The final stage of strategic management is strategic evaluation, which is regarded as one of the most important aspects in the process.

It is the process by which management examines how well a chosen strategy has been implemented and whether the strategy has been successful or not is known as strategy evaluation. Simply put, strategy evaluation comprises assessing and evaluating the strategy implementation process as well as assessing and evaluating organizational performance.

If the strategy is not being implemented as expected, for example, owing to strategy limits that are preventing the attainment of organizational goals, essential corrective actions should be identified and implemented. You’ll have enough information at the end of the review to either reformulate the strategy or plan and develop new ones.

Evaluating the strategy aids in its improvement, identifying what works and what doesn’t, and contributing to the strategy’s continual evolution and adaption to changing conditions and difficulties in the industry.

The two levels of strategy evaluation are strategic and operational. At the strategic level, the focus is on the strategy’s compatibility with the environment, while at the operational level, the effectiveness with which the organization is pursuing the strategy is evaluated.

Through the strategy evaluation process, strategists should ensure that:

1. The assumptions established during strategy development are correct.
2. The term “strategic planning” refers to the process of steering an organization toward its goals.
3. Managers are carrying out their responsibilities in order to properly implement the strategy.
4. The company is doing well, schedules are being followed, and resources are being used efficiently.
5. Whether or if the plan needs to be reformulated.

Participants in the Strategy Evaluation

The strategy evaluation stage necessitates the participation of a number of people who will play various roles throughout the process.

1. The board of directors has the official responsibility of examining and screening CEO actions for environmental, commercial, and organizational ramifications. Although they are not directly involved in the strategy implementation process’ evaluation and control, they do participate in periodic reviews of the organization’s performance and results.
2. Chief executives are in charge of all strategy evaluation and control administrative activities.
3. The SBU or profit-center leaders are in charge of monitoring plan implementation at the business unit level and reporting back to the corporate parent, who can interfere as needed.
4. Financial controllers, corporate secretaries, and external and internal auditors are in charge of financial analysis, planning, and reporting for operational control.
5. Middle-level managers are responsible for completing duties allocated to them by SBU heads or the strategic planning group, as well as providing feedback and information.

Importance of Strategic Evaluation

1. The strategy evaluation step ensures that the strategy’s implementation will aid the organization’s achievement of its goals. It would be difficult to determine whether the strategy deployed is having the expected effect without this phase in the strategy management process.
2. Examine the organization’s strategic decisions for their validity.
3. Examine whether the decisions taken during the strategy implementation stage are in line with the goals of the strategy.
4. Provide strategic information and expertise that can be used to reformulate or create new tactics.
5. Changes in the internal and external environment might cause troubles, so be aware of them and take care to prevent making poor decisions.

Process of evaluating a strategy

The strategy evaluation is carried out to see if the strategy is assisting the firm in achieving its goals. It compares the organization’s actual performance to the expected outcomes and offers the necessary insight into the corrective action that needs to be taken to improve the organization’s performance. The steps in the strategy evaluation process are as follows.

1. Create guidelines: The first stage is to figure out what standards to set, how to define them, and what language to use to communicate them. To accomplish this,

• Determine the key performance areas, which are usually based on critical managerial activities related to strategy requirements.
• Within these specified critical performance areas, standards should be established. The type of standard to be defined can be determined by the special needs needed to fulfill each of these important functions.
• The performance indicators that can meet these unique needs can then be identified and assessed.To make it easier to measure performance, performance indicators must be based on quantitative or qualitative criteria.

• Quantitative criteria – based on these criteria, performance can be judged in two ways: by comparing the company’s performance to its previous achievements, or by comparing the company’s performance to the industry average or competitors’ performance.
• Companies need a set of qualitative criteria, such as those proposed by Glueck and Jauch, to analyze factors such as core competences, capacities, risk-bearing capability, workability, and adaptability.

• Continuity (evaluating strategy against company objectives, environmental assumptions, and internal conditions)
• Applicability (evaluating strategy with regard to resource capabilities, risk preference, and time horizon)
• Adaptability (evaluating the feasibility and simulation of the strategy)

2. Measurement of Results

The performance standards established will serve as a benchmark against which actual performance will be measured. Managers should decide how and how often to measure performance based on these standards.

Data such as the number of materials used, units produced, the monetary amount of services used, the number of faults identified, processes followed, quality of output, and return on investment are commonly used to measure performance.

Once the methods for monitoring performance have been determined, the frequency with which they should be performed for control purposes must be decided. It is determined whether it should be done on a daily, weekly, monthly, or annual basis based on variables such as the importance of the goal to the company, how rapidly the situation may change, and how difficult or expensive it would be to remedy a problem after it has occurred.

3. Analyse the Variances

When actual performance is compared against performance criteria, it will become clear whether:

1. The actual results are in line with the budgeted results.
2. In a positive sense, actual performance differs from budgeted performance.
3. In a negative sense, actual performance differs from budgeted performance.

To decide whether the results can be accepted properly, a predetermined set of tolerance limits can be employed. If the actual performance differs from the budgeted performance by less than the tolerance limit, the performance is acceptable and the variance is minor. If, on the other hand, performance falls short of expectations, attention must be focused on identifying the core reasons of the problem and developing a plan to address it.

4. Take corrective Action

If actual performance deviates from the tolerance limit, corrective action must be performed to remedy the situation. Internal or external factors might cause the variation, which can be expected or unpredicted, temporary or permanent. If actual performance frequently falls short of expectations, a comprehensive investigation should be conducted to determine the main causes.

Consider setting attainable performance criteria if the organizational potential cannot satisfy the performance requirements. In the event of a significant divergence, you may need to consider establishing a strategy, which may require you to restart the strategic management process from the beginning.