Strategy evaluation is the process of assessing the effectiveness and efficiency of a strategic plan or initiative. It is an integral part of the strategic management process, serving as a critical feedback mechanism to determine whether the strategy has achieved its intended objectives.
Strategy evaluation aims to ensure that the strategic plan is yielding the desired outcomes and, if not, identify where and why performance is falling short. It involves verifying whether the strategy is helping the organization navigate its internal and external environments successfully and if it’s contributing to the growth and success of the business.
Strategy evaluation process
The strategy evaluation process involves several interconnected steps that are continuously repeated to ensure the strategy remains effective and relevant. Here are the main stages in the strategy evaluation process:
- Setting Objectives: The first step in any strategic evaluation is clearly defining what you hope to achieve with your strategy. These objectives should be SMART: Specific, Measurable, Achievable, Relevant, and Time-bound.
- Developing Key Performance Indicators (KPIs): Once the objectives are clear, the organization needs to define the KPIs to measure the strategy’s effectiveness. KPIs are quantifiable measurements that reflect the critical success factors of an organization.
- Data Collection: This stage involves gathering data on the previously established KPIs. This data could be quantitative (e.g., sales figures, customer retention rate) or qualitative (e.g., customer satisfaction surveys, employee feedback).
- Analysis: In this stage, the collected data is analyzed to see if the strategy is working as intended. This may involve comparing actual results to projected results, benchmarking against industry standards, or using statistical methods to identify trends and patterns.
- Interpretation: Based on the analysis, evaluators interpret the results to understand the strategy’s performance. This is where the evaluators can conclude whether the strategy is meeting its objectives, where it’s failing, and what might be the causes.
- Action: If the interpretation of the data reveals that the strategy isn’t effective or if there are areas that could be improved, this is where adjustments are made. Actions could include modifying the strategy, developing new tactics, providing employee training, or reallocating resources.
- Reporting: Finally, the evaluation results and proposed actions are reported to decision-makers and other relevant stakeholders. This ensures transparency and allows for further input and discussion.
- Review: Regularly scheduled strategy reviews should be conducted to ensure its continued relevance and effectiveness. This helps an organization adapt to changes in its internal and external environment.
This entire process is iterative and should be repeated periodically, not only when the strategy fails to meet objectives but also as part of a proactive and continuous improvement approach to strategic management.
Importance of strategy evaluation
Strategy evaluation plays a pivotal role in strategic management for several reasons:
- Measuring Performance: Through the evaluation process, organizations can measure their performance against the established objectives. This allows them to identify if they are on track or if adjustments need to be made.
- Identifying Areas for Improvement: Regular strategy evaluations can help pinpoint areas where the organization is not performing as well as expected or areas that can be improved. It highlights strengths and weaknesses and provides direction for future strategy formulation.
- Resource Allocation: Strategy evaluation can inform effective resource allocation by identifying which strategic initiatives are performing well and deserve more investment and which ones are underperforming and may need to be deprioritized.
- Responding to Change: Markets and competitive environments are dynamic. Regular evaluation of strategy helps organizations stay agile and adapt to changes in market trends, customer behavior, regulatory changes, and competitive activity.
- Reducing Risk: By regularly evaluating strategy and making necessary adjustments, organizations can reduce the risk of strategic failure and improve their chances of achieving their objectives.
- Ensuring Accountability: Strategy evaluation ensures accountability by monitoring performance against the strategic plan. This helps keep everyone focused and aligned with the strategic objectives.
- Improving Decision-Making: The insights gained from strategy evaluation can greatly improve decision-making. By knowing what is working and what is not, leaders can make informed decisions about the organization’s future course.
Regular strategy evaluation is crucial for ensuring that a strategy is effective, objectives are met, and the organization is responsive to changing conditions. It contributes to better decision-making, improved performance, and increased likelihood of achieving strategic objectives.
Strategy evaluation example
Let’s consider an example of strategy evaluation in the context of a tech startup that has set a strategic goal of increasing its market share by 25% in the next two years.
- Setting Objectives: The startup’s strategic objective is to increase its market share by 25% within two years.
- Developing Key Performance Indicators (KPIs): KPIs could include the number of new customers acquired, the retention rate of existing customers, the company’s net promoter score (NPS), and its revenue growth rate.
- Data Collection: The company begins gathering data. This might involve tracking the number of new customer sign-ups, conducting surveys to calculate the NPS, monitoring revenue growth, and tracking customer churn rate.
- Analysis: After a year, the startup analyzes the data. They find that while new customer sign-ups are increasing and revenue growth is on track, the churn rate is higher than the industry average, and the NPS score has declined slightly.
- Interpretation: The startup concludes that while attracting new customers, they’re not retaining existing ones satisfactorily, which might impact their NPS. This could hinder their progress towards the 25% market share increase.
- Action: The startup decides to invest in improving its customer service and enhancing its product based on feedback from existing customers to reduce the churn rate and improve the NPS. They also tweak their marketing strategy to target better potential customers who are more likely to stay with the service long-term.
- Reporting: The results of the evaluation and the subsequent decisions are then communicated to the startup’s stakeholders, including employees, investors, and board members.
- Review: The startup continues to monitor their KPIs and conduct regular strategy evaluations, tweaking their approach based on the insights they gain.
This example demonstrates how strategy evaluation can help a business identify potential issues, make informed decisions, and stay on track toward achieving its strategic goals.
