Thoroughly answer the following: 1. What is a business level strategy evaluation?

BUSINESS LEVEL STRATEGY EVALUATION A business unit is evaluated based on how effective and efficient it is in implementing the two broad business level strategies-the competitive strategy and the cooperative strategy-and their alternate variations. Since the aim of a business level strategy is to maintain a competitive position in an industry, most companies adopt competitive strategies and their variations. It is a misconception to understand strategy evaluation as a mere appraisal of how well a business unit performs in terms of its objectives. Strategy evaluation is about the health of a company in terms of the corporate, business, and functional levels and the way it can achieve success. There are no specific and rigid rules or standards on how to evaluate a business level strategy; rather, the evaluation is founded on the basic tenet that the business level objectives and strategies must be consistent and aligned. If the business level strategy is cost leadership, the business level strategy evaluation should focus on the different measures adopted by a company to become a cost leader or a cost focus. However, if the business level strategy is differentiation, the evaluation should focus on how a company differentiates itself from its competitors in terms of product, quality, functions, aesthetics, or features. In general terms, the strategy evaluation process at the corporate level should also be followed. The data used in the evaluation should come from the internal records of a company and those provided by outside reliable sources. A business level strategy evaluation is conducted by the board of directors. Table 13.1 may be used as a template to evaluate business level strategies. Table 13.1 Business Level Strategy Evaluation Business Level Key Strategy Performance Business Objectives Actual Level Performance Variation Rating Comment (Cost or Indicators Differentiation) (KPIs) Target Product Functions Features Uses Processes Other areas Another approach to evaluating a business level strategy is to revisit the basis in formulating the strategy, including the various tools used in conducting a strategy analysis such as the BCG growth- share matrix, SWOT analysis, and so on. If possible, the analysis of the competitor's current position should also be conducted by gathering information using competitive intelligence. The business level strategy evaluation report must include the following: 1. The present strategic position of a company in an industry 2. .The probable position of competitors in an industry 3. A gap analysis between opportunities and a company's competencies 4. The possible market needs served by a company and its competitors 5. The possible actions needed to address any deficiencyFUNCTIONAL LEVEL STRATEGY EVALUATION The objective of a functional level strategy is to maximize resource productivity. The different functional units of a company align their objectives based on this context. To elaborate, the marketing unit aims to deliver customer value products or services, the strategy of the finance unit is to maximize the financial value of a company, the human resource unit aims to guide the development and implementation of various programs, and the objective of the production and operation unit is to reconcile a company's resources and market requirements. To achieve its objectives, each functional unit prepares a program, budget, and operating procedure. The functional level strategy evaluation is conducted by the board of directors. There are different approaches to evaluate how a strategy is implemented at the functional level. The approaches include the following: . 1. Responsibility center approach 2. Benchmarking approach 3. Management audit approach Responsibility Center Approach A responsibility center is a unit in a company that is controlled by a manager who is accountable based on an entrusted responsibility. The responsibility centers are classified as follows: 1. Revenue center 2. Profit center 3. Cost center 4. Investment center Revenue center. The actual performance of a revenue center is measured based on the amount of revenue it contributes to a company. In other words, it is the amount of gross sales or gross receipts that serves as the primary factor to judge whether a functional unit is favorably operating or not. The cost involved in the generation of revenue is disregarded. The actual revenue is simply compared against the targeted revenue, and the variation is, then, determined. The variation can either be favorable or unfavorable. Profit center. A profit center realizes revenue through the sale of a product or delivery of a service but, at the same time, incurs costs and expenses. It is evaluated based on the amount of profit (ie., revenue minus c hus costs and expenses) it contributes to a company. The actual profit is compared against the targeted profit. When the actual profit is higher than the targeted amount, the variation is considered favorable.Cost center. A functional unit classified as a cost center incurs only costs and expenses. It does not realize revenue through the sale of a product or delivery of a service. The human resource unit. for example, is evaluated as a cost center since its primary function is to guide the development and implementation of programs by hiring the right people, training and coaching, and handling of compensation packages and benefits. It is evaluated based on the amount of costs and expenses incurred. The actual costs and expenses are compared against the budgeted amount. Higher costs and expenses compared to the actual amount incurred give an unfavorable performance result. Investment center. A functional unit classified as an investment center is evaluated based on the amount of revenue, profit, costs, and expenses it contributes to a company, but more emphasis is given on how the unit efficiently utilizes the resources entrusted to it. It is evaluated based on the amount of the return on investment (ROI) provided to a company. Benchmarking Approach Benchmarking refers to the process of comparing the current products, services, and processes against those considered the best. In strategic management, it is a tool for evaluating the performance of a company against its competitors that are regarded the best or the industry leaders. The concept does not encourage a company to imitate other products, services, and processes but to improve its current performance using the best practices, products, or performance among industry players as the minimum standards. The following procedures are to be followed when benchmarking: 1. Choose the area, activity, product, or process to be evaluated. 2. Determine the basis of measurement. 3. Select industry leaders. 4. Gather information from reliable sources. 5. Compare the performance of the company with its competitors. 6. Determine the gap. 7. Develop a program to close the performance gap. 8. Implement the program. Management Audit Approach A management audit is a systematic process of evaluating the performance, competence, and capabilities of functional level managers. This strategy evaluation approach is usually conducted by the internal audit staff of a company under the supervision of the audit committee of the board of directors. The nature of management audits differs among the various functional units. It includes the evaluation of non-financial activities of the functional unit. The following are the different types of management audit: 1. Financial audit 2. Operation audit 3. Human resources audit 4. Marketing auditfinancial audit. A financial audit is conducted to evaluate if the financial statements of a ampany are fairly presented. This includes the evaluation of the appropriateness and reliability "the accounting procedures, recording system, and disclosure requirements and the company a "reliance to accounting standards. It involves the examination of different supporting documents in recording business transactions. Operation audit. It is a systematic and comprehensive evaluation of the effectiveness and ffiriency of the different operational activities of a company. It is conducted to identify the areas need improvement and institute control, including the possible risks in the structures and operations. Both the financial and non-financial information are needed in the evaluation. Human resources audit. It is a critical evaluation of the performance of the human resource unit and its various activities related to the implementation of policies, programs, and procedures. # is conducted primarily to determine the shortcomings and lapses in the implementation of human resource functions and to take remedial actions. Marketing audit. It is a comprehensive and systematic evaluation of the marketing activities, goals, and objectives of a company. It reviews and evaluates the external and internal marketing environments and the appropriateness of the current marketing strategy and provides the necessary recommendations for improvement.Responsibility Center Approach A responsibility center is a unit in a company that is controlled by a manager who is accountable based on an entrusted responsibility. The responsibility centers are classified as follows: 1. Revenue center 2. Profit center 3. Cost center 4. Investment center Revenue center. The actual performance of a revenue center is measured based on the amount of revenue it contributes to a company. In other words, it is the amount of gross sales or gross receipts that serves as the primary factor to judge whether a functional unit is favorably operating or not. The cost involved in the generation of revenue is disregarded. The actual revenue is simply compared against the targeted revenue, and the variation is, then, determined. The variation can either be favorable or unfavorable. Profit center. A profit center realizes revenue through the sale of a product or delivery of a service but, at the same time, incurs costs and expenses. It is evaluated based on the amount of profit (e., revenue minus costs and expenses) it contributes to a company. The actual profit is compared against the targeted profit. When the actual profit is higher than the targeted amount, the variation is considered favorable.174 Unit 4 | Strategy Evaluation and Control Cost center. A functional unit classified as a cost center incurs only costs and expenses. It does not realize revenue through the sale of a product or delivery of a service. The human resource unit for example, is evaluated as a cost center since its primary function is to guide the development and implementation of programs by hiring the right people, training and coaching, and handling of compensation packages and benefits. It is evaluated based on the amount of costs and expenses incurred. The actual costs and expenses are compared against the budgeted amount. Higher costs and expenses compared to the actual amount incurred give an unfavorable performance result. Investment center. A functional unit classified as an investment center is evaluated based on the amount of revenue, profit, costs, and expenses it contributes to a company, but more emphasis is given on how the unit efficiently utilizes the resources entrusted to it. It is evaluated based on the amount of the return on investment (ROI) provided to a company