORMATION

TO EVERYONE IN THE ORGANIZATION FROM CEO TO THE FACTORY
FLOOR WORKER.

AT SBU LEVEL THE INFORMATION SYSTEM SUPPORT, REINFORCE, OR

ENLARGE ITS BUSINESS-LEVEL STRATEGY THROUGH IT DECISION
SUPPORT SYSTEM.

INFORMATION SYSTEM MUST SUPPORT THE COMPANY OR SBU TO ADD

UNIQUENESS TO THE PRODUCT OR SERVICE AND CONTRIBUTE TO
QUALITY, SERVICE, OR IMAGE THROUGH THE FUNCTIONASL AREAS.

Wheelen, T.L. & Hunger, J.D. (2013). Strategic Management and Business Policy: Achieving Sustainability, 13th Edition, Pearson
MBA Programme

MT

PROBLEMS IN MEASURING PERFORMANCE

SHORT-TERM
ORIENTATION

GOAL
DISPLACEMENT

BEHAVIOR
SUBSTITUTION

Wrong activities being rewarded

MBA Programme

ROI
MERGER
MANY OTHER DECISIONS
MOSTLY FOR SHORT-TERM ORIENTATION.

CONFUSION OF MEANS WITH ENDS.

SUBOPTIMIZATION

When a unit optimizes its goal accomplishment

to the detriment of the organization as a whole.
MT

GUIDELINES FOR PROPER CONTROL

INVOLVE ONLY THE MINIMUM
AMOUNT OF INFORMATION

MONITOR ONLY MEANINGFUL

ACTIVITIES AND RESULT

SHOULD BE TIMELY

USE LONG-TERM AND SHORTTERM CONTROLS

AIM AT PINPOINTING
EXCEPTIONS

EMPPHASIZE THE REWARD OF

MEETING OR EXCEEDING
STANDARDS

FOCUS ON STRATEGIC FACTORS BY FOLLOWING 80:20 RULE, MONITOR

20% FACTORS THAT DETERMINE 80% OF RESULTS

MONITOR ONLY ACTIVITIES THAT HAVE HIGH IMPACT TO PERFORMANCE

CORRECTIVE ACTION CAN BE TAKEN BEFORE IT IS TOO LATE.

IF ONLY SHORT-TERM SHORT-TERM MANAGERIAL ORIENTATION AND

DANGER FOR LONG-TERM POSITION.

ONLY THOSE ACTIVITIES OR RESULTS THAT FALL OUTSIDE

PREDETERMINED TOLERANCE RANGE SHOULD CALL FOR ACTION.

RATHER THAN PUNISHMENT FOR FAILING TO MEET STANDARD

Wheelen, T.L. & Hunger, J.D. (2013). Strategic Management and Business Policy: Achieving Sustainability, 13th Edition, Pearson
MBA Programme

MT

STRATEGIC INCENTIVE MANAGEMENT

Weighted-Factor Method

Long-term Evaluation Method

Strategic Funds Metrhod

Wheelen, T.L. & Hunger, J.D. (2013). Strategic Management and Business Policy: Achieving Sustainability, 13th Edition, Pearson
MBA Programme

MT

WEIGHTED-FACTOR METHOD
STRATEGIC BUSINESS
UNIT CATEGORY

FACTOR

WEIGHT

High Growth

Return on Assets
Cash flow
Strategic-funds programs (developmental expenses)
Market-share increase
Total

10%
0%
45%
45%
100%

Medium Growth

Return on Assets
Cash flow
Strategic-funds programs (developmental expenses)
Market-share increase
Total

25%
25%
25%
25%
100%

Low Growth

Return on Assets
Cash flow
Strategic-funds programs (developmental expenses)
Market-share increase
Total

50%
50%
0%
0%
100%

MBA Programme

MT

STRATEGIC FUNDS APPROACH TO AN

SBUS PROFIT-AND-LOST STATEMENT

Sales .....................................................

$12,300,000

Cost of sales .........................................

-6,900,000

Gross margin ........................................

$ 5,400,000

General and administrative expenses ..

-3,700,000

Operating profit (return on sales) ..........

$ 1,700,000

Strategic funds (development expenses)

-1,000,000

Pre-tax profit .........................................

700,000

Wheelen, T.L. & Hunger, J.D. (2013). Strategic Management and Business Policy: Achieving Sustainability, 13th Edition, Pearson
MBA Programme

MT

REFFERENCES
Wheelen, T.L. & Hunger, J.D. (2013).
Strategic Management and Business
Policy: Achieving Sustainability,
13th Edition, Pearson

MBA Programme

MT

MBA Programme

MT