Module 4

Module 4 Strategy Evaluation Module outcomes At the successful completion of this module a student should be able to: 

●Distinguish between different methods of evaluating strategy;

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●Apply evaluation models such as different performance metrics and techniques;

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●Demonstrate skills in applied strategy evaluation;

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●Reflect on some contemporary ideas related to strategy evaluation;

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●Apply different structural frameworks when evaluating applied strategies;

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●Reflect on strategy evaluation and corporate social responsibility.

Learning resources Text Grant, R, Butler, B, Orr, S & Murray, P 2014, Contemporary strategic management: an Australasian perspective, 2nd edn, John Wiley, Milton, Queensland.

Selected readings All selected readings can be downloaded from the MGT8002 Study Desk. Readings are closely related to the Module they relate to.

Text Reading: Grant et al. (2014), Chapter 2, 10, 12 plus Chapter 3 pages 99-104.

Reading 1: Kaplan, R. Norton, D.P. 2008, Mastering the management system. Harvard Business Review, Vol. 86, No. 1, January, pp. 62-72. (Note: Due to specific copyright restrictions, this article cannot be printed and only viewed online through the USQ Library database, please see Resources link on Study Desk).

Reading 2: Vahn, G-Y. 2014, Business analytics in the age of big data. Business Strategy Review, Vol. 25, No. 3, pp. 8-9.

Reading 3: Mastilak, C. Matuszewski, L. Miller, F. Woods, A. 2012, Evaluating conflicting performance on driver and outcome measures: The effect of strategy maps. Journal of Management Control, Vol. 23, No. 2, pp. 97-114.

Reading 4: Swani, K. Milne, G. Brown, B.P. 2013, Spreading the word through likes on Facebook: Evaluating the message strategy effectiveness of Fortune 500 companies. Journal of Research in Interactive Marketing, Vol. 7. No. 4, pp. 269-294. © University of Southern Queensland

Reading 5: Saeidi, S.P. Sofian, S. Saeidi, P. Saeidi, S.P. Saaeidi, S.A. 2015, How does corporate social responsibility contribute to firm financial responsibility? The mediating role of competitive advantage, reputation, and customer satisfaction. Journal of Business Research, Vol. 68, No. 2, pp. 341-350.

Recommended references Fitzroy, P. Hulbert, J.M. Ghobadian, A. 2012, Strategic Management: The challenge of creating value. 2nd Edition. Routledge: New York.

Barney, J & Hesterly, W. 2010, Strategic management and competitive advantage: concepts, 3rd edn, Prentice Hall, Boston, Massachusetts. 

4.1 Strategy Evaluation Principles



4.1.1 Strategy evaluation basics

Reading activity 4.1 & 4.2 For Sections 4.1 & 4.2 as a whole, read Chapter 12 of Grant et al. Read also Reading 1 by Kaplan and Norton (2008), Reading 2 by Vahn (2014) and Reading 3 by Mastilak et al.

(2012).

Strategy evaluation from a more prescriptive approach might normally be completed at the end of the strategy cycle, that is, after strategy analysis and development. However, as noted in our Modules, this would assume a more prescriptive ‘design’ school and ‘cookbook’ approach that it is possible to evaluate strategies only after the other steps are completed. Taking an RBV perspective, we can posit that evaluation might occur in concert with analysis and even strategy development. At one time we are analysing and developing but also evaluating. If strategy is emergent and competing as outlined in Module 1 as well as futuristic in the sense that strategists want to reinvent the future before it arrives, they are unlikely to achieve this if strategy is only evaluated after the event.

Let’s look at some fundamentals however and we will revisit the notion of some critical analysis a bit later in the module. We will start by exploring what evaluation means and why it is tricky to apply evaluation methods in practice. In Chapter 12 of your text under the heading ‘What is Strategy Evaluation,’ we can see that managers are attempting to match data with business goals

and objectives. Hence, strategy evaluation conceived in this way is often described as a retrospective event only after known results. The four criteria noted by Rumelt seem a good place to start (page 400, Chapter 12) because we need to determine the extent to which a strategy will achieve a competitive advantage and whether it is feasible. The last point is critical. Here, we want to be able to measure our strategies through some performance measure, both externally and internally. Firms need to be able to ‘afford’ the strategy and have the available resources to assist firm strategies to achieve a competitive advantage. At the bottom of page 401, the three evaluative tools such as strategic, financial and organisational help the firm © University of Southern Queensland

do this. The key results areas (KRAs) described help prioritise objectives with action related to the product or service, methods and tools, the strategic capacity related to experience and relationships, and knowledge and technology (Figure 4.1).

Figure 4.1: Strategy evaluation principles Four criteria: 

1)consistency: must not present mutually inconsistent goals,

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2)consonance: adaptive response to external environment,

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3)advantage: creation/maintenance of competitive advantage

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4)feasibility: not overtax resources or create unsolvable sub-issues

Groups of evaluative tools: 1)Strategic: SWOT; achieving objectives, alternatives being evaluated, 2)Financial: ROI, risk assessments, other financial measures, 3)Organisational: acceptable, 

internal fit, consistency



Modified from Grant et al. 2014

Key Result Areas Prioritise objectives & the actions to achieve them: 

1)The product or service



2)Methods & tools required to support product



3)Establish strategic capacity that facilitates sale of product

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4)The knowledge & tech areas necessary to support development

& delivery Now refer to Reading 1 by Kaplan and Norton (2008). Note on the second page in, the authors talk about how discussions related to bad strategy tend to drive out discussions about good strategy development. They go on to outline a prescriptive model with five steps. We are not necessarily advocating the value of the model in terms of its steps, however we are advocating its component parts. Read the article as a whole and you can see the importance of these component parts. Most of these are easily explained and outlined however let’s focus on Steps 3 and 4 for a moment. Step 3 is often so poorly implemented in firms that strategies fail by stealth. That is, how to implement process improvements related to speed, quality and cost are often not transparent at the ‘action’ level and too often strategic plans gather dust. Also, sales and resource capacity plans are equally valuable if a firm is seeking to match its strategies to its overall resource inputs, for example, the activity-based costing related to processes, products and customers extending or estimating future sales forecasts into resource capacity going forward.

For instance, in your case studies, you should always try to predict the demand for products and services going forward, then translate these into real-timeprocesses, products and customer requirements. What will it take to meet these future forecasts?

Note what the article articulates about budgeting; similarly, ‘monitor and learn,’ the idea that managers hold different kinds of meetings such as operational review meetings. Here, the most important aspect is the notion of managers meeting to assess the performance of the strategy. The authors also link this management system to the balanced scorecard (discussed next), the idea that translating the strategies developed need to be integrated into financial, customer, process and learning and growth perspectives. These cyclical activities outlined by Kaplan and © University of Southern Queensland Norton are interesting to the extent that they make us think and reflect about why strategy is developed in the first place. This takes us to the foundation of the RBV logic, the idea that resources can be shaped into capabilities then competencies and then sustained competencies that create competitive advantage. The purpose of evaluation is to ensure that a firm can sustain its advantage by carefully assessing the results of the business and asking the question: ‘is strategy working or not?’

Learning activity 4.1 In adopting the idea of Reading 2 of both predictive and descriptive analytics, think of any traditional ways of assessing the market demand for retail shop fronts. How would a clothing manufacturer have predicted the means for selling their clothing brands? Now using the idea of

Big Data analytics, how might they recalculate this demand given much more datadriven information on volume, variety, veracity and velocity? Let’s discuss this on the forum.

In Module 2, we talked of the idea of the new media citing Plesner and Gulbrandsen (2015).

Here, we introduced the notion of turning greater attention to the micro by moving closer to those activities that go on inside organisational processes, in particular, paying ‘more attention to the performative role of technology in organisational processes….the range of tools, artefacts and objects that co-constitute strategy (2015, p. 154). This was extended by these authors to mean the influence of social media (software), smartphones (hardware) and big data (informational phenomena). Now refer to Reading 2 by Vahn (2014). The importance of Big Data analytics is becoming as apparent as the influence of social media. Put simply, big data analytics is about collecting a lot of data about relevant information e.g., of markets, of competitors, derived from many (and in many) formats, more accurately than before and more frequently. These realities point to volume, variety, veracity and the velocity of data that can be generated so that the future is not as uncertain as noted in Reading 2. While traditional post hoc analysis such as that presented in Appendix 1 of different financial ratios remains popular (and important), it is retrospective and backward-looking than progressive and avant-garde. The question then is what other analysis can be done by adopting a more thorough review of descriptive, predictive and prescriptive data about markets, competitors, industries, strategic options and so on? The author suggests a firm might start by assessing its current level of data collection and analysis. We can see here how a Big Data approach is as much a part of analysis (Module 2) as it is evaluation (Module 4) confirming our approach in this course that strategy is both prescriptive and emergent yet predictive and proactive.

4.2. Evaluative Models 4.2.1 Balanced Scorecard (BSC) Referring earlier to Reading 1, also page 409 of your text by Grant et al. (2014), see how the BSC is an integrated approach towards balancing strategic and financial goals. Critical to the BSC is the idea of accounting for a customer perspective (creating the customer value proposition) and internal process perspective (aligning operations, customers, innovation and regulatory and social processes). However, learning and growth perspectives cannot be ignored because they define how well the organisation uses the knowledge that is generated in respect of human, information and organisation capital. Now refer to Reading 1 again in particular the © University of Southern Queensland closed loop management system described by Kaplan and Norton (2008). Notice how the BSC is both an evaluative tool or model for planning operations as it is a ‘test and adapt’ and ‘monitor and learn’ tool in an evaluative sense. Later in Reading 1 under the heading ‘mapping strategic themes,’ the authors illustrate some of the value statements inherent in the model under each of the headings related to customer, process and learning and growth perspective. For instance, if the BSC is being used as an evaluative tool, the learning and growth perspective might measure how well current firm strategies have helped to build strategic skills, capabilities and expertise.

See some of the BSC perspectives and how they are measured on page 411 of your text.

Figure 4.2 Typical BSC Targets related to a Strategy Map Learning & Internal Process growth

Customer

Create an original Increase the

Financial Increase sales

Attend & retain an and effective ad

number of

experienced &

customers who are Measure: Sales

campaign

innovative marketing team.

new to the store

growth

Measure: Store Traffic

Measure:

Measure: years of

Percentage of new

retail experience

customers to store

Modified from Mastilak et al. (2012) In Figure 4.2, we can see how the BSC can be used as a driver of performance. That is, in Figure 4.2, the Learning and Growth factor is the driver for the latter two customer and financial outcomes. Now refer to Reading 3 which discusses different perspectives of the Balanced Scorecard as a strategy map for evaluation. The BSC as noted by Mastilak et al. combines driver and outcome measures as a way to link them to a firm’s strategy. Strategy maps (sometimes also called action plans – see Figure 4.3) are a visual representation that connect drivers to outcomes. According to these authors, strategy maps may cause evaluators - such as General Managers - to rely on the specific strategies stated thus influencing the kind of assessment made of other managers - such as Business Managers. Their study was based on analysing evaluators, that is, those managers making an evaluation of a strategy. Evaluations made with strategy maps rely on information presented in them which are often related to

diagrams, charts, graphs and so on. Thus, when there is a ‘match between the format in which information is displayed and the manner in which information is represented in memory’ (Mastilak et al. 2012, p.102), the map itself focuses the evaluators attention on the driver(s) and outcome. Accordingly, the evaluator will construe that the outcome was less to do with uncontrollable factors. Interestingly, when no such strategy map exists, Reading 3 highlights how uncontrollable factors play a much larger part in insulating and protecting managers from negative and poor outcomes. The latter in particular is consistent with much prior research which has found that many firms do not use cause-and-effect diagrams to verify strategy maps. Overall, when uncontrollable factors such as high environment risk and conflict exist, evaluators take these into consideration in their evaluations of the driver-outcome link.

However, when strategy maps exist, they ‘increase the likelihood that BSC users hold managers responsible for achieving outcomes in the face of uncontrollable factors’ (p.11).

Reading 3 deserves quite considerable reflection on the use of the BSC as a strategy map. We mentioned earlier how the steps and processes within a map are perhaps not as important as its component parts. For exactly the reasons outlined in Reading 3, maps may in fact be detrimental in circumstances of high uncontrollable events. For instance, fast cycle markets (Chapter 6 of your text) suggest than change is multifaceted and demanding with a discontinuous external environment suggesting that it would be difficult to determine the cause-effect relationships © University of Southern Queensland

between drivers and outcomes. Yet this has to be juxtaposed by what Kaplan and Norton suggested, that financial accounting measures as a form of control should be supplemented by nonfinancial operational measures as drivers of future performance (Mastilak et al. 2012: p. 98).

Figure 4.3 Action Plan Map Broad

Specific

Strategy

action plan

Broad GoalsSpecific

requested manager objectives

(from KSFs, Business & Corporate)

ResourcesResponsible

E.G Market -Develop -Develop

-To

developmentjoint

market

establish costs of

in S/East

venture

share

wholly

Asia

-Establish -Economies owned country

of scale

manager

-Start up -Mitchell Jones

$5m -New

subsidiarymanager within 5 -New years

team

Learning activity 4.2 A firm may show strong growth and returns on capital, but health metrics are needed to determine if that performance is sustainable. A firm’s health card can be measured by some traditional means such as returns on invested capital (ROIC) relative to its cost of capital and how much value it has created. See how the Balanced Scorecard can be used to measure performance in the following link. http://www.mckinsey.com/insights/corporate_finance/measuring_long-term_performance 4.2.2 The 7-S Framework We also outline the 7-S framework which is reproduced in a slightly different form from the text on page 412 of your text. We note at the bottom of page 412 how the BSC and the 7Sframework are aligned. While the BSC perhaps drills down to more of the performance perspectives relevant to every firm, the 7-S framework keeps managers focused on how to address how each of the design variables that are linked to the overall goals – often called superordinate goals – of the firm and how well they are aligned. We can see for instance in Figure 4.4 how each variable across the page needs to be explained in terms of how it influences and impacts another. For instance, managers should not think that they are ‘only evaluating strategy’ through the evaluation process. Every strategy has a ripple effect on every other aspect of the firms design. The 7-S enables us to see the bigger picture. Once we get to the skills

column, the effect of strategy on skill requirements increases exponentially because of the other influencing factors. Š University of Southern Queensland

7 Figure 4.4: Applying the 7-S framework in practice Strategy Structure Systems Staff

Style

Shared

Skills

values

Describe

Strategy/ Strategy/ Strategy/

Strategy/

Strategy/

Strategy/

structure systems staff

style

vales

skill

alignmentalignmentalignment

alignment

alignment

alignment

Structure/Structure/

Structure/

Structure/

Structure/

systems staff

style

values

skills

alignmentalignment

alignment

alignment

alignment

strategy

Describe

structure

Describe

Systems/staffSystems/styleSystems/

Systems/skills

alignment

alignment

alignment

values

systems alignment Describe

Staff/style

Staff/values Staff/skills

alignment

alignment

alignment

staff

Describe

Style/values Style/skills alignment

alignment

style

Describe

Values/skills alignment

shared values

Describe skills

Modified from Hayes (2014), The theory and practice of change management, 4th edn. Palgrave Macmillan.

Your text suggests also at the bottom of Page 408 how the 7-S is adaptive based on how effective the strategy is. So if you are thinking about moving offshore to take advantage of market development by setting up a subsidiary in Hong Kong, how will the offshore structure influence the expansion strategy and vice versa? What changes will be needed for staff, perhaps mixing expatriates with local staff, and what skills will be required by local staff?

4.2.3 Predictive Financial Indicators In addition to the preceding models particularly the BSC, financial indicators and using financial ratios remain a useful indicator of past performance as much as predicting what might unfold in

the medium to long term. Consider this comment about the current ratio of Appendix 1 by hovering over the current ratio link. This will take you to the Wikipedia link as follows: The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands. Acceptable current ratios vary from industry to industry and are generally between 1.5 and 3 for healthy businesses. If a company's current ratio is in this range, then it generally indicates good short-term financial strength. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its shortterm obligations. If the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities. This may also indicate problems in working capital management (https://en.wikipedia.org/wiki/Financial_ratio).

At the end of Chapter 3 of your text on page 101, we outline the role of predictive financial performance. The latter are useful for at least predicting three key performance criteria: 1) predictive value of earnings and cash flow going forward, 2) share market predictions, and 3) Š University of Southern Queensland

8 whether investors will sell or buy shares. Also of course, managers can use many of the ratios outlined in Appendix 1 to determine their debt to equity situation, return of assets (ROA) and return of capital invested (ROCI) among others. For instance, warehouse and manufacturing managers will be very interested in Stock turnover ratio and Receivables Turnover Ratio to determine how frequently stock is sold relative to cost of goods sold and the receivables turnover which measures how effective a company is in extending credit as well as collecting debts.

All financial measures are potentially valuable in measuring the effectiveness of strategy. They can be both retrospective and futuristic to the extent of measuring how effective a firm is in using its assets to generate cash. From an RBV perspective, they are useful to determine how well a company uses its resources (e.g. technology) to develop capabilities (groups of resources that work together such as technology, people, processes, distribution links) that lead to competencies (end products that reflect value-added components from the capabilities generated). Indeed, financial statements are very useful from the furthest back-state to the end- state of measuring effectiveness. See Strategy capsule 3.5 on page 101 of your text to see how News Corporation dramatically increased its share prices through predictive financial indicators.

4.3. Structures & Systems & Contemporary Evaluation Reading activity 4.3 Refer to Chapter 10 Grant et al. (2014), Reading 4 by Swani et al. (2013), and Reading 5 by Saeidi et al. (2015).

4.3.1 Structures Leveraging Growth Refer to Chapter 10 Strategy capsule 10.1 and the restructuring of Dow Chemicals. Here, Dow’s restructure enabled the company to downsize and reorganise its structure in ways that supported its long term strategies. In the face of global downturns, changes in emerging economies such as China from exporting economies to consumption ones and slowing world market demand caused the firm to rapidly reorganise. The example of Dow tends to suggest that structure follows strategy suggesting that different structural forms can be used from a formulation (Module 3) and evaluation perspective. Here, the evaluation of the firm’s strategy such as its performance in the market necessitated to a large extent its evaluation strategies around quick response in relation to market demand. The first 10-12 pages of Chapter 10 represent useful comparisons of basic to more complex structures and Tables 10.1 through to 10.6 outlines the advantages and disadvantages of these structures. Our approach in this section is not to examine all of these structures as these are fairly common in organisational analysis. Instead, we will extrapolate forward the idea of RBV logic within firms to sustain competitive advantage and the growth strategies to build the firm. Different structures e.g., functional, matrix, divisional, multidivisional are simply forms of control. See the building blocks of structure on page 319 of your text. Š University of Southern Queensland

9

Learning activity 4.3 The following link discusses how emerging structures might change into the future. Take two or three of these ideas and let’s discuss them on the discussion forum. file:///C:/Users/U1003691/Downloads/Structuring_your_organization_to_meet_global_as pirations.pdf Here, the horizontal and vertical link is designed as a form of control but also evaluation. For instance, the span of control related to how many people report to a manager establishes evaluative checks of performance as much it guides the development of future strategies.

Structural features communicate vertically and horizontally because capabilities require both form and function. Form such as roles and responsibilities help turn the capabilities embodied within functions (such as the manufacturing function, the product function) into competencies as much as groups and teams provide the strategies that help produce the products ready for consumption. Structures and the systems within them are simply used as a means to turn resources into capabilities, capabilities into competencies and competencies into competitive advantage. The wrong structure will have serious consequences as may have been the case to Dow Chemical’s changing world circumstances. Too much hierarchy for instance might have led to a slow response to the market and a further downgrade of stock. Evaluation in this sense means interpreting and adapting efficiently to what markets are telling the CEO and the management team. Structure can be used as a means to manipulate, recalculate, reposition, and reorganise a firms strategies in ways that support its overall capabilities. If a firm’s return on capital investment (ROCI) is too slow, then it is less likely to extract the most value from its capabilities.

Figure 4.5: Geographical and global functional structure Geographic Structure Division 1

Division 2

Division 3

Division 4

Division 5

Structure

Structure

Structure

Structure

Structure

Leadership Leadership Leadership Leadership Leadership teams with teams with teams with teams with teams with commercial commercial commercial commercial commercial

& functional & functional & functional & functional & functional represent-

represent-

represent-

represent-

represent-

ation

ation

ation

ation

ation

Busines BusinessBusinessBusinessBusiness s Unit A Unit B Unit C Unit D Unit E Executive Leadership Committee Decision-making shared between Functions, Businesses, Geographies Structure Functional Modified from Grant et al. (2014) Figure 4.5 is explained more fully on page 334 of your text. Note that a geographical and global Š University of Southern Queensland

10 functional structure has one common theme; leadership teams with commercial and functional responsibility. Here, the structure is used both as a means to formulate as well as evaluate strategy allowing the firm to maximise its responsiveness to a world of constant change. Notice how the shared features of geographic and functional scope allow the firm to use its suite of capabilities across divisions so it is not confined to using its resources to strict divisional requirements. Compare Figure 4.5 to the divisional structure outlined on page 335 of your text.

Whereas the geographical and global structure can best take advantage of all its capabilities, the divisional structures capabilities seem to be confined to its divisions as separate product lines which may extend across countries. Each type of structure chosen will depend on the need for growth, whether a firm is strictly national or geographic or global. So the ultimate form and function depends on the type of strategies selected. Conversely, structures and systems should be used in ways that leverage capabilities; they should not be used for housekeeping purposes only,

that is, to organise because of specialisation and functional necessities similar to the functional structure outlined in your text on page 333. This misses the point that an overall structure should be able to articulate the future forward exponentially, not be backward-looking which is less likely to leverage key capabilities. As managers, we are not organising simply to put things inside functions, rather, we want to test whether a type of function is best suited to support getting the most out of our combined capabilities. The best structure appears to be able to leverage its capabilities embedded within its assets and obtain the best return from these assets.

In Module 3 we outlined in some detail the idea of corporate-level strategy and diversification.

These strategies are ideal for global activities. For evaluation purposes, what are we measuring if we are taking our products and services offshore? What are the key processes and activities from a structural perspective that need to be considered? For global expansion, Yip (1995) outlines four factors that are used both for developing and evaluating strategies: 1.Organisation structure: the reporting relationships in a business including the boxes and lines; 2.Management processes: the activities such as planning and budgeting that make the business run; 3.People: the HRM needs of the worldwide business and include both managers and all other employees; 4.Culture: the values and unwritten rules that guide behaviour in a corporation (Yip, 1995, p.

163).

Figure 4.6 (next page) illustrates what elements of the global structure we have to measure. For instance, a global structure for Honda will probably have one Head Office located in Japan and a number of plants that supply Europe, America and the Asia-Pacific regions. All global strategies require the integration of organisation structure with management, people and cultural processes. Š University of Southern Queensland

11 Figure 4.6: Features for Reviewing Global Structures Glo bal strat egy infor mati

Ce ntr ali ze d gl

on syst em

- Cr osscoun try c olla bora tion

Glo bal strat egy plan ning

Glo bal bud geti ng,

ob al au th ori ty N o int er na tio na l di vi si on St ro ng bu si ne ss di m en si on Or ga A nisbil ati ity on to le ve

perf orm ance

ra ge gl

Str as revi uc set ew tur s & e com pens atio n Ability to

Management

develop & implementPeople

Processes global streategy - Global identity - Commitment to worldwide

- Use of foreign nationals

employment

- Multi-country careers

- Interdependence of

- Frequent travel

businesses

- Statements/Actions of leaders

Culture Modified from Yip (1995), Total global strategy: Managing for world-wide advantage. Prentice Hall.

4.3.2 Contemporary Evaluation 4.3.2.1 Social Media We have already discussed in previous Modules how social media, strategy as learning and other contemporary ideas are influencing strategy development. Notice in all of these discussions and papers that it has been difficult for us to nicely partition strategy into either analysis, formulation and development and evaluation and review since many of these actions can be simultaneous and emergent. In Module 4, we see this as well since some of the tools for evaluation can also be used for development e.g., the balanced scorecard; global structure; strategy maps. Now refer to Reading 4 by Swani et al (2013). The article discusses how strategies such as branding, marketing communication and buyer engagement (among others) is significantly influenced by social media such as the number of ‘likes’ on Facebook by linking it extrinsically to ‘word-ofmouth’ or WOM techniques. The authors note the new dynamics of WOM by ‘recognising that marketers use tactics and metrics that target and influence consumers and opinion leaders….(and that)….consumers are active co-producers of value where communication and meanings are exchanged among members of the consumer network….customers can use the Like plugin to co-create value and meaning to message posts and thus express their favourable attitude towards a message’ (2013, p. 272). For firms wanting to evaluate the effectiveness of their brands, their products and services and even their companies, the reality that consumers can act like marketers becomes a powerful evaluation © University of Southern Queensland

12 tool. If this is the case as expressed and explained by these authors, are firms taking advantage of this new evaluation tool? What actions should they take to do so?

Note on page 276 of Reading 4 how emotional appeals are used for value-expressive products whereas rational appeals for more utilitarian (technical and functional) products. This distinction is important for evaluation since, as outlined in the article, business-to-business(B2B) offerings tend to be more utilitarian and offerings in business-to-consumers (B2C) more valueexpressive. It follows that emotional content generates more Likes through one person

influencing another (plus their whole network of friends) with one friend sending to over 130 others and a multiplier effect beyond this. The article found more generally that marketing strategies influence social media however from an evaluation perspective, it is easy to speculate that the social media outcomes e.g., the number Likes generated and positive effects on branding, has the potential to evaluate the effectiveness of brands as well as strategy. Now read the rest of the article. In answering our two questions above, the article makes some clear recommendations. One is that emotional content(s) makes messages more stimulating leading to more enduring personal stories. Also, that informative and entertaining content is more likely to become viral (page 286) and that investing in B2B corporate branding effectiveness is important as is the need to build account fan bases. Interestingly, from an evaluation perspective, how could we combine social media with financial metrics to generate a better idea of the success of strategy?

4.3.2.2 Corporate Social Responsibility We include corporate social responsibility (Chapter 2 of Grant et al., 2014) as a form of contemporary evaluation. We do this as traditionally CSR has been used more often as a process as part of assessing industry strengths and weaknesses and/or as a potential link to assessing a firm’s reputation with external stakeholders. In Chapter 2 of your text, the opening case on James Hardie Industries suggests that the company was continually at fault in not assessing the impact of its asbestos history and the reaction of its customers. The large fines incurred by the firm testify to this leading to a significant loss in corporate reputation and brand worth. Eventually, the firm had to relocate overseas to avoid its downgrades of profit by corporate analysts and market share losses.

Along with reputation, Reading 5 indicates that customer satisfaction and competitive advantage need to be also assessed. The authors outline how a strong CSR rating significantly influences profit in previous studies and that ‘the driving force behind….. (Engaging CSR)…..is an upsurge in environmentally friendly consumers who are demanding sustainable and more environmentally friendly products and services’ (Saeidi et al. 2015, p. 342). In a study of Iranian firms, the authors found that customer satisfaction, reputation and competitive advantage mediates (influences the relationship between A and B through C) the influence of CSR on profit.

That is, the study noted that the relationship between CSR and profit is directly influenced by customer satisfaction, reputation and competitive advantage. Now read all of Reading 5.

Elsewhere in Chapter 2 of Grant et al. (2014), see Figure 2.1 and Figure 2.2 respectively. Figure 2.1 indicates the boundaries likely to influence CSR evaluation and Figure 2.2 the internal and external social responsibility factors to consider. Managers accordingly have to be aware of the moral hazard and agency costs associated with their terms in office (page 49 of your text). These have to be considered along with who controls the company. There are elements of institutional, corporate market and ownership concentration that will influence the extent to which a firm can formulate and evaluate CSR (see page 51-54of your text). Company boards still remain the central feature of CSR evaluation and Boards of Directors for instance need to very carefully manage risk (see Figure 2.6) at the same time they © University of Southern Queensland

13 are seeking to build the firm. Overall, every person in a firm is responsible for building CSR value reflecting the relationships between reputation, customer satisfaction, competitive advantage and profit. To be sure, directors and CEOs should be continually managing and evaluating their strategies and the extent to which these are ethically sustainable and morally justifiable.

Summary: Module 4 What is important in this module is the idea that evaluation closes the loop between strategy formulation or development and results. Traditional strategy maps are popular similar to traditional forms of strategic analysis outlined in Module 2. However, Module 4 builds on the ideas of the value of emergent strategy that strategists are doing analysis, formulation and evaluation and control almost simultaneously. It is also important to link the Module back to Module 1 where we articulated how the RBV logic leads to competitive advantage, the notion of receiving higher rates of return from resource assets and turning assets into capabilities that lead to competitive advantage. Earlier we also noted that capabilities should be based on heterogeneous resources that are a) valuable b) rare c) imperfectly imitable, with d) no strategically equivalent substitutes. In evaluation, we are seeking to protect the value we have created in our firms. We seek reliable ways to do this from financial ratios and predictive performance measures such as Big Data analysis to the balanced score card. If a firm places as much energy on evaluation as it does development, then evaluation potentially becomes a form of competitive advantage.

Additional references Bandrowski, J 1990, Corporate imagination plus: five steps to translating innovative strategies into action, Free Press, New York.

Campbell, A. Goold, M. Alexander, M. 1995, Corporate strategy: The quest for parenting advantage. Harvard Business Review, March-April.

DeWit, R & Meyer, R 2004, Strategy: process, content, context, 3rd edn, Thomson Learning, London.

Fleischer, C & Benoussan, B 2003, Strategic and competitive analysis: methods and techniques for analysing business competition, Pearson Education, Upper Saddle River, New Jersey.

Hart S., 1997, “Beyond Greening: strategies for a sustainable world�, Harvard Business Review, Vol.75 No. 1, pp. 66-76.

Kay, J 1993, Foundations of corporate success, Oxford University Press, Oxford. Lynch, R 2003, Corporate strategy, 3rd edn, Financial Times, Prentice Hall, Harlow.

MacLean, D. MacIntosh, R. Seidl, D. 2015, Rethinking dynamic capabilities from a creative action perspective. Strategic Organization, pp. 1-13.

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Appendix 1: Typical Ratios to Analyse Financial Statements Profitability ratios [edit] Source: https://en.wikipedia.org/wiki/Financial_ratio

Profitability ratios measure the company's use of its assets and control of its expenses to generate an acceptable rate of return Gross margin, Gross profit margin or Gross Profit Rate[7][8] Operating margin, Operating Income Margin, Operating profit margin or Return on sales (ROS) [8][9] Profit margin, net margin or net profit margin[13] Return on equity (ROE)[13] Return on assets (ROA ratio or Du Pont Ratio)[6] Return on assets (ROA)[14] Return on Equity Du Pont (ROE Du Pont) Return on net assets (RONA) Return on capital (ROC) Risk adjusted return on capital (RAROC) :::OR ::: Š University of Southern Queensland

15 Return on capital employed (ROCE) Cash flow return on investment (CFROI) Efficiency ratio Net gearing Basic Earnings Power Ratio[16] Liquidity ratios[edit] Liquidity ratios measure the availability of cash to pay debt.

Current ratio (Working Capital Ratio)[17] Acid-test ratio (Quick ratio)[17] Cash ratio[17] Operating cash flow ratio Activity ratios (Efficiency Ratios)[edit] Activity ratios measure the effectiveness of the firm's use of resources.

Average collection period[3] Degree of Operating Leverage (DOL) Š University of Southern Queensland

16 DSO Ratio.[18] Average payment period[3] Asset turnover[19] Stock turnover ratio[20][21] Receivables Turnover Ratio[22] Inventory conversion ratio[4] Inventory conversion period (essentially same thing as above) Receivables conversion period Payables conversion period Cash Conversion Cycle Debt ratios (leveraging ratios)[edit] Debt ratios quantify the firm's ability to repay long-term debt. Debt ratios measure financial leverage.

Debt ratio[23] Debt to equity ratio[24] Long-term Debt to equity (LT Debt to Equity)[24] Times interest earned ratio (Interest Coverage Ratio)[24] Š University of Southern Queensland

17 OR Debt service coverage ratio

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