To measure the effectiveness and efficiency of an organization’s strategy, you have to examine how it links your objectives to the way you plan to achieve them and the means you plan to use.
A strategy is effective if it uses the resources you allocate according to your plan and delivers the expected results.
The effectiveness of your strategy is measured by the yield (the ratio between what you want to achieve and what you actually get) to your allocation of resources.
An effective strategy has a high yield, but sometimes it is difficult to measure the effectiveness of the strategy because the yield cannot be directly measured. In this article, I will show how you can get measure the effectiveness of your strategy by calculating its efficiency and saving.
How to Calculate the Effectiveness of our Strategy?
- The first step in estimating the effectiveness of your strategy is to create a list of objectives or goals you want to achieve.
1.1 Define your strategy with great care and make sure it is clear and concise so that everyone in your company can understand what needs to be done and how it will be done.
- The next step is to determine the key performance indicators or KPI that will indicate whether these objectives are achieved or not. Establish a set of KPIs that can be measured and monitored regularly throughout your process of achieving a goal, so that you know at any given time if you are getting closer to achieving it or not.
2.1 You will need to define the objectives in an information system, in order to get the right KPI.
2.2 Depending on your goals and resources, you will have to allocate your action plan for achieving each of them. Let’s assume that your objective is to increase profitability by 20%.
2.3 First, figure out how much money will be needed for achieving this goal (cost burden). Based on this answer, you must allocate how much money is required for each action set (resources allocation).
- The third step is to measure the level of each KPI, during the process of achieving your goals and when it is achieved. If you can measure them regularly, you will be able to see if your strategy works or not, and make any necessary changes.
3.1 During the implementation process, you should calculate the level of each KPI that shows the achievement of the goal, according to a regular review schedule established by the company.
3.2 After completing this phase, you must calculate how much money was spent in order to achieve this goal (cost burden), if there is any over expenditure or not. Calculate as accurately as possible because your next phase depends on it.
- The fourth step is to calculate the ratio between what you wanted to achieve and what you got for achieving it (Yield or the efficiency of your strategy, KPI).
4.1 Based on your goals and the resources allocated for their achievement, calculate how much money was spent to achieve them. If there is any overspending or not (depending on whether there is any waste), then add it to your final calculation.
4.2 Subtract the over-spending from the total cost spent to achieve your goal and divide it by the money spent to achieve your goal. This will give you a percentage that shows how much money was spent in order to achieve your goal against what you wanted to achieve.
- The final step is to calculate the saving or yield of that strategy. If you have any waste (that is, if there is any overspending), subtract it from the result of step 4 in order to calculate how much money was saved by achieving this goal.
5.1 If there is any waste, add the amount of this waste to the result of step 4, in order to calculate how much money was spent in order to achieve your goal against what you wanted to achieve.
Different strategies are used by different organizations depending on the risks they face and how they rely on them. A low-risk strategy is typically based on a high level of predictability, but it requires less effort to implement.
On the other hand, a high-risk strategy is typically based on less predictability, but it requires a higher level of effort for its implementation.
In general terms, a favorable or high-yield strategy is one that achieves more than expected with less than expected resources invested. The opposite situation is referred to as a low-yield strategy, which will require more than expected to achieve less than expected results.
The effectiveness of your strategy depends on whether you are able to fulfill your objectives.
The results will tell you if your strategy works or not and when it was effective in achieving the goal, if it works and how much money was spent for achieving it, or how much money was spent for achieving a certain goal with a certain level of effectiveness.
Every business organization has an objective that they want to achieve with their strategies. They can be different as long as they have something similar in common. Every organization has a different level of risk tolerance but should have a good strategy to achieve its objectives.
Effective strategies are the results of proper planning and allocation of resources, after analysis and evaluation of the implications for achieving these goals.
If your strategy does not work, you must find out the reasons and change it or your methods so that you can achieve your goal in a better way.
The misunderstanding of “strategy”
People often misunderstand the term “strategy”. Strategy is a way of thinking that allows you able to satisfy the needs of your clients and customers, but in addition to this, it should also allow the organization to grow and face new challenges.
Strategy is not just a set of goals and objectives that are achieved through concrete actions; a strategy is an approach to achieving certain objectives with fairness. It means how are you going to reach your goal? If a strategy has been successful, then it is logical that returns have also been produced, which should be measured, whether they be financial or not.
Our strategy depends on the company’s objectives and all decisions made within the framework of this strategy must lead to its success. A good strategy is one that allows the organization to achieve its goals through a viable approach.
Why is it that important?
The importance of strategy implementation is that it will allow the organization to reach its objectives, but it will only be successful if the right actions have been taken, the right people have been placed in the right positions and proper resources have been allocated to achieve this goal. If a strategy has already been put in place and has already been implemented, then we should evaluate whether this strategy had a positive or negative effect on our business if it was able to reach its goals; therefore we need to measure its effectiveness.
In addition, the evaluation of the effectiveness of strategy implementation must be based on the company’s objectives, for this purpose, it is necessary that at the beginning of strategy implementation, these objectives be set up clearly. Strategy implementation may take place in different steps, depending on the organization and its objectives. It is necessary to evaluate which strategy has been put in place for a certain amount of time and whether it has been effective after this period, as well as the goals to assess how these were reached, because if these results are not sufficient then decisions might need to be taken.
The evaluation of strategy implementation allows us to identify problems we are facing as well as their causes and thus adjust our strategy accordingly by making adjustments in our decision-making process through strategic management.
The results of the strategy evaluation will show you the effectiveness of your business strategy, as well as help to verify whether or not you are able to achieve your objectives. This will teach you how much money you have spent in order to achieve your objective and the level of effectiveness of your business strategy.
At the present, a lot of organizations have chosen the task of measuring business effectiveness as one of their strategic goals. This depends on your objectives and the decision that needs to be taken regarding them. If you are looking for a stronger organization, then you should measure your effectiveness so that you can take a decision about the implementation of new strategies based on these results.
Although it is difficult to measure the effectiveness of your strategy directly and precisely, there are ways to do it indirectly with reasonable accuracy.