Strategic Control
“ 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
Managers exercise strategic control when they work with the part of the organisation they have influence over to ensure that it achieves the strategic aims that have been set for it. To do this effectively, the managers need some decision making freedom: either to decide what needs to be achieved or how best to go about achieving the strategic aims. Such decision making freedom is one of the characteristics that differentiate strategic control from other forms of control exercised by managers (e.g. Operational control – the management of operational processes).
Strategic controls take into account the changing assumptions that determine a strategy, continually evaluate the strategy as it is being implemented, and take the necessary steps to adjust the strategy to the new requirements. In this manner, strategic controls are early warning systems and differ from post-action controls which evaluate only after the implementation has been completed.
Important types of strategic controls used in organizations are:
- Premise Control: Premise control is necessary to identify the key assumptions, and keep track of any change in them so as to assess their impact on strategy and its implementation. Premise control serves the purpose of continually testing the assumptions to find out whether they are still valid or not. This enables the strategists to take corrective action at the right time rather than continuing with a strategy which is based on erroneous assumptions. The responsibility for premise control can be assigned to the corporate planning staff who can identify key asumptions and keep a regular check on their validity.
- Implementation Control: Implementation control may be put into practice through the identification and monitoring of strategic thrusts such as an assessment of the marketing success of a new product after pre-testing, or checking the feasibility of a diversification programme after making initial attempts at seeking technological collaboration.
- Strategic Surveillance: Strategic surveillance can be done through a broad-based, general monitoring on the basis of selected information sources to uncover events that are likely to affect the strategy of an organisation.
- Special Alert Control: Special alert control is based on trigger mechanism for rapid response and immediate reassessment of strategy in the light of sudden and unexpected events called crises. Crises are critical situations that occur unexpectedly and threaten the course of a strategy. Organisations that hope for the best and prepare for the worst are in a vantage position to handle any crisis.
Recommended reading: Strategic Control and Operational Control
Process of Strategic Control
Strategic control processes ensure that the actions required to achieve strategic goals are carried out, and checks to ensure that these actions are having the required impact on the organisation. An effective strategic control process should by implication help an organisation ensure that is setting out to achieve the right things, and that the methods being used to achieve these things are working.
Regardless of the type or levels of strategic control systems an organization needs, control may be depicted as a six-step feedback model:
1. Determine What to Control: The first step in the strategic control process is determining the major areas to control. Managers usually base their major controls on the organizational mission, goals and objectives developed during the planning process. Managers must make choices because it is expensive and virtually impossible to control every aspect of the organization’s
2. Set Control Standards: The second step in the strategic control process is establishing standards. A control standard is a target against which subsequent performance will be compared. Standards are the criteria that enable managers to evaluate future, current, or past actions. They are measured in a variety of ways, including physical, quantitative, and qualitative terms. Five aspects of the performance can be managed and controlled: quantity, quality, time cost, and behavior.
Standards reflect specific activities or behaviors that are necessary to achieve organizational goals. Goals are translated into performance standards by making them measurable. An organizational goal to increase market share, for example, may be translated into a top-management performance standard to increase market share by 10 percent within a twelve-month period. Helpful measures of strategic performance include: sales (total, and by division, product category, and region), sales growth, net profits, return on sales, assets, equity, and investment cost of sales, cash flow, market share, product quality, valued added, and employees productivity.
Quantification of the objective standard is sometimes difficult. For example, consider the goal of product leadership. An organization compares its product with those of competitors and determines the extent to which it pioneers in the introduction of basis product and product improvements. Such standards may exist even though they are not formally and explicitly stated.
Setting the timing associated with the standards is also a problem for many organizations. It is not unusual for short-term objectives to be met at the expense of long-term objectives. Management must develop standards in all performance areas touched on by established organizational goals. The various forms standards are depend on what is being measured and on the managerial level responsible for taking corrective action.
3. Measure Performance: Once standards are determined, the next step is measuring performance. The actual performance must be compared to the standards. Many types of measurements taken for control purposes are based on some form of historical standard. These standards can be based on data derived from the PIMS (profit impact of market strategy) program, published information that is publicly available, ratings of product / service quality, innovation rates, and relative market shares standings.
Strategic control standards are based on the practice of competitive benchmarking – the process of measuring a firm’s performance against that of the top performance in its industry. The proliferation of computers tied into networks has made it possible for managers to obtain up-to-minute status reports on a variety of quantitative performance measures. Managers should be careful to observe and measure in accurately before taking corrective action.
4. Compare Performance to Standards: The comparing step determines the degree of variation between actual performance and standard. If the first two phases have been done well, the third phase of the controlling process – comparing performance with standards – should be straightforward. However, sometimes it is difficult to make the required comparisons (e.g., behavioral standards). Some deviations from the standard may be justified because of changes in environmental conditions, or other reasons.
5. Determine the Reasons for the Deviations: The fifth step of the strategic control process involves finding out: “why performance has deviated from the standards?” Causes of deviation can range from selected achieve organizational objectives. Particularly, the organization needs to ask if the deviations are due to internal shortcomings or external changes beyond the control of the organization. A general checklist such as following can be helpful:
- Are the standards appropriate for the stated objective and strategies?
- Are the objectives and corresponding still appropriate in light of the current environmental situation?
- Are the strategies for achieving the objectives still appropriate in light of the current environmental situation?
- Are the firm’s organizational structure, systems (e.g., information), and resource support adequate for successfully implementing the strategies and therefore achieving the objectives?
- Are the activities being executed appropriate for achieving standard?
6. Take Corrective Action: The final step in the strategic control process is determining the need for corrective action. Managers can choose among three courses of action: (1) they can do nothing (2) they can correct the actual performance (3) they can revise the standard.
When standards are not met, managers must carefully assess the reasons why and take corrective action. Moreover, the need to check standards periodically to ensure that the standards and the associated performance measures are still relevant for the future.
The final phase of controlling process occurs when managers must decide action to take to correct performance when deviations occur. Corrective action depends on the discovery of deviations and the ability to take necessary action. Often the real cause of deviation must be found before corrective action can be taken. Causes of deviations can range from unrealistic objectives to the wrong strategy being selected achieve organizational objectives. Each cause requires a different corrective action. Not all deviations from external environmental threats or opportunities have progressed to the point a particular outcome is likely, corrective action may be necessary.
To conclude, 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.