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Structural ImplementationIn structures for strategy, we describe six major types of structures: entrepreneurial,

functional, divisional, SBU, matrix, and network structures.The section on transitional design and change deals with the process of development of

organization structure and how changes have to be brought about so that the structure continuesto satisfy the requirements of strategy.

Six organizational systems of information, control, appraisal, motivation, development, andplanning are described in the last section ending with an overview of these organizationalsystems.

What is Structure?An organisation structure is the way in which the tasks and subtasks required to implement astrategy are arranged. The diagrammatical representation of structure could be an organisation chartbut a chart shows only the 'skeleton'. The 'flesh and blood' that bring to life an organisation are theseveral mechanisms that support the structure.

Structural Mechanisms

To find out what the structural mechanisms are, it is useful to consider the case of a new

organization which has decided to achieve a set of objectives through the implementation of certainstrategies. In the next two paragraphs, we shall relate the 'story' of how structural mechanismsevolve.

The implementation of strategies would require the performance of tasks. Some of these tasksare related to the formulation and implementation of programs and projects. We dealt with thesetasks in the previous chapter which was on activating strategies. Having laid the foundations of anorganization, the strategists now have to devote their attention to the tasks, that would have to beperformed on a continuing basis for the implementation of strategies. It would be practicallyimpossible to list all such tasks, so the strategists would attempt to enumerate the major tasks. Thesemajor tasks would have to be grouped on the basis of the commonality of the skills required toperform them. Having grouped the major tasks, each category of such

tasks will have to be again segregated on the basis of the ability of an individual toperform a unit of tasks. This is the process by which organizational units, such as, departments, arecreated and hierarchies defined.

The different mechanisms are summarized as follows:I. Defining the major tasks required to implement a strategy2. Grouping tasks on the basis of common skill requirements3. Subdivision of responsibility and delegation of authority to perform tasks4. Coordination of divided responsibility.S. Design and administration of the information system6. Design and administration of the control system7. Design and administration of the appraisal system

8. Design and administration of the motivation system9. Design and administration of the development system

10. Design and administration of the planning systemThe first four of these mechanisms will lead to the creation of the structure. The , iAAer six

mechanisms are devised to hold and sustain the structure. Collectively, we I amid refer to the last sixmechanisms as organisational systems.

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Environment,Strategy and Structure

Stagesof Development

Besides Chandler Salter, Thain, and Scott have contributed to the thinking that any organization, asit grows in size and diversity, moves from a simple to a complex organizational form. The life cycleof organizations could be divided into four stages that are not distinct and may overlap.

Stage I organizations are small-scale enterprises usually managed by a single person who is the

entrepreneur-owner-manager. These organizations are characterized by the simplicity of objectives,operations, and management. The form of the organization is also simple and could be termed asentrepreneurial. The strategies adopted are generally of the expansion type.

Stage II organizationsare bigger than Stage I organizations in terms of size and have a widerscope of operations. They are characterized by functional specialization or process orientation. Theorganizational form is simple functional (typically divided into the finance, marketing, operations,and personnel departments) or process-oriented (divided into process-based departments arranged in aparticular sequence according to the technology employed). The strategies adopted may range from stability toexpansion.

Stage III organizations are large and widely scattered organizations generally having units orplants at different places. Each division is semi-autonomous and linked to the headquarters butfunctionally independent. The divisions may have a Simple functional form depending on theirparticular needs. The strategies adopted may be either stability or expansion.

Stage IV organizationsare the most complex. They are generally large Multiplan, multi productorganizations that result from the adoption of related and unrelated diversification strategies. Theorganizational form is divisional. The corporate headquarters assume the responsibility ofproviding strategic direction and policy guidelines-through the formulation of corporate-levelstrategic$.: The divisions (which may be companies, profit centers or SBUs) formulate theirbusiness-level strategies and may adopt Stage I, II or III type of structures.

The stages of development theories present a convenient way to understand the way the structuremay evolve as the organization moves from one stage to the next. But, in practice, many variationsmay occur. It is not necessary that all organizations should pass through every stage ofdevelopment. Nor does every organization exhibit the characteristics of exclusively one stage.

10.2 STRUCTURES FOR STRATEGIES

There are several types of structures that are found in organizations. Here, some major types of'pure' structures are described, with a special emphasis on their appropriateness for the differenttypes of strategies. In practice, the actual organizational structure may be a combination of these'pure' structures. .

Entrepreneurial Structure

The entrepreneurial structure is the most elementary form of structure and is appropriate for an

organization that is owned and managed by one person. A small-scale industrial unit, a smallproprietary concern, or a mini-service outlet may exhibit the characteristics of organizations whichare based on an entrepreneurial structure. The owner-manager looks after all decisions, whetherthey are day-to-day operational matters or strategic in nature.

The advantages that the entrepreneurial structure offers are:1) Quick decision-making, as power is centralized2) Timely response to environmental changes3) Informal and simple organization systems

The disadvantages of the entrepreneurial structure are1) Excessive reliance on the owner-manager and so proves to be demanding for

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The owner-manager2) May divert the attention of owner-manager to day-to-day operational matters

And ignore strategic decision3) Increasingly inadequate for future requirements if volume of business expands

Functional Structure

As the volume of business expands, the entrepreneurial structure outlives its usefulness. The need

arises for specialized skills and delegation of authority to managers who can look after differentfunctional areas.

The advantages that a functional structure offers are:. Efficient distribution of work through specialization. Delegation of day-to-day operational functions. Providing time for the top management to focus on strategic decisions.

The disadvantages of a functional structure are:. Creates difficulty in coordination among different functional areas. Creates specialists, which results in narrow specialization, often at the cost of the overall benefitof the organization

. Leads to functional, and line and staff conflictsDespite the disadvantages, the functional structure is quite common and exists in

Its original or a modified form as the organization evolves from the initial to theMature stages of development.Divisional Structure

There comes a time in the life of organizations when growth and increasing complexity in terms ofgeographic expansion, market segmentation, and diversification make the functional structureinadequate. Some form of divisional structure is necessary to deal with such situations. Adivisional structure is basically, work is divided on the basis of product lines, type of customers

served, or geographic area covered, and then separate divisions orGroups are created and placed under the divisional-level management. Within divisions, thefunctional structure may still operate.

The disadvantages of the divisional structure are:

. Problems in the allocation of resources and corporate overhead costs! Particularly if the businessand corporate objectives are ill-define;. Inconsistency arising from the sharing of authority between the corporate and Divisional levels. Policy inconsistencies between the different divisions.

Strategic business unit (SBU)

Has been defined by Sharplin as "any part of a business organization which is treated separately forstrategic management purposes". When organizations face difficulty in managing divisionaloperations due to an increasing diversity, size, and number of divisions, it becomes difficult for thetop management to exercise strategic control. Here, the concept of an SBU is helpful in creating anSBU-organizational structure.The advantages that the SBU-organizational structure offers are:. Establishes cords ;)apron between dWf)Oions having common strategic interests. Facilitatesstrategic management arid control of large, diverse organizations. Fixes accountability-M thelevel of distinct business unitsThe disadvantages of the SBU-organizational structure are:. There are too many different SBUs to handle effectively in a large, diverse organisation

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. Difficulty in assigning responsibility and defining autonomy for SBU heads . Addition of anotherlayer of management between corporate and divisional management.

Matrix Structure

In large organizations, there is often a need to work on major products or projects, each of which isstrategically significant. The result is the requirement of a matrix type of organisation structure.Essentially, such a type of structure is created by assigning functional specialists to work on a

special project or a new product or service. For the duration of the project, the specialists fromdifferent areas form a. group or team and report to a team leac1er. Simultaneously, they may alsowork in their-respective parent departments. Once the project is completed, the team membersrevert to their parent departments.

The advantages that the matrix structure offers are: .. Allows individual specialists to be assigned where their talent is the most needed ,. Fosters creativity because of the pooling of diverse talents. Provides good exposure to specialists in general management

The disadvantages of matrix structure are:

. Dual accountability creates confusion and difficulty for individual team members

. Requires a high level of vertical and horizontal combination

. Shared authority may create communication problems

Network Structure

The increasing volatility of the environment, coupled with the emergence of knowledge-basedindustries, has led to the creation of a network structure. Also known as

the 'spider's web structure' or the 'virtual organization', the network structure is "composed of a seriesof project groups or collaborations linked by constantly changing non-hierarchical cobweb-likenetworks".8 Exhibit 10.7 illustrates a network structure. This structure is highly decentralized andorganized around customer groups or geographical regions. Rather than being located in one place,

the business functions are scattered far and wide. The core organization is only a shell with a smallheadquarter acting as a 'broker' connected to the suppliers and the specialized functions performed byautonomous teams and workforce.

The network structure is most suited to organizations that face a continually changing environmentrequiring quick response, high level of adaptability, and strong innovations skills. This structuremakes extensive use of the outsourcing of support services required to produce and market productsor services. There are few internal. resources and a network structure firm relies heavily on outsiderswho are specialized in their respective areas.

The advantages that the network structure offers are:

. High level of flexibility to change structural arrangements in line with business requirements

. Permits concentration on core competencies of the firm

. Adaptability to cope with rapid environmental change

The disadvantages of a network structure are:

. Loss of control and lack of coordination as there are several partners . Risks of overspecializationas most tasks are performed by others . High costs as a duplication of resources could be there

Other Types of Structures

Besides the six major structures described above, there are several other types of structures that areused in organizations. We briefly describe five such structures below.

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A structure subdivides the total responsibility while the information system serves to coordinatethe divided responsibility. If a strategy is to be effectively implemented, organisationalarrangements that provide the information to managers to perform their tasks and relate theirwork to others are necessary. The information system. therefore, serves two important purposes:-it enables the managers to knowwhat they need to grasp in order to perform their tasks and also tocoordinate their activities with others.

Control System

The Conuol Cycle

Corporate-level stability strategies require an efficiency orientation that leads to increased efficiencywithout any appreciable increase in the volume of activity. In such a situation, an information systemthat requires a certain level ofrigidity for the efficient performance of clearly-defined responsibilities,based on access to a mainframe computer and transaction processing system, aimed at repetitive,programmed decision-making, would be more feasible. On the other hand, a growth strategy wouldrequire a decisional orientation that needs quick action and a creative response. In such a situation. aninformation system that adopts a flexible policy stance. uses microcomputers. and adopts a decision-support system would be more feasible. In between the two extreme dimensions lie several possiblealternatives that could guide !Ie design and administration of information systems for different types

of strategies.Strategists have to be aware of the implications of strategic changes on the decrements of theinformation system as this system provides the foundation for the sign and administration of theother organisational systems. The next such system being discussed is the control system.

Control has traditionally been considered as a major management function. While am trolling. themanager essentially deals with "the measurement and correction of !Ie performance of activities of

subordinates in order to make sure that enterprise objective and plan devised to attain them are beingaccomplished". IS In other words. control ensures that the implementation of strategy takes place

according to predetermined plans.

Basically. control operates in a cyclical manner as shown in Exhibit 10.11. It is Viewed as a four-step process consisting of: (i) establishing standards. (ii) measurUlgactual performance, (Hi)evaluating actual performance against standards, and (IV) determining corrective action to bringperformance in line with the predetermined plan. Standards are in the form of budgeted performance.Measurement ofperformance is done through an appraisal system discussed in the next subsection.TheactuaIperformance is evaluated with reference to the standards, and positive or oegalive variationis observed. Corrective action follows so that the performance corresponds to the standards. This isthe manner in which any control system works.

In Practice, there are several issues that strategists have to consider so that the control systemworks effectively and satisfies the requirements of the strategy being implemented. The first issue is

the need for a control system. The need forcontrol arises from the fact that the result of subdivisionof responsibility and the creation of structure tomes from the dispersal of the total strategic tasksamong different organisational units. Since the activities of each of these units are to be coordinated,controls are necessary. Controls are, in fact, devices to enforce strategic behaviour so that theorganisation, as an entity, moves towards the pretermined goals. All typesof organisations-successful or failing-need controls. "

Another important issue is the type of controls to be used. Controls may be classified as formal(or direct) and informal (or indirect or social) controls. Formal controls are prescribed in nature andare based on quantitative, objective data. For instance, financial controls are based on accountingdata and are used to quantify performance in fiscal terms. Informal controls are emergent in natureand are based on qualitative, subjective data. For example, adherence to ethical standards can only

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of rewarding capability. . .,,20 It is to be noted that employees of knowledge industry companieslike Infosys already get high salaries by Indian standards and, therefore, have more money thanmost others in the business. High salaries are augmented substantially by employee stock optionplans (ESOPs) that increase the stake of employees in the shareholding of the company therebyenhancing the commitment to stay and contribute enthusiastically to achieving organisationalobjectives. Besides high salaries and Eseps, Infosys has a system of motivation where employeesare encouraged to communicate both with each other and with the higher management. The CEOkeeps in regular touch with the employees by sending mails every fortnight. There are live chats and

a 360-degree appraisal. There is a concept called Chairman's list and an annual excellence award isgiven to recognise talent.

The phenomenon of motivation is extremely complex and multifaceted. It offers enough scope forstrategists, CEOs, and managers for improvisation. In nature it is related to another complexmanagerial phenomenon, that is, leadership, and is contingent upon the situations prevailing in anygiven organisation.Next we discuss organisational system 'of development.

Development System

Management development is considered to be a "process of gradual, systematic improvement in

the knowledge, skills, attitudes, and performance of those individuals in an organisation who carrymanagement responsibilities".21 Schematically, the process of development could be viewed.

Managerial behaviour is the product of individual characteristics and organisationalenvironment. The environment of an organisation is shaped by managerial behaviour and it is,therefore, the result of the processes that operate within the organisational systems. Managementdevelopment is the outcome of the experience and learning that takes place due to the performanceof managerial functions. It is logical to assume that development is a natural process and takesplace irrespective of whether it is planned or not. Planned development takes place when newexperience is provided in the form of education and training.

The strategic aim of a development system is to see that the new experience is provided in thelight of strategic tasks required for the implementation of strategy. Changes in strategy or theadoption of a new strategy results in a modified set of strategic tasks. The development system hasto be activated in such a manner that it prepares the managers to perform this modified set oftasks. It can be seen that the development system performs a vital function in strategyimplementation.

Practically, the development system may consist of:. Recruitment of personnel, if not available within the organisation, to handle the emergingstrategic tasks. Education and training of managers through internal and external training programmes to impartknowledge, skills, and attitudes to managers for the performance of strategic tasks. Career planning and development of managers to prepare them to perform future strategic tasks

. Organisational development in the form of planned intervention to ensure asmooth transition from one strategic phase to the next and minimize resistance to changeThe four components of the development system, as indicated above, may be usedindividually or jointly to implement the strategy of the organisation.Finally, we briefly refer to the planning system that acts as the link between the formulation ofstrategy and the implementation of plans.

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Planning system

In this section we focus on the role of the planning system in implementation and the changes that mighthave to be undertaken in Ute light of a new or modified strategy.

The role ,of the planning system,per se, does not include implementation as it is mainly related to theformulation of strategy. But forward linkages between the for. mutation of strategy and theimplementation of plans do exist. For instance, the ex. tent of participation 9fmanagers in planning andthe relative involvement of line and staff managers does affect the manner in which a strategy isimplemented. The practices of planniI1&. differ from organisation to organisation. In someorganisations, the formulation of strategy is a centralised activity and plans are provided in a packagedform for implementation. Under decentralised planning, on the other hand, the participation of managersis of a higher order.

It is generally felt that when managers, who are ultimately responsible for the implementation ofplans are actively-involved in the formulation of strategies, the probability of successful implementationis enhanced. This feeling is based on the assumption that participation affects commitment to successfulimplementation in apositive manner. The other view is that the tasks of formulation and implementationof strategy are distinct and, therefore, should be performed separately. From this viewpoint, the functionof formulation is a staff function while the implementation of strategy is a line function. Both theseviews prevail and affects organisational policies related to the role of the planning system. Hence, onefinds organisationwhereplanning committees act in a centralised structure, either as task groups or staffpossible because the behavioral aspects of implementation offer a range of flexible alternatives tostrategists in terms of structure, systems, and processes. These variables could be manipulated to subserve the interests of corporate culture. However, each situation in the organisation would call for aninnovative solution and would test the capabilities of managers as strategists.

3. To change the corporate culture to suit strategic requirements. As said earlier, it is extremely difficultto change corporate culture. But in some cases it may be imperative. For instance, the post-liberalization spate of takeovers and acquisitions in the Indian industry led to a situation where manyerstwhile multinational subsidiaries were taken over by family business groups. This led to a process-often prolonged and painful-of cultural transition.29 But such a transition may be brought about by acareful understanding of existing culture, making strategic tasks explicit, assessing risks of culturalchange, enhancing managerial capability to imbibe changes, and, most importantly, exhibiting a

strong, assertive leadership.4. To change the strategy to fit the corporate culture. Rather than changing culture to suit strategy, it is

better and more economical to consider the cultural dimension while formulating strategy in the firstplace. Recall that in Section 8.4 we discussed the subjective factors affecting the selection of strategy.One of the important factors is commitment to past strategic actions which should take care thatstrategic changes are not drastic but incremental, allowing the cultural ripple effects to settle down tocreate a more conducive environment for strategy implementation. However, if an impregnablecultural barrier is faced after strategy implementation, it may be better to abandon the strategy or use acombination of the above three approaches.

The next important issue of behavioral implementation relates to corporate politics and use of power.

CORPORATE POLITICS AND USE OF POWER

All corporate cultures include a political component and, therefore, all organisations are political innature. Strategists should understand that organisations are a microcosm of the society in which theyexist. Organisational members bring with them their likes and dislikes, views and opinions, prejudicesand inclinations when they enter organisations. Managerial behaviour cannot be purely rational and,therefore, an understanding is to be acquired of how politics works 'and the use of power is to be made.

Understanding Politics and Power

Power is defined as "the ability to influence others" and corporate politics is "the carrying out ofactivities not prescribed by policies for the purpose of influencing the distribution of advantages withinthe organisation".3O Politics is related to the use of powerbut it is not similar to it. Usually, we tend to

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exercised, and corporate culture is itself the outcome of the use of politics and power.Experience has repeatedly shown that by having an understanding of the use of politics and power,

strategists can perform the tasks of strategic management better. "Indeed. having astute political skills isa definite, and even a necessary, asset for a general manager (or strategist) to have in orchestrating thewhole strategic process".

A strategic use of politics and power becomes even more critical where strategy changes are to be made.In reality, "most strategic decisions and most strategic thrusts in large enterprises emerge as part of anevolving continuous political consensus building with no precise beginning or end".36

Therefore, it is imperative to make strategy changes with a judicious use of politics and power.The typical approaches to a strategic use of politics and power may involve one or more of these actions:. First of all, to accept the inevitability of politics being there in the organisation. To understand how an organizations power structure works, who wields realpower and influence, and who are the individuals and groups whose opinions carry weight. and cannot bedisregarded. To be sensitive and alert to political signals emanating from different parts of the organisation. To know when to tread softly and rely on coalition management and consensus-building, and when to

push-through decisions and actions by a selective and judicious use of "Machiavellian" methods. To lead strategy and not to dictate it, being patient till a consensus emerges

. To let most negative decisions emerge as a group consensus rather than as a directive from the top

. To gather support for acceptable proposals and to let the unacceptable ideas die a natural death

. To reward organisational commitment and penalize negative or indifferent attitudes

. To practice principled politics and use openness and honesty to counter un principled politics

In the Indian context, the presence of politics and use of power are, perhaps, more visible than in othercultures. This may be due to the pervasive enviousness exhibited in Indian organisations.37 Managershave not only to deal with-and be affected by-intracorporate politics, but also intercorporate politicsbetween rival companies. At a higher level, Indian industry is plagued with politics between associationsand federations of business, public versus private sector, small versus large sector, multinational versuslocal firms, and technocrats versus bureaucrats. In such a mi. lieu, strategists have to be aware of not onlyinternal political considerations but also the politics and power play present in other organisations,

particularly government departments and ministries, with whom they have to deal.Talking about corporate politics and use of power, we have been walking a tight. rope between moral

and amoral uses of politics and power. It is easy for strategists to often forget the distinction between useof politics and power for the benefit of self, organisation, or the society. What blurs the distinction is alack of personal values and a sense of business ethics. We discuss these issues in the next section.

PERSONAL VALUES AND BUSINESS ETHICS

As we said above, only personal values and license of business ethics can help a strategist to distinguishbetween moral and amoral use of politics and power as a means to attain organisational goals. Weattempt to answer these questions: what are personal values and business ethics? why and how are theyimportant? andwhat is the relation of values and ethics to strategy?

The Meaning of Values and Ethics

Personal values refer to a conception of what an individual or groups regards as desirable.38 A value is aview of life and a judgement of what is desirable which is very much a part of a person's personality and

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NATURE OF STRATEGIC EVALUATIONThe purpose of strategic evaluation is to evaluate the effectiveness of strategy in : achievingorganisational objectives. Thus, strategic evaluation and control could~ defined as the process ofdetermining the effectiveness of a given strategy in achiev ing the organisational objectives and takingcorrective action wherever required.IMPORTANCE OF STRATEGIC EVALUATIONThe process of strategic management requires that strategists lay down the objectives of the organisation

and then formulate strategies to achieve them. The process of strategy implementation starts with theidentification of the key managerial tasks which form the basis for the creation of organisational structureand the design of systems. These are the issues that were discussed in Section 9.2. Here, it should bereiterated that the segregation of key managerial tasks leads to a situation where individual managers arerequired to perform a small portion each of the overall tasks required to implement a strategy. The factthat a manager individually performs a set of functions, which are interrelated to the other tasks thatmanagers elsewhere in the organisation are performing, makes it clear that the tasks have to becoordinated. The importance of strategic evaluation lies in its ability to coordinate the tasks performed byindividual managers, and also groups, division or SBUs, through the control of performance. In theabsence of coordinating and controlling mechanisms, individual managers may pursue goals which areinconsistent with the overall objectives of the ! department, division, SBU or the whole organisation.

Besides the basic reason given above to show why strategic evaluation is important there could beseveral other factors. These are: the need for feedback, appraisal . and reward; check on the validity ofstrategic choice; congruence between decisions and intended strategy; successful culmination of thestrategic management i process; and creating inputs for new strategic planning.

! Within an organisation, there is a need to receive feedback on current performance, so that appraisal canbe done and good performance rewarded. This is essential for motivating employees.

Strategic evaluation helps to keep a check on the validity of a strategic choice. An ongoing process ofevaluation would, in fact, provide feedback on the continued relevance of the strategic choice madeduring the formulation phase. This is due to efficacy of strategic evaluation to determine the effectivenessof strategy.

During the course of strategy implementation managers are required to take scores of decisions.

Strategic evaluation can help to assess whether the decisions match the intended strategy requirements.This is due to the inherent nature of any administrative system which leaves some amount of discretion inthe hands of managers. In the absence of such evaluation, managers would not know explicitly how toexercise such discretion.

Strategic evaluation, through its process of control, feedback, rewards, and review, helps in a successfulculmination of the strategic management process.

Lastly, the process of strategic evaluation provides a considerable amount of information andexperience to strategists that can be useful in new strategic planning.

In addition to the obvious reasons described above, there are certain other and not-so-obvious reasonswhy managers use strategic evaluation and control. These are: using control systems to overcome

resistance to change, communicating the new strategic agenda, ensuring continuing attention to newstrategic initiatives, formalising beliefs, setting boundaries on acceptable strategic behaviour, andmotivating discussion and debate about strategic uncertainties.!

Participants in Strategic Evaluation

It is important to know who the participants are and what role they will play in strategic evaluation andcontrol. This will answer the question: who evaluates the strategy and how do they do it? Going beyondthe role of evaluators, we are also interested in knowing who the appraisers are and how they help instrategic evaluation.

The various participants in strategic evaluation and control and their respectiveroles are described below.

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Resistance to evaluation: The evaluation process involves controlling the behaviour of individuals and,like any other similar organisational mechanism, is likely to be resisted by managers.

Short-term ism: Managers often tend to rely on short-term implications of activeness and try to measurethe immediate results. Often, the long-term impact of performance on strategy and the extended effectof strategy on performance is ignored. This is so as immediate assessment seems to be the easy way outand taking the long implications into account may be seen as too tedious.

Relying on efficiency versus effectiveness.' It is instructive to remember that efficiency is 'doing thethings rightly' while effectiveness is 'doing the right things'. There is often a genuine confusion among

managers as to what constitutes effective performance. Measuring the wrong parameters may lead to asituation where the "right type of performance does not get rewarded. In fact, sometimes performancedoes not really contribute to the achievement of objectives may be rewarded if assessed on the basis ofefficiency alone.

How can these barriers be avoided? In this context, it is .apt to quote Andrews iIiIen he says: "the truefunction of measurement (or evaluation) is to increase perceptions of the problems limitingachievement".4 This is indeed a profound statement In Andrew's opinion, it is the attitude towardsevaluation that is more important man theprocess of evaluation itself. For instance, bureaucratic controloften ends up ~mg control just for the sake of control and not for the real purpose of finding out It isobstructing effective performance. The real worth of evaluation lies in itsability to throw up the problems that are constraining achievement and then doing something about

them so that performance can be made effective. Next, we shall see ~~ evaluation can be madeeffective.

Requirements for Effective Evaluation

The basic issue in all evaluation should be that control should be dictated by strategies. There needs to bea vertical fit between the strategy requirements, and the evaluation and control exercised overperformance. The guidelines below are suggested under to make controls effectiveness

. Control should involve only the minimum amount of information as too mil! information tends toclutter up the control system and creates confusion. . Control should monitor only managerial

activities and results even if the evaluation is difficult to perform. . Controls should be timely so thatcorrective action can be taken quickly. . Long-term and short-term controls should be usedso that a

balanced to evaluation can be adopted.. Controls should aim at pinpointing exceptions as nitpicking does not result effective evaluation. The

80:20 principle, where 20 per cent of the activities result in 80 per cent of achievement, needs to beemphasised. Getting hour; down with the activities that do not really count for achievement makeits evaluation ineffective.

. Rewards for meeting or exceeding standards should be emphasisedso iii. managers are motivated toperform. Unnecessary emphasis on penalties to pressurise the managers to rely on efficiency ratherthan effectiveness. i

The next two sections describe the evaluation systems that could be used effective measurement ofstrategic and operational performance.

STRATEGIC CONTROLThe process of strategic management makes it clear that a strategy is formulaled the basis of severalassumptions. These relate to the environmental and organisational factors, which are dynamic andeventful. There is a considerable gapbetween the time when a strategy is formulated and the time whenit is implemented.1i process of implementation is itself time-consuming. During this intervening pe~there is a possibility that the assumptions made while formulating a strategy will remain valid or, atleast, are no longer so relevant. Strategic controls take into~. count the changing assumptions thatdetermine a strategy, continually evaluablestrategy as it is being implemented, and take the necessary steps to adjust the strategie to the newrequirements. In this manner, strategic controls are early warning systems and differ from post-actioncontrols which evaluate only after the implementation has been completed. You could think of strategic

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control as analogous to the continuous evaluation system used in your business school and distinguish itfrom the. of-the term examination system used in traditional universities.

The four basic types of strategic controls are:

1. Premise control .2. Implementation control3. Strategic surveillance4. Special alert control

The following subsections address each of these four strategic control

Premise ControlAs mentioned above, every strategy is based on certain assumptions about environmental andorganisational factors. Some of these factors are highly significant and any change in them can affect thestrategy to a large extent. Premise control is necessary to identify the key assumptions, and keep track ofany change in them so as to assess their impact on strategy and its implementation. For instance, acompany may base its strategy on important assumptions related to environmental factors (e.g. gov-ernment policies), industrial factors (e.g. nature of competition), and organisational factors (e.g.breakthrough in R&D). Premise control serves the purpose of continually testing the assumptions to findout whether they are still valid or not. This ena, lies the strategists to take corrective action at the right

time rather than continuing with a strategy which is based on erroneous assumptions. The responsibilityforexercise control can be assigned to the corporate planning, staff who can identify key assumptions andkeep a regular check on their validity.

implementation Control

The implementation of a strategy results in a series of plans, programs, and Objects (for instance, seesection 9.3). Resource allocation is done to implement these.lmplementation control is aimed atevaluating whether the plans, programmes, and projects are actually guiding the organisation towards itspredetermined objectives or not. If, at any time, it is felt that the commitment of resources to a plan,programme or project would not benefit the organisation as envisaged, they have to re revised. In thismanner, implementation control may lead to strategic rethinking.

Implementation control may be put into practice through the identification and Millitoring of strategic

thrusts such as an assessment of the marketing success of a Dew product after pre-testing, or checking thefeasibility of a diversification programme after making initial attempts at seeking technologicalcollaboration. In the first case. the company may evaluate whether the new product launch will really beMlvantageous or it should be abandoned in favour of another programme. In the ICCOnd case,implementation control can help to determine whether a diversification will actually succeed or not.

Another method of implementation control is milestone review, through which aiticalpoints in strategyimplementation are identified in terms of events, substantial resource allocation, or significant end-time.This is similar to the identification ilbeiton a smaller scale-of events and activities in PERT/CPMnetworks. After the identification of milestones, a comprehensive review of implementation is made toassess its continued relevance to the achievement of objectives.

Strategic Surveillance

The premise and implementation types of strategic controls are specific in nature. strategic surveillance, onthe other hand, is aimed at a more generalized and overarching control "designed to monitor a broadrange of events inside and outside the company that are likely to threaten the course of a firm's strategy".Strategic. surveillance can be done through a broad-based, general monitoring on the basis~ selectedinformation sources to uncover events that are likely to affect the strategy~ an organisation. Aaker hassuggested a "formal yet simple strategic information seal ning system (that) can enhance the effectivenessof the scanning effort and presel1 much of the information now lost within the organisation".Organisationallearni~1 and knowledge management systems can capture much of the information that Iotherwise lost in an organisation. This information can be used for strategic surveillance

.

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Special Alert Control

The last of the strategic control systems is the special alert control, which is based II' a triggermechanism for rapid response and immediate reassessment of strategy the light of sudden andunexpected events. Special alert control can be exercised through the formulation of contingencystrategies (see Section 8.5) and assigning the responsibility of handling unforeseen events to crisismanagement teams. Example of such events can be the sudden fall of a government at the central or statelevel instant change in a competitor's posture, an unfortunate industrial disaster, or a nalturalcatastrophe.

Crises are critical situations that occur unexpectedly and threaten the course of strategy. Organisationsthat hope for the best and prepare for the worst are in a Validate position to handle any crisis. Crisismanagement follows certain steps, such.. signal detection, preparation/prevention, containment/damagelimitation, and recall. every leading to organisational earning. 9 The first step of signal detection can beper. formed by the special alert control systems.

From the description of the four strategic controls it might seem that strategic evaluation is a complexprocess and requires the use of sophisticated and system all; techniques. While this may be true for largeand complex organisations facing, turbulent environment, it is not of great concern for smaller andsimpler firms. what face a relatively stable environment. Many of the tasks required for strategic controlmay be performed informally in a simple way. For instance, in an entrepreneuni organisation, the owner-manager may perform strategic control through a genera. awareness of environmental and industry-related factors and initiate changes whenever required. This may be done through a regular scanning ofbusiness newspaper!. magazines, and trade journals; through attendance at seminars and conferences;m:general observations. In short, whatever sources are used for environmental appraisingmay also be useful for strategic control. MNCs, on the other hand, would have w plan for elaboratesystems in order to perform strategic control.

The basic theme of strategic control is to continually assess the changing environment to uncoverevents that may significantly affect the course of an organizationsstrategy. As compared to strategic control, operational control has a differentpurpose. The next sectiondeals with operational control.

OPERATIONAL CONTROL

Exhibit 13.1 indicates the difference between strategic and operational control. It can be seen that

operational control is aimed at the allocation and use of organisational resources through an evaluationof the performance of organisational units, such as, divisions, SBUs, and so on, to assess theircontribution to the achievement of organisational objectives. Operational control is concerned withaction or performance, and this is probably the reason why it is used so extensively in organisations. Inthis section we shall see how the process of evaluation is applied to exercise operational control.

Process of Evaluation

Section 10.4 (and specifically Exhibit 10.11: The control cycle) dealt with the control process as used inthe context of strategy implementation. Here, we take up the issue of evaluation process in greaterdetail.

The process of evaluation basically deals with four steps: 1. Setting standards ofperformance

2. Measurement of performance3. Analyzing variances4. Taking corrective action

These four elements of the evaluation process, and the way they relate to eachother, are depicted in Exhibit 13.2. The strategy, plans, and objectives result in a set of performancestandards which form the basis for evaluation through the measurement of performance. Thecomparison of actual and standard performance leads tothe analysis of variances. Feedback from this analysis results in either a check~ performance, revaluationof standards, or the reformulation of strategy, plans objectives. Due to the inherent nature of operationalcontrol, corrective action is aillllJ: mainly at performance and adjustment of standards rather than thereformulation strategy. The reformulation task is usually performed on the basis of strategic Control,

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profit is the profit earned after taking into account items, such as, raw material costs; but beforeinterest, depreciation, and taxes9. Gross profit margin is the gross profit divided by sales10. Return on equity is the profit after tax, adjusted for preference dividend, divided by the net worthor the shareholder's equity as at the end of the year11. One-year and five-year percentage changes in share price

Using these figures, the magazine assesses the performance of companies 01\ six parameters out ofwhich four are absolute )lumbers: net sales; earnings before interest, depreciation, tax and

amortization; net fixed assets; and market capitalization. The other two parameters are of return oncapital employed and sales-to-lllf fixed assets. Weight age on a scale of 1 to 5 is allotted to each ofthese parameters.The basis of their importance and the final scores are sorted in an ascending order.The lower a company scores, the higher it moves up the ladder.

Source: Based on notes to "Super 100: A ranking of India's best performing companies", BusinessIndia,Nov 27-Dec 10,2000, pp 125-126.

The method indicated in Exhibit 13.4 could welI be used by companies to evaluate performance onquantitative criteria, on an individual basis as welI as on the industry level.

Qualitative criteria: The quantitative criteria, with all their characteristic objectivity and

sophistication, cannot be Insufficient for an overalI assessment of performance. There has to be aspecial set of qualitative criteria for a subjective assessment of the factors like capabilities, corecompetencies, risk-bearing capacity, strategic clarity, flexibility, and workability. Qualitative criteriaplaya major role in strategic control for evaluating strategy before implementation but these can beused in operational control too. Glueck and Jauch have suggested three sets of qualitative criteria:consistency, appropriateness and workability will Consistency tests strategy with respect to objectives,environmental assumptions, and internal condition~. Appropriateness assesses the strategy from theviewpoint of resources capabilities, risk conference, and time horizon. Lastly, workability checksstrategy with regard to itsfeasibility and stimulation. ~ ,

Having set the standards of performance strategists proceed to measure perform-" IIICe as the next

step towards evaluation.

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Measurement of Performance

The evaluation process operates at the performance level as action takes place. Ex hibit 13.2 showshow this happens (actual performance is depicted within a dotted boundary as it is not a part of theevaluation process). Standards of performance act IS the benchmark against which the actualperformance is to be compared. It is important, however, to understand how the measurement ofperformance can take place. The information system is the key element in any measurement exercise.

Operationally, measuring is done through the accounting, reporting, and communication sys1eInS. Avariety of evaluation techniques (indicated in the next section) are used formeasurement. Apart from the methods of measuring performance, the other important aspects ofmeasurement relate to the difficulties, timing, andperiodicity in measuring.Difficulties in measurement: If standards are appropriately set, and if means are available formeasuring performance, evaluation is a fairly easy task. But there are several activities for which it isdifficult to set standards and measure performance. For instance, it is relatively easier to measure thecontribution of workers as compared to that of managers. Likewise, it is not so difficult to measure"individual effort _as it is to assess departmental performance. The solution lies in developing verifiable objectives, statedin quantitative and qualitative terms, against which performance :an be measured.

Timing of measurement: Timing relates to the point of time at which evaluation has to take place. Ingeneral, it could be said that a delay in measurement can deft1 ~he purpose of evaluation itself. On theother hand, measuring before time can~ serve the purpose either. It is better to measure at critical pointsin a task schedule Generally, the critical points would be at the end of a definable activity or theconclusion of a task. For instance, in a project implementation schedule, there could several critical pointsat which measurement would take place.

Periodicity in measurement: A related issue to timing is periodicity, which with the issue of "howoften to measure". Normally, financial statements like but ets, balance sheets, and profit and lossaccounts are prepared every year so the perdicity is on an annual basis. But there might be several

functions, like production: marketing, where measurement will have to be done in shorter duration,possibly, a monthly or a weekly basis.

Before we close this section, we shall look at several examples of private sectors..companies in India to show the different approaches to performance evaluation. which they adopted. Inthe next section, we will provide an exhibit which illustrate how performance evaluation takes place inpublic sector companies. By these occupies, and the exhibit, you will get an idea of how companiesstrive to measure performance.

There are many family-owned and other types of private sector companies which have separatemanagement boards or executive committees to review the performance of departments or profit centers.A difficulty arises when there is no clear" authority for performance evaluation. Usually, the realauthority for evaluation) rest with external groups. Thus, family businesses have their family councils,

mul~ national subsidiaries have review committees constituted by parent company officials, whileprofessionally-managed companies may evolve varying mechanism the evaluation purpose.

. The DCM group formed a Board M.anagement Committee (BMC) for exercising effectiveexecutive control. The BMC planned to have weekly meetings conduct specification reviews. It was tobe attended by outside directors aJIJ family representatives, besides the executive director who had theparticular unit or functional responsibilities. The reallocation of work by the BMC It suited in theupgrading of professional managers to the top management level The focus of BMC's activities was onevolving a profitable operational strategy.

. At TISCO, the evaluation of project performance gets top priority. The review and monitoring ofprojects related to all capital expenditures is done by die Board of Directors itself. The Board meetsregularly, usually on the last Thursday of every month, where projects are approved or rejected. When

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approved. the projects are subjected to strict time and cost schedules, and any devial100 or overrun hasto get the Board's approval. Over and above, annual boaro presentations on .the status of ongoingschemes are obligatory.

. As a part of management restructuring, the Murugappa group ofcompanies formed the MurugappaCorporate Board (MCB) with family members and external members. The induction of externalmembers was done so that accountability could be infused into the process of performance' evaluation.The family members act as functional-group heads looking after the functions of strategic planning,marketing, technology, human resource, and finance. The Chairman of the group was to act as the

external interface. The family members were also designated as mentors to group companies. Throughthis elaborate arrangement, the Murugappa group hoped to have a more stringent evaluation process inplace.

The question of accountability has been of interest to the Indian CEOs. The private sector has tried toaddress this issue through a greater professionalisation of management. The advantage foreseen is a moreobjective assessment of performance and better control. Next, we take up the step that involves analysisof variances that it from the measurement of performance.

The measurement of actual performance and its comparison with standard or budgetal performance leadsto an analysis of variances. Broadly, the following three studios may arise:\. The actual performance matches the budgeted performance

2, The actual performance deviates positively over the budgeted performance3. The actual performance deviates negatively from the budgeted performance The first situation is idealbut not realistic. In practice, the actual performance 'rely matches the budgeted performance. Here, thestrategists would have to specify range of tolerance limits between which the results may be acceptedsatisfactorily. 10. actual performance which deviates from the budgeted performance within theaccomplished tolerance limits can be acceptable and the variance is considered as not significant., The second situation is welcome as it is an indication of superior performance. Ii exceeding the targetcontinually should be considered as unusual and a check 1QIs to be made to .test the validity ofstandards and the efficacy of the measurement ,)\tem. Exhibit 13.2 takes care of this situation by gettinga feedback from the various analysis as to standards. The third type of situation is alarming as itindicates a shortfall in achievement.

It strategists need to pinpoint the areas where performance is below standard and up to the causes ofdeviation. Corrective action is taken on the basis of the analysis that causes of deviation.

Evaluation by the top management can be facilitated if the analysis of variance isJ!SeDted in the form of a simple device that could be termed as the variance chart.lEsameprinciple is applied in making control charts for statistical quality conExhibit 13.5 shows a specimen variance chart that illustrates the nature of de aJOS and the areas in whichthey occur. .After noting the deviations, it is now time to find the causes of deviations. The

owing questions can be helpful in determining the causes: 12I Is the cause of deviations internal or external?I Is the cause random or was it expected?

I Is the deviation temporary or permanent?

Are the strategies (and plans and objectives) still valid?. Does the organisation have the capacity to respond to the change needed? Analysis of variancesleads to a plan for correcti ve action which we shaII did next.

Taking corrective Action

Exhibit 13.2 suggests three courses for corrective action: checking ofperfol7l/lJTlll. checking ofstandards, and reformulating strategies, plans, and objectives.

Initiating corrective action is not an insignificant part of the evaluation process:! involves a variety of

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managerial functions which are performed during strategy implementation. For instance, checking ofperformance requires going into the deUII of organisational structure and systems as well as, behaviouralimplementation Performance can be affected adversely due to a number of factors such as distortial inresource allocation, inappropriateness of structure and systems, and wrong Ieadership and motivationalstyles. If the evaluation process shows that performance consistently lower than expected, the strategistswould have to undertake an in the analysis and diagnosis of the factors that might be responsible for badperformance Taking corrective action for checking performance is, therefore, a significant party the day-to-day activities of managers.

Checking of standards is less frequent than a performance check but it has tail done as soon as it is feltthat there is nothing significantly wrong with performance. A standards check may result in a loweringof standards if it is concluded that organisational capabilities do not match the performancerequirements. elevation of standards if the conditions have improved to allow better performance totake place. For instance, better equipment, improved systems, and upgraded skills presure to makeexisting standards partly irrelevant. Productivity frontiers too keep . IIOving farther and competitivepressures compel companies to continually strive to : disprove their operational effectiveness. in such asituation, standards check would become necessary.

A more radical and infrequent corrective action is to reformulate strategies, plans, objectives. Strategic,rather than operational, control will lead to the conclusion whether strategies need reformulation, plansneed to be remodelled, or objectives need to be redefined. Reformulation of strategy will take us back to

the process of \1rategic management where a fresh strategic choice has to be made A remodelling ofplans will entail a new resource allocation pattern and subsequent changes in strategy implementation.Redefinition of objectives, however, takes us back full-circle to the start of the strategic managementprocess.

Before we conclude the chapter, we must look at two explanatory sections on the techniques of strategicevaluation and control, and the role of an organisational system in evaluation.

TECHNIQUES OF STRATEGIC EVALUATION AND CONTROL

It is necessary for strategists to have an idea about the techniques of strategic evaluation and control inorder to make a choice from among the many available and to use those. Several of the techniques of

evaluation are traditional and have been in usage for long, while there are some other techniques whichare of recent origin. This section briefly describes the techniques for strategic control and operationalcontrol. First we take up the techniques for evaluation in strategic control and then for opera tionalcontrol.

Techniques for Strategic Control

As we said earlier in this chapter, the essence of strategic control is to continually assess the changingenvironment to uncover events that may significantly affect the course of an organisation's strategy.Techniques for strategic control could be classified into two groups on the basis of the type ofenvironment faced by the organisa0005. The organisations that operate in a relatively stable

environment may use strategic momentum control, while those which face a relatively turbulentenvironment may find strategic leap control more appropriate.

strategic momentum control

These types of evaluation techniques are aimed at wing that the assumptions on whose basis strategieswere formulated are still \1Iid, and finding out what needs to be done in order to allow the organisationto maintain its existing strategic momentum. There are three techniques which could be used toachieve these aims: responsibility control centres, underlying success facIOrs, andgeneric strategies.

I.Responsibility control centres form the core of management control systems and are of four types:revenue, expense, profit, and investment centres. Each of these centres is designed on the basis of the

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internal analysis, comparative analysis, and comprehensive analysis.

Internal analysis Internal analysis, which consists of value-chain analysis, quantitative (financial and non-financial) analysis, and qualitative analysis, deals with the identification of the strengths and weaknessesof a firm in absolute terms.

I. Value chain analysis focuses on a set of inter-related activities performed in a sequence for producingand marketing a product or service. The utility of value-chain analysis for the purpose of operationalevaluation lies in its ability to segregate the total tasks of a firm into identifiable activities which can

then be evaluated for effectiveness.2. Quantitative analysis takes up the financial parameters and the non-financial quantitativeparameters, such as, physical units or time, in order to assess performance. The obvious benefit ofusing quantitative factors (either financial or physical parameters) is the ease of evaluation and theverifiability of the assessment done. These are probably the most-used methods for evaluation foroperational control. Among the scores of financial techniques described in all standard texts in thearea of finance are traditional techniques, such as, ratio analysis, or newer techniques, such as,economic value-added (EV A) and its variations, and activity-based costing (ABC). These areproved methods so far as their efficacy for evaluating operational effectiveness is concerned. Apartfrom the financial quantitative techniques, there are several non-financial quantitative techniquesavailable for the evaluation for operational control, such as: computation of absenteeism, marketranking, rate of advertising recall, total cycle time of production, service call rate, or number ofpatents registered per period. Many more techniques can be evolved by firms to suit their specificrequirement.

3. Qualitative analysis supplements the quantitative analysis by including those -aspects which it isnot feasible to measure on the basis of figures and numbers. The methods that could be used forqualitative analysis are based on intuition, judgment, and informed opinion. Techniques like surveysand experimentation can be used for the evaluation of performance for exercising operationalcontrol.

Comparative analysis

This consists of historical analysis, industry norms benchmarking. It compares the performance of a firmwith its own past performance or with other firms.

1. Historical analysis is a frequently used method for comparing the performance of a firm over agiven period of time. This method has the added benefit enabling a firm to note how the performancehas taken place over a period time and to analyze the trend or pattern. Such an analysis can offer thefirm better perception of its performance as compared to an absolute assessment

2. Industry norms is a comparative method for analysing performance that ill, the advantage of makinga firm competitive in comparison to its peers in same industry. Being a comparative assessment,evaluation on the basis of industry norms enables a firm to bring its performance at least up to thelevel other firms and then attempt to surpass it.

3. Benchmarkingis a comparative method where a firm finds the best practicesan area and then attempts to bring its own performance in that area in line with the best practice.Best practices are the benchmarks that should be adopted~ a firm as the standards to exerciseoperational control. Through this method. performance can be evaluated continually till it reachesthe best practice level In order to excel, a firm shall have to exceed the benchmarks. In this m3Dll/l,benchmarking offers firms a tangible method to evaluate performance.

Comprehensive analysis This includes balanced scorecard and key factor rating. This analysis adopts atotal approach rather than focusing on one area of activity,1I a function or department.

1. Balanced scorecard method is based on the identification of four key performance measures ofcustomer perspective, internal business perspective, innovation and learning perspective, and thefinancial perspective. This method in balanced approach to performance measurement as a range ofparameters It taken into account for evaluation.

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2. Key factor ratingis a method that takes into account the key factors in some areas and then sets outto evaluate performance on the basis of these. These quite a comprehensive method as it takes awholistic view of the performance areas in an organisation.

Besides the several techniques referred to above, we could mention four of the techniques that are usedby some companies to assess performance. These are !he network techniques parta system, managementby objectives, and the memorandum of understanding.

1. Theparta system is an indigenous system adopted usually by MarwarifmnsII keep track of daily cashgeneration. "Parta is the pre-determined budget of the net cash inflows from operations before tax

and dividend".19 Thepal1ll1 decided in advance between the family group and company head, andactual performance is compared to this budgeted parta on a daily basis. thus making parta aneffective operation.11 control device.

2. Network techniques such as programme evaluation and review technique (PERT), critical pathmethod (CPM), and their variants, are used extensive~ for the operational controls of scheduling andresource allocation in project. When network techniques are modified for use as a cost accountingsystem, they become highly effective operational controls for project costs and performance.2O

3. Management by Objectives (MBO) is a system, proposed by Drucker, which is based on a regularevaluation of performance against objectives which are decided upon mutually by the superior and thesubordinate. By the process of consultation, objective-setting leads to the establishment of a control,system that operates on the basis of commitment and self-control. Thus, the scope of MBO to be used

as an operational control is quite extensive.4. Me"Jorandum o/understandingJust like MBO is a commitment to objectives between individuals, a

memorandum of understanding (MoD) is "an agreement between a public enterprise and theGovernment, represented by the administrative ministry in which both parties clearly specify theircommitments and responsibilities".21 Having done that, the enterprises are evacuated on the basis ofthe MoD. Though an MoD is usually thought of as a technique used solely in the context of publicenterprises, its use can be extended to any situation where an external agency is required to evaluate afirm's performance. Thus, an multinational company can set an MoD with its subsidiary and a familybusiness group council can use an MoD to evaluate its constituent companies. With the greaterprofessionalisation of private firms, especially in the family business sector, the use of MoDs can behelpful. But since in India the usage of MoD is traditionally largely confined to the evaluation of

performance in a public enterprise, we will take this opportunity to provide an exhibit which describesthe context in which MoDs are used: Exhibit 13.6 describes how operational control is done in publicenterprises in India.

Operational Control of Public Enterprises in India

The Government of India is the owner of public enterprises (PEs) in India and exercises control overthem through different means. Basically, the PEs are accountable to the Parliament/State legislatures,through audit and annual reports. Administrative or controlling ministries, committees on PublicUndertakings, Bureau of Public Enterprises, and the Controller and Auditor General of India are the mainagencies concerned with the performance evaluation of PEs.

The overall assessment of the performance evaluation system of PEs by several experts and committees

over a period of time shows that several problems have to be resolved for an effective system to emerge.The memorandum of understanding (MoU) and the concept of holding companies are often suggested asa means for creating a better, freer, and more effective evaluation system.The basic elements of theperformance evaluation system in PEs are as under:

1. Standards are set in terms of operational efficiency (short-term) and dynamic efficiency (whichresults in the long-term) requirements

2. The measurement of performance is based on a combination of quantitative and qualitative criteria,though in the latter case, subjectivity is sought to be limited by the use of rating scales and compositescoring

3. The techniques used for performance evaluation are financial (ratio analysis, funds flow, commonsize analysis, inter-firm comparisons and audits) and economic (input-output analysis, and time and

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cost overruns in project implementation)4. An analysis of the deviation of actual performance from the standard is doneby various agencies

named above and the reports are sent to the ministries and nodal agencies along withrecommendations

5. Corrective action is initiated by the nodal agencies: Bureau of Public Enterprises for centralundertakings and PE cells/state bureaus for state-level PEs.There are several PEs which have signed an MoU with the government since 1986, when this system

was first adopted. But the results of using MoUs as an evaluation system have been mixed. Several PE

managers are critical of the system and feel that devolution of authority from the government to PEsdoes not match the accountability expected.

All the techniques discussed in this section have their respective merits and de. merits. Strategistshave to exercise a judicious choice from among the techniques which can be used for strategicevaluation and control, on, the basis of the requirements of the strategy that they are implementing. It isalso clear that both strategic and operational controls have to be used in tandem to have an effectiveevaluation system.

ROLE OF ORGANISATIONAL SYSTEMS IN EVALUATION

Theprocess of strategic evaluation and control does not operate in isolation; it works on the basis of thedifferent organisational systems that are used to implement strategies. In Section, 10.4, we describedsix organisational systems: information, control, appraisal, motivation, development, and planning.There, the thrust of discussion was on understanding the role that these systems play in strategyimplementation are how they have to be adapted to suit the requirements of changing strategies. Here,we shall briefly review the role of organisational systems in evaluation.

Information System

Evaluation is done by comparing actual performance with standards. The measurement of performanceis done on the basis of reports generated through the information system. In fact the purpose ofinformation management system is to enable managers to keep track of performance through control

reports. Several of the techniques described in the previous section, whether for strategic surveillance orfinancial analysis, are based on the use of an information system to provide relevant are.

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