The type of strategy a team uses in business is key to whether the company will have long-term growth and success. The problem is that it is difficult to assess whether the chosen strategy is correct or if correction is needed. This process becomes easier if you use the general types of strategic control (strategic control, SC-control) to analyze the developed strategy, determine effectiveness and identify strengths and weaknesses. Without this, the company will not be able to adapt to external changes in the industry that require immediate corrective action.
Method History
Although control was one of the six “management functions” mentioned by Henri Fayol back in 1917, the idea and concept of it appeared in the economic literature on management in the late 1970s. The work of J. H. Horowitz "Strategic control: a new challenge for better management" was published in 1979. And, probably, this is the first article in which this topic is discussed in detail.
A key challenge in controlling strategic planning is the need to deal with uncertainty. An important analysis by Michael Gold and Andrew Campbell showed that different control methods are used. From pure financial control, on the one hand, to detailed strategic planning systems, on the other.
Financial control is simpler and therefore cheaper. It is more flexible in work, but provides less potential for interaction between the structures of the organization. Strategic planning is time consuming and costly to use, but provides tremendous opportunities to maximize benefits.
In the middle of this range, Gould and Campbell described strategic control mechanisms that allow companies to balance their competitive and financial capabilities.
SC Control FAQ
Managers exercise SC control to ensure that the organization’s strategic goals are met.
Freedom of decision making is one of the features that distinguishes strategic control from other forms carried out by managers. For example, operational control and management of operational processes. These characteristic differences affect how to design management processes and a support system using a balanced scorecard.
The main task of SC-control is to determine whether goals are achieved and to understand the need for adjustments in accordance with changes in the business environment. This task can only be achieved through monitoring, developed as a continuous, simultaneous process of obtaining and processing information, in parallel with strategic planning, development and implementation.
The essence of strategic planning control can be summarized as follows:
- continuous monitoring of external and internal working conditions and progress in achieving the strategic goals of the company;
- business combination in the organizational system, strategic divisions, operational markets;
- focus on assessing progress and performance, detecting and interpreting signals of upcoming changes and problems before they cause adverse consequences for the company, and developing the necessary response to these changes;
- implementation using information systems and interaction tools that provide a flexible response of the company;
- close relationship with strategic planning;
- inclusion of planning procedure tools in which the strategic control system is a platform for implementing strategies.
Organizational structure
Organizational structure - a formal configuration of company roles, procedures, management and control mechanisms, as well as management and decision-making processes. A simple structure is an organizational form in which the owner makes all the important decisions directly and monitors all actions, while the staff performs supervisory powers.
Functional structure - consists of a managing director and limited corporate personnel with functional line managers in dominant organizational areas. Such as manufacturing, accounting, marketing, research and development, engineering and human resources.
Interdisciplinary (M-Form) structure - consists of operational divisions in which each structure represents a separate company or profit center, with corporate participants vested with the greatest responsibility for daily operations and the strategy of divisions to responsible managers.
The form of a business unit is a form of a diversified structure consisting of at least three levels:
- the higher level is the headquarters of the corporation;
- the next level is the SBU group (strategic business unit: branch, department);
- the last level is the division into groups according to the relationship (product or geographical market) within each SBU.
Centralization is the degree to which decision makers are supported at higher levels of government.
Organizations can use the main types of structures in the strategic control system: simple, functional and diverse. Sometimes organizations find that they have grown out of a single structure and need to adapt a new form in order to effectively cope with greater complexity and production growth.
Applying style in an organization
SC-control processes ensure that the actions necessary to achieve strategic goals are completed and have the desired impact on the organization. An effective strategic control process should indirectly help the organization ensure that the intended results are obtained and that all methods used to achieve the goals are operational.
At the same time, daily activities in organizations are controlled using operational control systems.
One way to exercise control is to use management processes based on the implementation of strategic balanced scorecards described by Kaplan and Norton in their writings.
Modern design methods, such as a balanced third-generation scorecard, combine the latest ideas about strategic ideas and management principles into a structure that is easy to implement.
Management actions
Strategic management - a set of current processes and activities that the organization uses to systematically coordinate resources and actions with the vision, mission and strategy throughout the production structure. In a stable environment, a strategy requires establishing a competitive position and its subsequent protection.
Thanks to strategic management, the company gets more flexibility. She can easily move from one dominant strategy to another. The strategic management process can be divided into five main functions:
- planning;
- Organization
- passing orders;
- coordination;
- the control.
The main objectives of strategic control include:
- Develop strategies in accordance with procedures and methods.
- The analysis used when choosing a strategy.
- Implementation procedure that complies with applicable standards.
- Expected results.
This control studies the individual provisions of the project:
- Monitoring the strategic planning stage.
- Monitoring the implementation of the strategy.
- Strategy analysis.
Success Implementation Methods
The company cannot foresee any external threat that could affect the success of the company without the necessary information. Strategic control allows you to identify the sources of information that track these external factors.
The four types of SC control are management management, implementation control, alert control, and strategic monitoring. Each of them provides different perspectives and methods of strategic control analysis that help maximize the effectiveness of a business strategy.
It is based on the assumption of how everything will happen in the future. Management tools allow you to check whether this assumption remains true when an idea comes to life. Management may be influenced by factors such as inflation, interest rates and social changes, or industry factors such as competitors, suppliers, and entry barriers. These controls will help the company identify changes in management that match its business strategy.
After developing a business strategy, the company will have to implement it. By taking the actions necessary to implement the strategic control plan, the company uses implementation control to ensure that there is no need to make any changes to the strategy. The two main types of management that should be implemented are the monitoring of strategic areas and the implementation of the main stages. The first means that the tactics that are used to gain market share are analyzed, the latter allows you to evaluate the activity at some points of the strategy.
Strategic financial control alert tracking is vital. Companies will need mechanisms to assess the business situation in case of emergency, such as natural disasters, product recalls, or rapid market growth. Special alert controls let the company verify the accuracy of the strategy in light of these new developments. Implementation will require the preparation of methods for handling these special warnings, as well as the procedures that will need to be followed, priorities and tools used.
Model Information
Regardless of the type or level of SC control systems the organization needs, it can be represented as a feedback model in six stages:
- Determine the main areas of control - this is the first step in the SC-control process. Managers base control on the mission, goals and objectives of the organization developed in the planning process. They must make a choice, because this model is the most expensive, and it is not always necessary to control every aspect of the organization.
- Establish control standards. A management standard is the goal of strategic control against which future performance will be compared. Performance aspects that can be controlled and controlled: quantity, quality, time, behavior and management.
- Evaluate performance. Actual figures should be compared with standards. Many types of measurements performed for control purposes are based on a specific form of historical standard before taking corrective actions.
- Compare performance with standards. The comparison step determines the degree of difference between actual performance and the standard. If the first two stages were successfully completed, the third stage of the monitoring process - comparing performance with standards, should be simple.
- Determine the causes of deviations. This stage of the SC-control process consists in answering the question: “Why is efficiency different from standards?”. Conducting corrective actions is the last step in the process - determining the need for corrective actions.
- The last step in the monitoring process is that managers need to decide what actions to take to improve performance in the event of deviations.
Differences in types of management control
Both strategic and operational control have advantages that organizations can use. SC-control takes into account the process strategy from implementation to completion and analyzes how effective the actions are and where changes can be made to improve. Operational control is focused on everyday operations. Strategic and operational control - types of management control that have significant differences.
Factors affecting types of control and their differences:
- SC control can be affected by external factors and data.
- Operational control is associated with internal factors of work.
- The environment and the market have much more in common with SC-control, while operational control concerns everyday problems that may arise, such as personnel problems or technological failures.
- SC control deals with the process over time, considering the various steps to evaluate how effective they are and where changes can be made. This strategic control process can take several weeks or months. After the completion of the process, the evaluation continues.
- Operational control is carried out daily, studying the emerging daily problems and working on their elimination on the spot.
- Correcting errors or taking measures to fix problems in it is more effective because it happens immediately.
- There is a problem with SC control, but it takes much longer to evaluate what needs to be done to address the causes of the problem.
- Thanks to operational control, problems are resolved immediately to ensure the smooth operation of the organization.
- Like corrective actions, the intervals between reports under the SC control last for several months, and in the reports on operational control they are compiled daily and weekly.
- SC control refers to larger organizational issues. Such as entering a new market, so it takes more time to collect information and compile reports.
- Operational control takes into account production efficiency, sales results and daily operations. These numbers are much simpler, and therefore can be represented quickly and efficiently.
Qualitative and quantitative criteria
After completing the implementation of the strategy, the organization expects to achieve the desired goals. It is necessary to organize the process of evaluating and monitoring the strategy in the early stages of implementation in order to check whether the strategy was successful and, if necessary, make adjustments in the middle of the stage. Unexpected competitor actions can create serious gaps in strategy. Therefore, a list of such factors will require continuous evaluation and control strategies.
Evaluation of the organization’s strategy can be carried out both qualitatively and quantitatively. Quantification is based on data and is possible using analysis to determine if the content of the strategy is working or not working. Qualitative assessment and control is a real-time process. Organizations typically use financial measures as quantitative criteria for evaluating strategies.
Here are some of the key financial indicators that can be used as criteria for evaluating a strategy:
- Return on investment.
- Return of capital.
- Profitability.
- Market share.
- Earnings per share.
- Increase sales.
- Increase in assets.
These factors are used by various organizations to measure the performance of an organization. It should be noted that qualitative criteria are more related to short-term goals than to long-term goals. For this reason, quality criteria are very important in evaluating strategies.
Audit function
Audits are another control method. Management functions are divided into three main groups, namely:
- Independent auditors are professionals who provide their services for the organization of strategic control.
- Government auditors do not include agencies that conduct audits for the organization.
- Internal auditors are employees of the organization and perform their functions within the organization.
There is another group known as management audit that examines and evaluates the overall performance of the entire management team. Audit teams evaluate the effectiveness of various departments of the organization and the company's management system. The information they provide is critical to management. Currently, most organizations are engaged in management audit.
Thus, it is obvious that strategic control is aimed at ensuring that the organization is effectively aligned with the business environment and its progress in achieving the strategic goal.Since research in the field of SC control is still at an early stage of development, there are no generally accepted models or theories in this area. In general, the development of strategic control requires structure, leadership, technology, human resources and information and control systems.