Quantitative Organizational Measurements

Quantitative measurements provide information and insight as to how well an organization is accomplishing its goods and objectives. In attempting to evaluate the effectiveness of corporate strategy quantitatively, we can see how the firm has done compared wit its own history, or compared with its competitors.

Many quantitative measures may be developed to determine performance results. These standards expressed in quantitative terms include:

  1. Sales (growth of sales)
  2. Net profit
  3. Dividend returns
  4. Return on equity
  5. Return on investment
  6. Return on capital
  7. Marker share
  8. Earnings per share

The list is long and many other factors could be included. The objective of all of these endeavors is financial control.

But financial control is only part of the total strategic management control process. Much of the activity affects financial performance in non financial nature. This include consideration of labor efficiency and productivity; production quantity turnover, and tardiness; on a very limited basis, human resources accounting and personnel satisfaction measures; more commonly, management by objectives systems; social analysis; operational audits of any functional, divisional, or staff component, distribution cost and efficiency; management audits modeling; and so forth.

The list is almost endless and there is no time to discuss each item here.

Which factors should be used? Establishing the standards and tolerance limit is not as easy as we might expect. Managers need to first define the critical success factors - the factors which are most important to the strategy and being successful in the business. Most of these measures are internal. But objective assessments can also be made by comparing the firm's results of similar firms (see section Benchmarking)

Below we present a set of worthwhile guidelines that managers might follow in designing and implementing more comprehensive strategic audits.

A strategic audit is conducted in three phases: diagnosis to identify how, where, and in what priority in-depth analyses need to be made; focused analysis; and generation and testing recommendation. Objectivity and the ability to ask critical, probing questions are key requirements for conducting a strategic audit.

Phase one: Diagnosis

The diagnostic phase includes the flowing tasks:

  1. Review key document such as:
    • Strategic plan
    • Business or operational plans
    • Organizational arrangements
    • Major policies governing matters such as resource allocation and performance measurement.
  2. Review financial, market, and operational performance against benchmarks and industry norms to identify jet variances and emerging trends.
  3. Gain an understanding of:
    • Principal roles, responsibilities, and reporting relationships.
    • Decision - making processes and major decisions made.
    • Resources, including physical facilities, capital, management, technology.
    • Interrelationships between functional staffs and business or operating units.
  4. Identify strategic implications of strategy for organization structure, behavior patterns, systems, and processes.
    • Define interrelationships and linkages to strategy.
  5. Determine internal and external perspectives.
    • Survey the attitudes and perceptions of senior and middle managers and other key employees to assess the extent to which these are consistent with the strategic direction of the firm. One way to accomplish this task is through carefully focused interviews and / or questionnaires, wherein employees are asked to identify and make trade-offs among the objectives and variables they consider most important.
    • Interview a carefully selected sample of customers and prospective customers and other key external sources to gain understanding of how the company is viewed.
  6. Identify aspects of the strategy that are working well. Formulate hypotheses regarding problems and opportunities for improvement based on the findings above. Define how and in what order each should be pursued.

Phase two: Focused analysis

  1. Test the hypotheses concerning problems and opportunities for improvement through analysis of specific issues.
    • Identify interrelationships and dependencies among components of the strategic system.
  2. Formulate conclusions as to weaknesses in strategy formulation, implementation deficiencies, or interactions between the two.

Phase three: Recommendations

  1. Develop alternative solutions to problems and ways of capitalizing on opportunities.
    • Test [these alternatives] in light of their resource requirements, risk, rewards, priorities, and other applicable measures.
  2. Develop specific recommendations.
    • Develop an integrated, measurable, and time - phased action plan to improve strategic results.

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The Evaluation And Control Of Organizational Strategy
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