Chapter 11 Evaluation and Control-Edited

STRATEGIC MANAGEMENT & BUSINESS POLICY
13TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
Evaluation and Control ensures that a company is
achieving what it set out to accomplish by
comparing performance with desired results and
taking corrective action as needed
Evaluation & control information consists of

performance data and activity reports (see step 3
in Evaluation and Control Process)
Prentice Hall, Inc. ©2012 11-2

1. Determine what to measure
2. Establish standards of performance
3. Measure actual performance
4. Compare actual performance with the
standard
5. Take corrective action

Appropriate Measures
Performance is the end result of activity,
Measures: ROI, EPS can be computed only after profits
are totaled for a period. It tells what happened
after the fact, not what is happening or what will
happen.
Steering controls measure variables that influence
future profitability
• Cost per passenger mile (airlines)
• Inventory turnover ratio (retail)
• Customer satisfaction

Primary Measures of Corporate Performance
• Return on Investment (ROI): the result of dividing net
income before taxes by the total amount invested in the
company.
• Earnings per share (EPS): involves dividing net earnings
by the amount of common stock
• Return on equity (ROE): involves dividing net income by
total equity
• Operating cash flow: the amount of money generated by
a company before the cost of financing and taxes.
– Free cash flow

Popular Measures of Internet Companies
Non-Financial Measures
• Stickiness: Length of web site visit

• Eyeballs: number of people who visit a web site
• Mindshare: brand awareness
• Mergers & Acquisitions may be priced on multiples
of Monthly Unique Viewers

Balanced score card– combines financial measures
that tell results of actions already taken with
operational measures on customer satisfaction,
internal processes and the corporation’s 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 & create value?

Balanced Scorecard

Balanced Scorecard in our Days
As companies around the world transform themselves for
competition that is based on information, their ability to
exploit intangible assets has become far more decisive than
their ability to invest in and manage physical assets.
Balanced scorecard enabled companies to track financial

results while simultaneously monitoring progress in building
the capabilities and acquiring the intangible assets they would
need for future growth. The scorecard wasn’t a replacement
for financial measures; it was their complement.

Recently, we have seen some companies move beyond the

traditional vision for the scorecard to discover its value as the
cornerstone of a new strategic management system. Used this
way, the scorecard addresses a serious deficiency in
traditional management systems:
their inability to link a company’s Long-Term Strategy
with its Short-Term Actions.

Most companies’ operational and management control

systems are built around financial measures and targets,
which bear little relation to the company’s
progress in achieving long-term strategic
objectives. Thus the emphasis most companies place on
short-term financial measures leaves a GAP between the
development of a strategy and its implementation.

Managers using the balanced scorecard do not have to rely on

short-term financial measures as the sole indicators of the
company’s performance. The scorecard lets them introduce
four new management processes that, separately and
in combination, contribute to linking long-term strategic
objectives with short-term actions.

1st new process, Translating the Vision: helps managers build a

consensus around the organization’s vision and strategy.
2nd process, Communicating and Linking: lets managers communicate

their strategy up and down the organization and link it to departmental and
individual objectives.
3rd process, Business Planning: enables companies to integrate their

business and financial plans.
4th process, Feedback and Learning: gives companies the capacity for
what we call strategic learning

Balanced Scorecard in our Days:
Managing Strategy
Translating
the Vison
Communicat Balanced Feedback &

ing & Linking Scorecard Learning
Business
Planning

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STRATEGIC MANAGEMENT & BUSINESS POLICY

Evaluation & control information consists of

Prentice Hall, Inc. ©2012 11-2

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• Stickiness: Length of web site visit

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Balanced scorecard enabled companies to track financial

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Recently, we have seen some companies move beyond the

Prentice Hall, Inc. ©2012 11-20

Most companies’ operational and management control

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Managers using the balanced scorecard do not have to rely on

Prentice Hall, Inc. ©2012 11-22

1st new process, Translating the Vision: helps managers build a

2nd process, Communicating and Linking: lets managers communicate

3rd process, Business Planning: enables companies to integrate their

Prentice Hall, Inc. ©2012 11-23

Communicat Balanced Feedback &

Prentice Hall, Inc. ©2012 11-24

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