Exotech | Adaptation and change are two things that every company will face. Changes in market and economic conditions and situations mean that companies must be able to change direction when needed. To be able to change the course of your company well, you must understand how to carry out effective strategy evaluations.
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Strategic management is an important part of the continuity of your business. By having a good strategic management system, you will be able to react well to any changes that may arise in the future. To be able to change the strategy you are currently using, evaluating the strategy is an important step that must be taken. You must first know the advantages and disadvantages of the strategy you are using now before you can change direction.
What is Company Strategy Evaluation?
Before understanding what strategy evaluation is, you need to understand that there are three stages that must be passed to realize an effective business strategy. These stages include;
1. Strategy formulation
The formulation process requires several data and facts related to the scope of activities and company development. Starting from the vision and mission, identifying strengths and weaknesses, as well as potential threats both internal and external to the company. Then, set long-term and short-term goals, and prepare several alternative strategies after determining the main strategy that will be used.
2. Strategy implementation
At this stage, the company must have certain targets, both short, medium and long term. Starting from making company policies, operational cost budgets, preparing the right organizational structure, allocating good resources, to motivating employees to be optimal in achieving the specified targets. Apart from that, the development and utilization of information systems and appropriate compensation services with the level of employee performance satisfaction are also quite important to pay attention to.
3. Strategy evaluation
This stage is the final stage which is sufficient to determine the success of a business strategy. There are at least several main elements in the evaluation, namely; assess, measure and take corrective action. Evaluation really needs to be done as an effort to maintain success and avoid failure in the future.
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So, strategic evaluation is the most effective way for business people to review the extent to which the company survives and develops in an effort to achieve the desired strategic goals. With this evaluation, business people can find out the direction of movement of their business strategy as well as help identify deficiencies and take corrective steps if they are not in accordance with the initial concept.
Strategy Evaluation Components
To carry out an effective strategy evaluation, of course, the solidarity of several parties is needed. Starting from shareholders, the board of directors, and important position holders, including heads of departments in the company. The things that need to be evaluated include:
- Sales achievement: Sales that are in line with targets can be the most accurate benchmark for determining the level of success of a business strategy.
- Company profitability level and profit margin: Evaluating profit margin is calculating the difference in sales value after deducting several operational costs, then dividing by the number of sales. Until finally a comparison was found between net sales and company capital.
- Market share: By reviewing market share, business people can find out how much a company dominates the market. By calculating and comparing company size with market size through several assessments, such as; sales value and volume, as well as number of customers.
- Company liquidity: namely estimating interest and demand for products by consumers, and the company's ability to meet its product reserves.
- Company solvency: This is no less important to evaluate because it concerns the financial health of a company. Mainly related to debts owed to creditors. With this evaluation, it will be easy for the company to know how much funds will be borrowed, as well as the company's ability to repay the loan.
Why is it Necessary to Carry out Strategy Evaluation
Various problems will always exist and disrupt company stability. Even though this is a common occurrence, there are several reasons or conditions that require a strategy evaluation, including:
- If there is a shift in conditions and situations in market share. There are changes in economic conditions so that the market continues to develop, or the emergence of more and more new competitors.
- There is an increase in company activities which are becoming more complex and complicated day by day. This of course requires good control so that it can accommodate every movement of company activities.
- As company control becomes increasingly fragmented, both in the form of power and authority, managers need tools to understand the activities and performance of their employees.
What are the Benefits of a Company Strategy Evaluation
At least, there are several benefits that you can feel when implementing a company business strategy evaluation. Here are some of them;
- Can evaluate the extent of the effectiveness of a project or program, and whether it is as desired or not.
- Can ensure the utilization and use of resources more effectively and efficiently.
- Can determine the extent to which a project or work program is in accordance with the initial concept. If there are obstacles or errors, the company can immediately take corrective action or action to increase the potential for achieving business goals.
What are the Steps for Conducting an Strategy Evaluation
Referring to the Rumelt criteria, there are four stages that you can use as a guide for evaluating company strategy, namely;
1. Consistency
In the initial stage, you need to evaluate the consistency of the strategy. It must be ensured that in the strategy that has been launched there is no conflict between policies and targets.
Here, you need to ensure two important things. First, whether the internal operations of the business, which include purchasing, marketing, sales, operations and service, are consistent with resource allocation. Second, whether internal operations are also consistent with market economics and business targets.
2. Conformity
It is important to understand that adapting business strategies to the market environment is something that should not be underestimated. The reason is, this will certainly have an impact on the effectiveness of the strategy, which will also affect the achievement of company goals.
Therefore, you need to evaluate the suitability of your strategy to the market, whether in the immediate or wider environment. At least, you need to ensure several things, such as; who and where allows for potential customers, the economic forces that exist in the business market, triggers for customers/consumers to buy, and the obstacles that exist in the business adjustment process.
3. Excellence
A good strategy should be able to create a competitive advantage for the company. Therefore, you should evaluate whether the strategy launched and implemented meets these criteria or not.
The way to do this is by analyzing whether the business has economic value that exceeds its competitors in the same market area. Or, in the long term, ensure that the company has differentiated resources and capabilities that competitors cannot imitate. This can include a group of company activities or work culture, business assets, trademarks, patents, intellectual property rights, and others.
4. Eligibility
Lastly, you need to make sure that the strategy is worth sticking to. The way to do this is by evaluating and analyzing whether the business strategy so far has the ability to solve problems. Not only that, the most important thing is whether the strategy can make the business have access to financial resources and encourage personnel to be actively involved.
Well, that's about evaluating company strategy and effective ways to do it. Changes in market and economic conditions and situations are one of the biggest challenges in running a business. To survive in competition, you must be able to adapt to these changes. Strategy evaluation can help you find out where you have succeeded and where you need to improve your performance.