Strategy Evaluation Process Criteria and Methods

The Strategy Evaluation Process is a systematic approach to assessing an organization’s strategy to ensure it remains effective, relevant, and aligned with the organization’s goals. Evaluation helps organizations make necessary adjustments based on performance data and market conditions. This process involves setting clear criteria and choosing appropriate methods to assess performance accurately.

Strategy Evaluation Process

The strategy evaluation process consists of three key steps to maintain alignment and effectiveness:

1. Establishing Standards

Organizations set measurable standards as benchmarks for evaluating performance. These standards are often derived from strategic objectives and include financial, operational, and strategic targets.

Purpose: To create clear benchmarks that reflect desired outcomes, such as revenue growth, market share, or cost savings.

Examples: Increasing customer retention by 20%, reducing production costs by 10%, or expanding market share by 5%.

2. Measuring Performance

This step involves collecting and analyzing data on actual performance, comparing it with the established standards.

Purpose: To assess progress, identify any deviations from targets, and determine if the strategy is effective.

Key Aspects:
- Data Collection: Collecting relevant metrics and feedback.
- Comparison: Evaluating actual performance against benchmarks.
- Reporting Tools: Dashboards, analytics, and performance reports help visualize progress.

3. Taking Corrective Actions

If there are deviations from the desired standards, corrective actions are implemented to realign the strategy with organizational goals.

Purpose: To adjust resources, objectives, or operations to address performance gaps.

Examples: Increasing marketing budget, reallocating resources, or adjusting product features to improve performance.

Criteria for Strategy Evaluation

Richard Rumelt proposed four essential criteria for evaluating the effectiveness and robustness of a strategy. These criteria — Consistency, Consonance, Feasibility, and Advantage — are widely used to assess whether a strategy is well-suited to the internal and external circumstances of an organization.

1. Consistency

A successful strategy should avoid presenting inconsistent goals or policies. Consistency implies coherence across various organizational goals and functions. When a strategy is inconsistent, it often results in organizational conflicts or interdepartmental issues, which are symptoms of underlying managerial or strategic problems.

For example:

If one department aims to expand aggressively while another focuses on cost reduction, this could indicate strategic inconsistency.

Consistency ensures that all parts of the organization work toward compatible objectives, fostering alignment across different functions.

2. Consonance

Consonance refers to the need for the strategy to be in harmony with the external environment and evolving trends. A consonant strategy considers:

Sets of Trends: Evaluating the broader implications of various external trends.

Individual Trends: Analyzing each trend separately to understand its impact on the organization.

Consonance is crucial because the external environment is dynamic, with trends often influencing each other. A successful strategy should adapt to these changes and leverage them for competitive advantage. This external alignment allows the organization to remain relevant and proactive.

For example:

A company in the tech industry must consider trends in digital transformation, artificial intelligence, and data security when formulating its strategy.

3. Feasibility

Feasibility assesses whether a strategy is practical and achievable within the organization’s resources and constraints. It involves examining:

Physical Resources: The capability of physical assets, like facilities and equipment, to support the strategy.

Human Resources: Availability of skilled personnel required to execute the strategy.

Financial Resources: Sufficient financial means to fund the strategy.

A feasible strategy ensures that the organization does not overextend itself or attempt initiatives that strain its resources. Feasibility is a critical test, as an unrealistic strategy can lead to financial strain, employee burnout, or operational issues.

For example:

A startup with limited funding may need to focus on core offerings rather than diversify aggressively.

4. Advantage

The Advantage criterion emphasizes that a strategy should create or sustain a competitive edge. Competitive advantage often arises from:

Resources: Unique assets that the organization possesses.

Skills: Superior capabilities that allow the organization to perform at a higher level.

Position: A favorable market position that enhances the organization’s standing relative to competitors.

Advantage is a critical component, as it provides the organization with a basis for sustainable success. A well-designed strategy should leverage one or more of these elements to distinguish the organization from competitors and attract customers.

For example:

A company with a patented technology may gain a unique advantage in its market by offering a product that no competitor can match.

Internal vs. External Assessment

In evaluating these criteria, there is a distinction between internal and external assessments:

Consistency and Feasibility primarily rely on an internal assessment of the organization’s resources, culture, and goals.

Consonance and Advantage focus more on an external assessment, requiring the organization to examine trends, market dynamics, and competition.

Understanding these distinctions allows for a more comprehensive strategy evaluation, balancing internal capabilities with external opportunities and threats.

Strategy Evaluation Methods

There are several methods used to evaluate the effectiveness of a strategy. These methods provide quantitative and qualitative insights into performance:

1. Financial Analysis

Financial metrics like profitability, revenue growth, and return on investment (ROI) provide a direct measure of a strategy’s success.

Purpose: To determine the financial impact of the strategy.

Examples: Analyzing sales growth, profit margins, and cash flow.

2. Balanced Scorecard

The balanced scorecard approach evaluates performance across multiple dimensions, including financial, customer, internal processes, and learning/growth.

Purpose: To assess the strategy from various perspectives, providing a holistic view.

Example: A company may track customer satisfaction, employee engagement, and operational efficiency in addition to financial metrics.

3. Benchmarking

Benchmarking involves comparing the organization’s performance against industry standards or competitors to gauge relative success.

Purpose: To identify areas where the organization is excelling or lagging.

Example: A company might compare its market share growth to that of its main competitors.

4. SWOT Analysis

SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis helps identify internal and external factors impacting strategy success, highlighting areas for improvement.

Purpose: To assess strengths and weaknesses within the organization and identify external opportunities and threats.

Example: A company may find opportunities in new markets or identify internal weaknesses that need to be addressed.

Importance of Strategy Evaluation Process, Criteria, and Methods

Ensures Strategic Alignment: Regular evaluation keeps the organization aligned with its goals and mission.

Informs Decision-Making: Evaluation criteria and methods provide data-driven insights to make informed decisions.

Promotes Flexibility: By assessing adaptability, organizations can modify strategies in response to market changes.

Improves Performance: Through corrective actions and continuous monitoring, organizations can enhance the effectiveness of their strategy.

The Strategy Evaluation Process, when combined with relevant criteria and effective methods, helps organizations maintain focus, adapt to change, and continuously improve strategic outcomes.