CHAPTER 11 Evaluation

& Control

STRATEGIC MANAGEMENT & BUSINESS POLICY

10TH EDITION
THOMAS L. WHEELEN

Prentice Hall, Inc. 2006

J. DAVID HUNGER

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Evaluation and Control

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Evaluation and Control

Evaluation and Control Information

Performance data
Activity reports

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Evaluation and Control

Measuring performance
The end result of activity

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Evaluation and Control

Types of Controls
Behavior controls
How something is done through policies,
procedures, rules, SOPs

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Evaluation and Control

Types of Controls
Output controls
What is to be accomplished; focus on end
result through performance targets

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Evaluation and Control

Types of Controls
Input controls
Resources skills, abilities, values, motives

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Evaluation and Control

Types of Controls
Behavior controls
ISO 9000 Standards Series
ISO 14000 Standards Series

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Evaluation and Control

Types of Controls
Activity Based Costing (ABC)
Allocation of indirect and fixed costs to
individual products or product lines
Based on value-added activities
More accurate charge of costs

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Evaluation and Control

Types of Controls
Enterprise Risk Management (ERM)
Identify risks
Rank risks
Measure risks

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Evaluation and Control

Primary Measures of Performance

Traditional Financial Measures
Return on investment (ROI)
Earnings per share (EPS)
Return on equity (ROE)
Operating cash flow
Free cash flow

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Evaluation and Control

Primary Measures of Performance

Shareholder
Shareholder value
Economic value added (EVA)
Market value added (MVA)

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Evaluation and Control

Primary Measures of Performance

Balanced Scorecard Approach
Financial
Customer
Internal business perspective
Innovation and learning

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Evaluation and Control

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Evaluation and Control

Evaluating Top Management & Board

Chairman-CEO Feedback Instrument
Management Audit
Strategic Audit

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Evaluation and Control

Divisional & Functional Performance

Responsibility Centers
Standard cost centers
Revenue centers
Expense centers profit centers
Investment centers

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Evaluation and Control

Using Benchmarking
Continual process of measuring products,
service, and practices against the toughest
competitors or those companies recognized
as industry leaders

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Evaluation and Control

International Measurement Issues

International transfer pricing
Repatriation of profit
piracy

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Evaluation and Control

Strategic Information Systems

Enterprise Resource Planning (ERP)
Divisional and functional IS support

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Saves $18 millions

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Divisional and Functional

IS support

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Evaluation and Control

Problems in Measuring Performance

Short-term orientation
Goal displacement
Behavior substitution
Suboptimization

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Evaluation and Control

Guidelines for Proper Control

Minimum amount of information necessary
Meaningful activities and results
Timely
Long and short-term
Pinpointing exceptions
Meeting/exceeding standards
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Evaluation and Control

Strategic Incentive Management

Weighted-factor method
Long-term evaluation method
Strategic funds method

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