7 Steps to Evaluate an Effective Company Business Strategy

Strategy evaluation – Sinaumed’s friends , The chosen strategy must go through a series of different alternative analysis processes to be implemented within a certain time. Strategy is needed so that the organization is in a state of efficiency and is able to achieve goals and objectives in a frequently changing external environment.

One of the future-oriented strategies. Therefore, strategy selection is usually based on various basic assumptions, considering that not all events and factors that affect strategy implementation can be predicted and calculated accurately.

Whether strategy is effective or not as a tool to achieve organizational goals and objectives is not seen in the formulation and definition process, but in its implementation.

Evaluation of the implemented strategy must be carried out to find out whether the implemented strategy is successful and optimal. In addition to strategy evaluation, strategy control must also be carried out so that the implemented strategy can be monitored and implemented properly.

Adaptation and change are two things every company faces. Changing market and economic conditions and situations require companies to be able to change their orientation if necessary. To change the direction of your company properly, you need to understand how to evaluate effective strategies.

Strategic management is an important part of the continuity of a company. With a good strategic management system, you can react well to future changes. In order to change the strategy you are currently using, evaluating the strategy is an important step. You must first know the ins and outs of the strategy you are using before you can change direction.

Here are steps to evaluate effective strategies that you can use as a guide. Come on, see the explanation, Sinaumed’s friends !

What is Strategy Evaluation?

Before understanding what strategy evaluation is, you need to understand that there are three steps that must be completed to implement an effective business strategy. These steps include:

First, strategy formulation. The formulation process requires certain information and facts relating to the scope of the company and the development of the company. Starting with the vision and mission, identifying strengths and weaknesses as well as potential internal and external threats to the company.

Then set long-term and short-term goals and prepare several alternative strategies after determining the main strategy to be used.

Second, strategy implementation. In this phase, the company must have several short, medium and long term goals. Starting with making company policies, budgeting operational costs, setting up the right organizational structure, allocating good resources and motivating employees to achieve the goals set to the fullest.

In addition, the development and use of appropriate information systems and compensation services is very important to note for employee performance satisfaction.

Third, strategy evaluation. This step is the final step which is enough to determine the success of the business strategy. At least there are several main elements in the evaluation namely; monitor, measure and take corrective action. Evaluation really needs to be done to maintain success and avoid failure in the future.

Therefore, strategy evaluation is the most effective way for business people to assess how long the company has survived and developed to achieve the desired strategic goals. With this assessment, business owners can determine the direction of their business strategy and help identify gaps and take corrective action when they are not in accordance with the initial concept.

Things to Evaluate!

Conducting an effective strategic assessment certainly requires the cooperation of many parties. It starts with shareholders, the board of directors, and key officers of the company, including heads of company departments. The things to be evaluated include:

1. Sales achievement

Sales targets can be the most accurate measure to determine the success of a business strategy. Company profitability and profit margins. When estimating profit margins, the difference in sales value is calculated after deducting operating costs, then divided by the number of sales. Until finally found a comparison between turnover and company capital.

2. Market share

By analyzing market share, entrepreneurs can find out how strong the company controls the market. Calculate and compare company size with market size using various estimates such as Sales value and volume and number of customers.

3. Liquidity of the company

Company liquidity, namely estimating the interest and demand for products by consumers, and the company’s ability to fulfill its product reserves.

4. The solvency of the company

This is equally important because it relates to the company’s financial condition. Especially related to the existence of debt to creditors. This assessment makes it easier for the company to know the amount of financing to be borrowed and the company’s ability to repay the loan.

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Why is a Strategy Evaluation Needed?

Strategic evaluation is important to ensure that the stated strategic goals can be achieved. Strategy evaluation is a way for marketers to assess the company’s position to achieve strategic goals.

This assessment provides an objective method for testing the effectiveness and efficiency of a company’s strategy and a way to determine whether the implemented strategy is moving the organization toward its intended strategic goals. Strategic assessment can also help determine when and what corrective actions are needed to return performance to your business goals.

The more complex the problems that arise in the corporate environment, the more difficult it is to predict the survival of the organization in the future. Here are some reasons why companies need to evaluate strategy:

  1. Market and economic conditions change and situations in which markets grow, technologies change, and new competitors emerge.
  1. The more complicated and complex the company’s operations, the more control is needed.
  1. The more power and authority is decentralized, the more managers need tools to track the activities and performance of their subordinates.

The benefits that companies receive when evaluating strategies are:

  1. Can know the progress of the program/project so that the company can take the necessary actions or corrections.
  1. Ensuring the most effective and efficient use of resources.
  1. Assess the extent to which the program/project has or is having the desired impact.

Evaluation of work strategy should involve shareholders, board of directors, company secretary and company leaders and responsibilities related to the implementation of company strategy.

Balanced Scorecard

The information age of globalization has brought many companies into a complex and competitive business environment. The dynamic business environment requires performance measures of the company’s board of directors and management, which can determine the health and status of the company, as well as systems that can provide an overall picture of company results and company strategy and strategy implementation.

Therefore, a strategy implementation tool is needed to answer these challenges.

The Balanced Scorecard approach is used as a tool to transform an organization’s strategic objectives into a set of causal and interrelated work activities that can be measured and monitored to ensure the achievement of the organization’s strategic goals.

The Balanced Scorecard (BSC) concept developed by Kaplan and Norton consists of two main indicators, namely Lagging Indicator and Leading Indicator. Lagging indicators are effect indicators, which are measures that are identified after something has happened, which can provide information about the company’s position and what the company should do.

Meanwhile, the Leading Indicator is a causal indicator that includes initiatives or actions that must be taken to support the achievement of the Lagging Indicator .

With these two indicators, the Balanced Scorecard allows organizations to compare results with factors that affect performance. The Lagging Indicator perspective component includes financial and customer aspects . While Leading indicators include Internal Business Process and Learning and Growth . The following is an explanation of the four perspectives:

Financial Perspective

The financial perspective provides an overview of whether strategic planning and execution affect the main objectives of the company. For non-profit organizations, the indicators used in the financial perspective evaluation include: Profits, revenues, costs, use of assets, etc.

Customer Perspective (Customer Perspective)

This perspective provides an overview to the company about the importance of the customer perspective as a driver of the company’s financial performance. From this perspective, BSC measures aspects such as: Marketing share, customer retention, customer acquisition, customer satisfaction, etc.

Perspective of Internal Business Process (Internal Business Process)

This perspective includes a series of processes or activities that a company must carry out to achieve its goals from a customer perspective and from a financial perspective, such as:

Develop new products, increase production capacity, build new business networks, intensify cooperation with third parties, etc.

Learning and Growth Perspective (Learning and Growth Perspective)

This perspective identifies things that must be prepared by organizations to carry out business process functions optimally, such as: Preparation of quality human resources, development of necessary supporting infrastructure (technology, information, etc.), development of organizational culture, etc.

Steps to Conduct Strategy Evaluation

1. Consistency 

In the early stages, you need to assess the consistency of the strategy. It should be ensured that there is no conflict between the policies and the goals in the announced strategy. Here you need to make sure of two important things. The first is the company’s internal operations, which include procurement, marketing, sales, operations and services according to the allocation of resources. Second, internal functions are also consistent with market economic goals and business goals.

2. Fixed performance benchmarks

When setting benchmarks, strategists face questions such as: what benchmarks to set, how to set them, and how to express them? To determine configuration respect, it is important to find concrete requirements to perform the primary task.

The performance indicators that best identify and reveal specific needs can then be determined for use in the evaluation. Organizations may use both quantitative and qualitative criteria in evaluating overall performance. Quantitative criteria include net profit, ROI, earnings per share, cost of production, turnover rate, etc. Qualitative factors include subjective assessment of factors such as – skills and competence, risk taking, flexibility etc.

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3. Performance measurement

Normal performance is a measure compared to actual performance. Reporting and communication systems help measure performance. When the right means of measuring performance are in place and standards are properly set, evaluating strategy becomes easier. However, various factors such as input from supervisors are difficult to measure.

Likewise, it is sometimes difficult to measure divisional performance against individual performance. Therefore, objective variables must be set to measure performance. Measurements must be taken at the right time, otherwise the assessment will not achieve its objective. Annual financial reports must be prepared to measure performance, financial reports such as balance sheets, income statements must be prepared annually.

4. Analysis of Variances

When measuring actual performance and comparing it to standard performance, there may be differences that need to be analyzed. The strategy must determine the level of tolerance between deviations between actual performance and acceptable standards.

Positive deviation indicates better performance, but it is very unusual that targets are always exceeded. Negative deviations are worrying because they indicate a lack of performance. In this case, the strategist must find the cause of the deviation and take corrective action to overcome it.

5. Taking Corrective Action

When performance differences are identified, it is important to plan corrective action. When performance is consistently lower than desired performance, strategists must carry out a detailed analysis of the factors influencing performance.

If strategists determine that the organization’s potential does not match performance requirements, standards must be lowered. Another infrequent and drastic corrective action is strategic realignment, which entails returning to the strategic management process, planning reforms according to new trends in resource allocation, and subsequent means of returning to the starting point of the strategic management process.

6. Review based on strategy

An overview of the rationale behind organizational strategy, can be done by reviewing the EFE matrix and IFE matrix. The revised IFE matrix (revised IFF matrix) should focus on changes that occur in the strengths and weaknesses of the organization’s management, marketing, finance/accounting, production/operations, research and development (R&D), and management information systems (MIS).

The updated EFE Matrix aims to show how effectively a company’s strategy responds to opportunities and risks. A number of external and internal factors can prevent a company from achieving its long-term and annual goals.

Externally, competitors’ actions, changes in demand, changes in technology, changes in the economy, changes in demographics, and government policies can prevent the achievement of organizational goals. Internally, an ineffective strategy may be selected or executed poorly. Goals can be overly optimistic. Failure to achieve goals is therefore not necessarily the result of unsatisfactory work by managers and employees.

7. Conformity

It is important to understand that adapting a business strategy to the market environment should not be underestimated. Because this affects the effectiveness of the strategy which also affects the achievement of company goals.

Because of this, you need to assess the suitability of the strategy to the market, whether it is local or a wider area. At the very least, you have to ensure a few things, such as: who and where possible potential customers exist, the economic forces that prevail in the commercial market, which lead customers/consumers to buy and the restrictions that apply in corporate adjustments.

The Nature of Strategy Evaluation 

The strategic management process can successfully make decisions that can have significant and long-term consequences. Wrong strategic decisions can lead to huge losses, which will be very difficult to repair.

Therefore, many strategic planners agree that strategy evaluation is very important in organizational life; Timely assessment can alert management of problems or potential problems before they become critical.

Strategy evaluation can be a complex and sensitive process. Too many performance appraisal strategies can be very expensive and counterproductive. Strategy evaluation is important to ensure that the set strategic goals can be achieved.

1. Strategy evaluation activities

Review basic business/company strategy Compare expected results with reality Take corrective actions to ensure performance is in line with plan.

2. Strategy Evaluation Criteria

Coherence; Strategies must not have conflicting goals and guidelines. wisdom; Strategy should not overwhelm existing resources or create subproblems that are difficult to solve. Applicability implies that the strategic plan must consider various trends as well as each trend when evaluating strategies.

3. Reasons for the need for Strategy Evaluation

The more complex the environmental issues, the more difficult it is to predict the future of the organization. Let’s shorten the time that can be planned with some precision.

4. Strategy Evaluation Process

Strategy evaluation aims to question managers’ expectations and assumptions, to initiate a review of goals and values, and to encourage creativity in generating alternatives and formulating evaluation criteria.

Closing

This is a review of the 7 steps for evaluating an effective company business strategy, so that the company can evaluate the overall management of the company. For Sinaumed’s who want to understand about other strategy evaluations, you can visit sinaumedia.com to get related books.

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Author: Ziaggi Fadhil Zahran

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