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298 PART 4 • STRATEGY EVALUATION

Characteristics of an Effective Evaluation System
Strategy evaluation must meet several basic requirements to be effective. First, strategy-
evaluation activities must be economical; too much information can be just as bad as too
little information; and too many controls can do more harm than good. Strategy-evaluation
activities also should be meaningful; they should specifically relate to a firm’s objectives.
They should provide managers with useful information about tasks over which they have
control and influence. Strategy-evaluation activities should provide timely information; on
occasion and in some areas, managers may daily need information. For example, when a
firm has diversified by acquiring another firm, evaluative information may be needed
frequently. However, in an R&D department, daily or even weekly evaluative information
could be dysfunctional. Approximate information that is timely is generally more desirable
as a basis for strategy evaluation than accurate information that does not depict the present.
Frequent measurement and rapid reporting may frustrate control rather than give better
control. The time dimension of control must coincide with the time span of the event being
measured.
Strategy evaluation should be designed to provide a true picture of what is happen-
ing. For example, in a severe economic downturn, productivity and profitability ratios
may drop alarmingly, although employees and managers are actually working harder.
Strategy evaluations should fairly portray this type of situation. Information derived
from the strategy-evaluation process should facilitate action and should be directed to
those individuals in the organization who need to take action based on it. Managers
commonly ignore evaluative reports that are provided only for informational purposes;
not all managers need to receive all reports. Controls need to be action-oriented rather
than information-oriented.
The strategy-evaluation process should not dominate decisions; it should foster
mutual understanding, trust, and common sense. No department should fail to cooperate
with another in evaluating strategies. Strategy evaluations should be simple, not too
cumbersome, and not too restrictive. Complex strategy-evaluation systems often confuse
people and accomplish little. The test of an effective evaluation system is its usefulness,
not its complexity.
Large organizations require a more elaborate and detailed strategy-evaluation
system because it is more difficult to coordinate efforts among different divisions and
functional areas. Managers in small companies often communicate daily with each
other and their employees and do not need extensive evaluative reporting systems.
Familiarity with local environments usually makes gathering and evaluating informa-
tion much easier for small organizations than for large businesses. But the key to an
effective strategy-evaluation system may be the ability to convince participants that
failure to accomplish certain objectives within a prescribed time is not necessarily a
reflection of their performance.
There is no one ideal strategy-evaluation system. The unique characteristics of an
organization, including its size, management style, purpose, problems, and strengths, can
determine a strategy-evaluation and control system’s final design. Robert Waterman
offered the following observation about successful organizations’ strategy-evaluation and
control systems:

Successful companies treat facts as friends and controls as liberating. Morgan
Guaranty and Wells Fargo not only survive but thrive in the troubled waters of bank
deregulation, because their strategy evaluation and control systems are sound, their
risk is contained, and they know themselves and the competitive situation so well.
Successful companies have a voracious hunger for facts. They see information
where others see only data. They love comparisons, rankings, anything that removes
decision making from the realm of mere opinion. Successful companies maintain
tight, accurate financial controls. Their people don’t regard controls as an imposition
of autocracy but as the benign checks and balances that allow them to be creative
and free. 10