What is Strategic Control ?
Strategic control deals with monitoring the strategy after it has been executed in the organisation. This involves taking stock of the strategy and making any necessary corrections or clearing out any problems seen in its implementation. The authors Newman and Logan have used the term "steering control" to point out certain critical aspects of strategic control. Normally a significant amount of time elapses between the initial execution of the strategy and the final result. In the interim the organisation makes substantial investments in the form of time, projects and capital investments to complete the execution of the strategy. The strategy is also impacted by events in the external environment of the organisation. In this scenario, the organisation needs steering control to guide the organisation through the critical aspect of implementation. The organisation needs to have a mechanism for correcting any shortcomings in the implementation of the strategy.
Strategic control thus provides the organisation the ability to monitor the progress of the strategy implementation, to identify any flaws and to take the necessary corrections in the implementation of the strategy. The analysis of the data pertaining to the implementation plays a very important part in this. The data is collected and then compared to pre designed standards so that any major deviation in the performance can be identified. The amount of data that has to be collected for this purpose has to be of a significant quantity so that the analysis of the data can yield logical actions for the organisation.
Strategic Control in Strategic Management
Strategic controls are by and large subjective in nature and are used to see if the firm is using the correct strategies to take advantage of opportunities in its external environment and also to maintain its strength with respect to competition. The strategic control thus aims to create a balance between what the firm might do (as follows from the opportunities in the firm's external environment) and what the firm can do (its competitive advantages). It therefore allows the organisation to decide on a course of action for getting success in its environment. Strategic control requires a high level of communication between the managers who measure the success of the company's strategy and those who actually execute the strategy. The forms of communication may be both formal and informal. Strategic control system are also used to measure the extent to which the organisation relies on requirements in the execution of the strategies.
For example, at the business level strategy execution strategic controls measure if the primary and support activities are being implemented properly. When the execution is at a corporate level, then strategic control envisages if the various shared factors like knowledge, markets and technologies. are leveraged properly across the various businesses of the organisation. When the corporate headquarters review the various diversification strategies then they must have an in depth knowledge of the various business level strategies.
Process of Strategic Control
Strategic control is done in the following manner :
1) Determine what to Control :
The first thing to be decided are the activities that the organisation wants to keep track of and control. These are normally decided based on the objectives, mission, vision and the goal setting done as a result of planning. It is necessary for managers to decide what they must control because it is not possible to monitor and control every activity. It is very necessary that the top management is fully committed to the process of strategic control and that it communicates clearly to the rest of the organisation why the controls are being put in place. Without the involvement of top management, strategic control will not be successful.
2) Set Control Standards :
Once the organisation has decided what it wants to control, the next step is to set standards for each of these. Standards are nothing but targets against which the actual performance can be measured to judge if the performance is up to mark or not. Standards represent the benchmark against which the organisation can measure its current performance, define future targets and also evaluate historical performances. They can be both quantitative and qualitative. The five bases on which standards are set are quantity, quality, time, cost and behavior. Each of these need to be further analysed for establishment of control standards.
Once the standards are set, the organisation needs to set upper and lower limits for the standard. These are also called tolerance limits. These targets also have to be in line with the organisational goals and objectives. For example, standards could pertain to how the good is manufacturing or how the service needs be imparted or how the distribution of the product should happen. Standards can also pertain to a set of activities that the organisation needs to fulfill to achieve its goals. The goals of an organisation can be made measurable by creating a standard. For example, the goal could be to increase customer satisfaction whereas the standard could be in achieving a certain C-SAT score. Standards could also extend to other areas like sales, growth in sales, sales mix, market share, the quality of the products and the productivity of employees.
3) Measure Performance :
The next step is to actually measure the output or performance and compare against the standard. This measurement can differ from case to case. In some cases it could be a normal observation of some events whereas in other it may involve detailed analysis. They can also be based on some historical standard. Strategic control standards are based the practice of competitive bench marking the process of measuring a firm's performance in its industry. of the top performance in against that of the Strategic controls can can also be initiated through the process of competitive bench marking. In this the standards are set based on the performance in the best of the companies in the industry. The rapid growth of computers and IT has also made it possible for managers to access latest and the most analytical performance reports. These should be analysed carefully by managers and should form the basis for concrete action.
4) Compare Performance to Standards :
Next the actual performance is compared to the standard set. If the earlier stages are done properly and systematically in the organisation, then the actual comparison of the performance and the standard is a very easy process. There can be problem especially if some the standards pertain to behavioral aspects. The measurement in these cases can often be impacted by extraneous variables which are beyond the control of the organisation.
5) Determine the Reasons for the Deviations :
Once the divergence is seen in the actual performance and the standard, the next step is to understand why the divergence has been caused. The organisation needs to examine if the shortfall in achievement is due to genuine shortcomings in the internal factors of the organisation or because of external events which are not possible for the organisation to control. The following checklist can be used :
- Are the standards in line with the organisational objective and strategies?
- Are the objectives that have been decided realistic, given the external environment of the organisation?
- Do the strategies that have been decided by the organisation, seem practical in the external environment?
- Does the organisation have the right organisation structure and the right mix of resources to achieve its objectives and strategies?
- Is the execution of the organisation proper to achieve the standard decided?
The organisation has to decide on different action plans for internal and external causes of deviation.
6) Take Corrective Action :
The last step in the process is to initiate remedial action. Managers can do one of the following :
- Do nothing
- Rectify the actual performance
- Change the standard
Making no change is advisable when no significant deviation is seen between the actual performance and the standard. When the deviation is significant, then managers need to decide on a course of action. The remedial action is dependent on what kinds of deviations are seen and what kind of autonomy the managers have to take remedial action. The deviations could be because of many reasons it could be because of faulty strategy. design or wrong implementation. Each of these requires a different action plan by the organisation.
Types of Strategic Control
Strategic control can be considered similar to "steering control". Since a lot of time elapses between the execution of strategy and the results that accrue to the organisation as a result, the organisation needs some kind of a control mechanism to monitor the progress of the strategy. This is also because many external factors impact the implementation of the strategy. The strategic controls guide the organisation through the phase between the implementation of the strategy and the actual results happening. They form the basis for the organisation's strategic actions and reactions to changes which take place in its external environment. Strategic controls are put in place by the organisation in the following ways :
1) Premise Control :
The assumptions of the planning process are set in the first stage of strategic planning Premise control tries to examine if the assumptions which were made in the initial stages of the strategic planning exercise still hold good. Premise control basically extend to two kinds of factors :
i) The Environmental factors :
These include factors like inflation, GDP growth rates, the technology factors, the demographics and social changes
ii) The Industry factors :
These include the competitors, the suppliers, the substitutes of the company's products and the existing barriers to entry and exit.
The same level of control is not required for all these factors. The manager thus has to decide :
- Which factors are likely to change?
- What is the impact of these factors on the company and its strategy?
2) Implementation Control :
Strategic implementation also provides the organisation with information regarding its overall strategy. Implementation control is that aspect of strategic control which oversees the governance of the overall decided strategy in accordance with the decided principles. It examines if the strategy needs to be changed in light of events which happen in the organisation's external environment.
Strategic implementation is totally distinct from the day to day operations control that the organisation has in place. It examines the strategy of the organisation on a continual basis Implementation control has two aspects :
i) Monitoring Strategic Thrusts :
Implementation controls can be set by the organisation through following two methods :
- In the first method the organisation decides which components of the strategy (or thrusts) are critical to the success of the strategy.
- In the second method, the organisations uses stop/go evaluations of the strategy using key parameters like time, costs, research and development etc.
ii) Milestone Reviews :
The organisation also sets milestones or goals at critical junctions of the programme. The organisation reviews the progress of the strategy against these milestones and also initiates necessary course correction where the need is felt.
3) Strategic Surveillance :
The third type of strategic control is strategic surveillance. In this the organisation keeps track of a set of critical events/ activities both within and outside the organisation. These are very critical to the success of the strategy. The idea behind strategic surveillance is to encourage the general data gathering and analysis of a set of critical activities so that the organisation is not surprised by sudden occurrences in its environment. The organisation is thus prepared for the future and not prone to events which occur and take it by surprise. In a way strategic surveillance is similar to the environmental scanning aspect of strategy. The difference lies in the coverage. While environmental scanning is concerned with all events which occur in respect of the strategic planning exercise of the organisation which is done on a periodic basis, strategic surveillance concerns itself with all events which can impact the overall strategy of the organisation.
4) Special Alert Control :
The special alert control defines the rapid response and evaluation of the exiting strategy of the organisation in the face of unplanned and drastic events which take place in the firm's environment. The organisation implements special alert control by implementing contingency plans and initiating specific roles and responsibilities in the organisation to handle sudden events in the environment. This can also be considered crisis management. For example, a natural catastrophe like the Earthquake which rocked Nepal in 2015 and to which the Government of India reacted by sending the National Disaster Relief Force to Nepal.
5) Financial Controls :
The organisation also puts into place financial controls to monitor the progress of the strategy. These controls are in the form of the performance of the organisation against set standards. Some examples of financial measures are return on equity (ROE), return on net worth (RONW), and return on assets (ROA). When the firm adopts diversification strategy, then strategic controls are difficult to implement. In this case the organisation uses financial controls to measure the output of the organisation against pre-defined standards. These are also used by the organisation to compare the performance of the various SBUs and business. managers. Financial controls allow the organisation to compare financial parameters with previous years as well as to benchmark with the figures of the competitors of the organisation to see the relative performance of the organisation. The global economy has allowed the organisational access to sophisticated technology which helps the organisation to initiate financial control successfully. For example, a type of software is sold by Oracle and SAP which the firms can use to implement their financial controls. This software has been developed by these companies in accordance with the Sarbanes Oxley Act.
6) Output Control :
In this strategic control, the strategic manager sets a target for the performance of each division, department and employee of the organisation and then compares the actual performance against the set standards. These set standards thus set goals against which the division, department and employee can be measured. These standards also set the basis on which the organisation can set the reward and incentive schemes which is used to motivate performance in the organisation. Output control flows from the divisional level to the functional and individual level. The divisional managers of the organisation set the goals and the performance targets of the functional managers. These goals are set in such a manner that the organisation can attain competitive advantage in the marketplace.
Managers are continuously utilizing output control for strategic implementation in organisations. In this the first step is to choose the goals or targets which are absolutely critical for the organisation in terms of efficiency, quality, innovation and customer centricity. After this, they measure the actual output against the set goals. This is done the corporate, individual, functional and divisional levels. The output of the organisation is measured by financial, organisational and operation budgets.
7) Behavior Control :
Behavior control visualizes the adoption of a strict system of rules and regulations to control the behavior of divisions, functions and individuals in a particular way. The controls are established in such a way that though the goals are not specified but the way of achieving them is set as a norm. Employees are encouraged to get the results for the organisation but within the boundaries of the rules and regulations set. Employees thus become predictable and their efforts are accurate and easy for the organisation to measure. The way of enforcing this type of control is through operation budgets. Standardization and defining the rules and procedures also help in controlling the behavior of organisations.
Once the goals are set for the organisation, managers use operation budget to measure the progress of the organisation. The operation budget is a blueprint or road map which earmarks what resources are available to managers to accomplish the given task. Typically in organisations the process followed is top down. Managers allocate the resources to their subordinates and ensure that the resources are utilized most efficiently in the producing the output in the form of goods and services.
Techniques for Strategic Control
All organisations have their own set of strategic control tools and mechanisms. Many of these are based on financial control systems. Some of the most important techniques of strategic control are :
1) Budgets :
Budgets are the most extensively used tool for strategic control. In the layman's language a budget is an outlay of the planned income and expenditure of an organisation. However it is more than that. It is the allocation of scarce resources amongst competing avenues for deployment. It also highlights the future growth plans of the organisation and also an analysis of what the organisation has been able to achieve and where the shortcomings lie. In a sense it is a forecast about the future and thus the organisation needs to revisit it from time to time. It is of paramount importance in being able to implement a strategy successfully.
2) Audits :
The American Accounting Association defines audit as "a systematic process of objectively obtaining and evaluating the evidence regarding assertion about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users". In organisations, management audits are used to measure the performance of the management in terms of its effectiveness in achieving the organisational goals. Management audits are very popular means of control in most of the organisations today.
3) Time-Related Control Methods :
In this the organisation uses analytical tools and techniques for strategic control. The methods typically used. are CPM (Critical Path Method) and PERT (Program Evaluation and Review Technique). These are both graphical methods which measure the progress of various tasks against the set standards of execution. It seeks to identify the critical elements. These techniques are useful for management as instruments of control as well as allocation of scarce resources of the organisation.
4) Management by Objectives (MBO) :
This is another management technique used in strategic control. This technique was created by Peter Drucker. In this the organisation establishes objectives for itself and then for functional areas. departments and individuals. This leads to goal congruence in the organisation and everyone works for the attainment of common goals.
5) Management Information Systems (MIS) :
Management Information System effectively utilizes computer based tools to provide managers with online, relevant and timely information so that they can effectively manage the various departments of the organisation. To do this effectively, management information system relies heavily on prediction software which assist decision making, databases which are reservoirs of data which can be accessed, hardware support, decision management software, people management tools and software, project management tools and computer based processes, etc.
6) Decision Support Systems (DSS) :
Decision Support systems (DSS) are specialized type of computerized information systems which support organisational and managerial decision-making. It is in the form of highly customized and interactive software which collects relevant data from various sources and which utilizes decision making models to effectively analyse these raw data into meaningful output for top management. It is specifically applied to analyse and solve a particular management problem.
Guidelines for Proper Strategic Control
There are certain ground rules which need to be for effective strategic control :
1) Involving Minimum Amount of Information :
The organisation should resist the temptation of over-control. Generating too much information can lead to paralysis. The organisation should focus on generating information based on the 80/20 rule, i.e., focus on those 20% of activities which contribute to 80% of the results.
2) Monitor Only Meaningful Activities and Results :
The organisations should focus on those areas which are meaningful and make an impact on the success of the organisational strategy. This should be done even if the area is difficult to measure. For if motivation of employees is identified as a key area then the measures to evaluate the same should be devised. These can be quantitative or qualitative.
3) Timely Control :
The controls should be such that they are timely and provide the organisation to implement necessary changes. The organisation should utilize steering controls so that it gets advance warning of the problems for taking remedial action.
4) Both Long-term and Short-term Controls should be Used :
The organisation should employ both short-term and long-term measures so that the right mix is found otherwise the measures may end up being skewed.
5) Pinpointing Exceptions :
The measures should aim at pointing out the exemptions, i.e., activities which fall outside the tolerance limit. Only these activities call for an action plan.
6) Emphasizing Reward of Meeting of Exceeding Standards :
The emphasis should be on exceeding the standards. The reward for exceeding standards should be highlighted more. than the failure to meet them. If the punishment for failure is very high then managers tend to doctor the performance standards so that they end up showing a decent achievement.
7) Accurate :
The information generated should be accurate so that the right decisions can be taken by the managers.
8) Objective and Comprehensible :
The information system should be objective and easily understood by all. A complex management information system will create unnecessary complications in the minds of the managers and frustrate employees.
9) Focused on Strategic Control Points :
The strategic control should focus on the critical areas where the maximum chances of deviations are there and which can cause the maximum damage to the organisation.
10) Economically Realistic :
The benefits that accrue from a control system should outweigh the costs of implementing it.
11) Organisational Realistic :
The control system has to be in sync with the realities of the organisation and the targets set have to be realistic and practical.
12) Coordinated with the Organisation's Work Flow :
The information needs of the control system has to be co-ordinated with the work flow and processes of the organisation for the following reasons :
- The step in the work flow is critical and could impact the success of the entire operation.
- The information needs to reach all people. who are in need of it.
13) Flexible :
The controls need to be flexible and adaptable as the organisation needs to be able to respond to changes in its environment or take advantage of opportunities that may occur.
14) Prescriptive and Operational :
The control systems also need to be prescriptive. They need not to just point out the shortcomings, but also how they can be overcome.
15) Accepted by Organisation Members :
The control systems need to be accepted by all the employees of the organisation. This is only possible if they relate to achievable and realistic goals.
Importance of Strategic Control
Strategic control has lots of benefits for organisation by bringing in greater efficiency and control in the execution of objectives. Some of the advantages of strategic control are :
1) Control and Efficiency :
To measure the efficiency of the production process the managers need to know how efficiently the inputs are being combined to produce the required output. This information is provided the managers through the control system in the organisation. These control systems provide managers means to measure how efficient the strategy is. It also allows them to measure the success or failure of new initiatives and strategies. In the absence of a control system, managers will be totally handicapped and they will have no clue as how well their strategy is working and what kind of improvements are necessary in removing the shortcomings.
2) Control and Quality :
Competition nowadays increasingly focused on improving the quality of the goods and services being produced. Products compete within their segments and sub-segments on the basis of features, design and quality. For example, the decision of a customer to buy a Mahindra XUV over competitors like Tata Safari or Renault Duster hinges on features, benefits and the quality that these products offer. Strategic control helps managers to get a feedback on the quality of their products. The managers can keep a track on the quality of their products by keeping track of customer complaints received or the customer satisfaction level. Nowadays, online feedback is also available to organisations.
3) Control and Innovation :
Strategic control also helps the organisation to increase the level of innovation in the organisation. Successful companies like Nokia or Apple create the right environment in the work place which encourages creative thinking and they have incorporated these aspects in their strategic control systems. This helps in creating the right culture for risk taking in these organisations.
4) Control and Responsiveness to Customers :
Strategic control also helps organisations to measure the level of customer satisfaction by evaluating how well the employees are in the customer facing jobs (like customer care and retention). The organisation can also use the information generated to impart training to employees to improve their weak areas so that the proper service can be provided to the customer There is also an indirect pressure on employees to improve their responsiveness to customers when they know that their behavior is being tracked.
Strategic Control and Operations Control
Operations control aim to bring synchronization between the daily activities of organisation and the strategic goals and objectives. Operational control systems are a subset of management control systems.
Operations controls aim to control activities in a short time frame. It involves the systematic examination of the performance of the organisation against set performance standards. A particular emphasis is placed on understanding the causes of deviations from the standard before they become problems for the organisation. Organisations employ trigger points and contingency plans for this objective. Operations control systems are made in such a manner so as to ensure that the daily activities of the organisation conform to plans and objectives in the strategic plan. Operations control systems are a subset of management control systems. In case of shortfall in performance, the organisation takes remedial action. This can be in the form of training. motivation, providing leadership, maintaining discipline or dismissal of employees.
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Difference Between Strategic Control and Operational Control
Major difference between strategic and operational control are as follows :
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