350 Part 3: Strategic Actions: Strategy Implementation
no longer provides the coordination and direction needed for the firm to successfully
implement its strategies.^26 Interestingly, many organizational changes take place in eco-
nomic downturns because poor performance reveals organizational weaknesses. As we
discuss next, effective organizational controls help managers recognize when it is time
to adjust the firm’s structure.11-1b Organizational Controls
Organizational controls are an important aspect of structure.^27 Organizational controls
guide the use of strategy, indicate how to compare actual results with expected results,
and suggest corrective actions to take when the difference is unacceptable. It is difficult
for a firm to successfully exploit its competitive advantages without effective organiza-
tional controls. Properly designed organizational controls provide clear insights regard-
ing behaviors that enhance firm performance.^28 Firms use both strategic controls and
financial controls to support implementation of their strategies.
Strategic controls are largely subjective criteria intended to verify that the firm is
using appropriate strategies for the conditions in the external environment and the com-
pany’s competitive advantages. Thus, strategic controls are concerned with examining
the fit between what the firm might do (as suggested by opportunities in its external
environment) and what it can do (as indicated by its internal organization in the form of
its resources, capabilities, and core competencies). Effective strategic controls help the
firm understand what it takes to be successful, especially where significant strategic
change is needed.^29 Strategic controls demand rich communications between managers
responsible for using them to judge the firm’s performance and those with primary
responsibility for implementing the firm’s strategies (such as middle- and first-level
managers). These frequent exchanges between managers are both formal and informal
in nature.^30
Strategic controls are also used to evaluate the degree to which the firm focuses on
the requirements to implement its strategies. For a business-level strategy, for example,
the strategic controls are used to study value chain activities and support functions (see
Figures 3.3, 3.4, and 3.5, in Chapter 3) to verify that the critical activities and functions
are being emphasized and properly executed. When implementing related diversifica-
tion strategies at the corporate level, strategic controls are used to verify the sharing of
activities (in the case of the related-constrained strategy) or the transferring of core com-
petencies (in the case of the related-linked strategy) across businesses. To effectively use
strategic controls when evaluating either of these related diversification strategies, head-
quarter executives must have a deep understanding of the business-level strategies being
implemented within individual strategic business units.^31
Financial controls are largely objective criteria used to measure the firm’s perfor-
mance against previously established quantitative standards. When using financial con-
trols, firms evaluate their current performance against previous outcomes as well as
against competitors’ performance and industry averages. Accounting-based measures,
such as return on investment (ROI) and return on assets (ROA), as well as market-based
measures, such as economic value added, are examples of financial controls. Partly
because strategic controls are difficult to use with extensive diversification,^32 financial
controls are emphasized to evaluate the performance of the firm using the unrelated
diversification strategy. The unrelated diversification strategy’s focus on financial out-
comes (see Chapter 6) requires using standardized financial controls to compare
performances between business units and those responsible for leading them.^33
Both strategic and financial controls are important aspects of a firm’s structure; as
noted previously, any structure’s effectiveness is determined using a “balanced” combi-
nation of strategic and financial controls. But, determining the most appropriate balanceOrganizational controls
guide the use of strategy,
indicate how to compare
actual results with expected
results, and suggest corrective
actions to take when the
difference is unacceptable.
Strategic controls are
largely subjective criteria
intended to verify that the
firm is using appropriate
strategies for the conditions
in the external environment
and the company’s
competitive advantages.
Financial controls are
largely objective criteria
used to measure the firm’s
performance against
previously established
quantitative standards.