How to Evaluate Corporate Strategy in Six Steps
Internal consistency
According to Tilles (1963), corporate strategy is internally consistent if its policies align with each other and contribute to organizational goals. An example of inconsistent policies is a simultaneous pursuit of business expansion and the preservation of exclusive family control because, over time, these policies will come into conflict. Internal consistency has an important meaning in creating corporate strategy because it pinpoints areas in which the company will have to make strategic choices.
Consistency with the environment
As Tilles (1963) explains, consistency with the environment means that a firm’s policies make sense regarding relationships with its customers, which may take the form of collective bargaining, government contracts, etc. There is a static consistency, which evaluates the firm’s policies’ alignment with the currently existing environment, and a dynamic consistency, which assesses policies’ effectiveness regarding ongoing changes in the environment. Ensuring consistency with the environment means that businesses should analyze environmental trends to base their future strategy on the identified data and avoid failure.
Appropriateness regarding resources
Tilles (1963) notes that all firms have critical resources that either limit the accomplishing of organizational goals or are exploited as the foundation of the corporate strategy. They include money, physical facilities (facilities having extrinsic value, such as proximity to markets, materials, or labor force), and competence (skills and activities that organizations are particularly good at). Ensuring appropriateness regarding available resources means that the corporate strategy should include decisions on the number of resources to be allocated to achieving current goals and the number of resources to be kept in reserve.
Satisfactory degree of risk
Corporate strategy should evaluate risks, which include the number of strategic resources with an undetermined term of existence, the length of time for payoff, and the percentage of resources allocated to a single undertaking. The greater each of these factors, the higher the risk. Having a satisfactory degree of risk means that companies should decide what amount of risk they are ready to accept, bearing in mind that a failure to fully realize their resources can be the riskiest strategy.
Appropriate time horizon
According to Tilles (1963), the corporate strategy should outline when organizational goals should be attained because they have strategic value only if they are achieved by a certain time. The organizational time horizon depends on the firm’s size: the larger the company, the further in time its goals should extend. Having an appropriate time horizon means that organizations should plan their goals in advance to avoid chaos resulting from radical policy changes and enable a greater choice of tactics.
Workability
One way of appraising a corporate strategy’s workability is measuring results using quantitative performance indicators. When evaluating results is not enough, companies can assess to what extent executives agree on goals and policies, how much in advance managerial decisions are made, and how timely resource requirements are identified. Ensuring corporate strategy’s workability means that companies should continuously measure the degree to which their strategy contributes to their business progress and make appropriate adjustments when necessary.
Reference
Tilles, S. (1963). How to evaluate corporate strategy. Harvard Business Review. Web.