Page 322 -

288 PART 4 • STRATEGY EVALUATION

It is impossible to demonstrate conclusively that a particular strategy is optimal or
even to guarantee that it will work. One can, however, evaluate it for critical flaws. Richard
Rumelt offered four criteria that could be used to evaluate a strategy: consistency, conso-
nance, feasibility, and advantage. Described in Table 9-1, consonance and advantage are
mostly based on a firm’s external assessment, whereas consistency and feasibility are
largely based on an internal assessment.
Strategy evaluation is important because organizations face dynamic environments in
which key external and internal factors often change quickly and dramatically. Success
today is no guarantee of success tomorrow! An organization should never be lulled into
complacency with success. Countless firms have thrived one year only to struggle for sur-
vival the following year. Organizational trouble can come swiftly, as further evidenced by
the examples described in Table 9-2.

TABLE 9-1 Rumelt’s Criteria for Evaluating Strategies
Consistency
A strategy should not present inconsistent goals and policies. Organizational conflict and interdepartmental bickering are often
symptoms of managerial disorder, but these problems may also be a sign of strategic inconsistency. Three guidelines help determine
if organizational problems are due to inconsistencies in strategy:
• If managerial problems continue despite changes in personnel and if they tend to be issue-based rather than people-based, then
strategies may be inconsistent.
• If success for one organizational department means, or is interpreted to mean, failure for another department, then strategies may
be inconsistent.
• If policy problems and issues continue to be brought to the top for resolution, then strategies may be inconsistent.
Consonance
Consonance refers to the need for strategists to examine sets of trends, as well as individual trends, in evaluating strategies. A strat-
egy must represent an adaptive response to the external environment and to the critical changes occurring within it. One difficulty in
matching a firm’s key internal and external factors in the formulation of strategy is that most trends are the result of interactions
among other trends. For example, the day-care explosion came about as a combined result of many trends that included a rise in
the average level of education, increased inflation, and an increase in women in the workforce. Although single economic or
demographic trends might appear steady for many years, there are waves of change going on at the interaction level.

Feasibility
A strategy must neither overtax available resources nor create unsolvable subproblems. The final broad test of strategy is its feasibility;
that is, can the strategy be attempted within the physical, human, and financial resources of the enterprise? The financial resources
of a business are the easiest to quantify and are normally the first limitation against which strategy is evaluated. It is sometimes
forgotten, however, that innovative approaches to financing are often possible. Devices, such as captive subsidiaries, sale-leaseback
arrangements, and tying plant mortgages to long-term contracts, have all been used effectively to help win key positions in suddenly
expanding industries. A less quantifiable, but actually more rigid, limitation on strategic choice is that imposed by individual and
organizational capabilities. In evaluating a strategy, it is important to examine whether an organization has demonstrated in the past
that it possesses the abilities, competencies, skills, and talents needed to carry out a given strategy.

Advantage
A strategy must provide for the creation and/or maintenance of a competitive advantage in a selected area of activity. Competitive
advantages normally are the result of superiority in one of three areas: (1) resources, (2) skills, or (3) position. The idea that the
positioning of one’s resources can enhance their combined effectiveness is familiar to military theorists, chess players, and diplo-
mats. Position can also play a crucial role in an organization’s strategy. Once gained, a good position is defensible—meaning that it
is so costly to capture that rivals are deterred from full-scale attacks. Positional advantage tends to be self-sustaining as long as the
key internal and environmental factors that underlie it remain stable. This is why entrenched firms can be almost impossible to
unseat, even if their raw skill levels are only average. Although not all positional advantages are associated with size, it is true that
larger organizations tend to operate in markets and use procedures that turn their size into advantage, while smaller firms seek
product/market positions that exploit other types of advantage. The principal characteristic of good position is that it permits the firm
to obtain advantage from policies that would not similarly benefit rivals without the same position. Therefore, in evaluating strategy,
organizations should examine the nature of positional advantages associated with a given strategy.

Source: Adapted from Richard Rumelt, “The Evaluation of Business Strategy,” in W. F. Glueck (ed.), Business Policy and Strategic Management
(New York: McGraw-Hill, 1980): 359–367. Used with permission.