The Importance of Strategy Development for the Small Business

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The Importance of Strategy Development for the
Small Business

• Presented by
• Brian J. Walters, MBA, CBA
• The Akron Small Business Development Center at
  the Summit-Medina Business Alliance

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DiscussionWhat is Strategy?

• What does it mean for a business, large or small?
• Why is strategy formulation important?
• Strategy is coping with competition. Michael
  Porter, 1979.

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What Comprises Strategy?

• Substantial Resource Commitments
• Cross-functional Implications
• Long-Term Effects
• Enterprise-Level Thinking

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What are the Firms Goals

• Financial Goals- accounting based, Stock Market
  based (if applicable)
• Strategic Goals- non-financial goals

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Types of Objectives

• Financial Objectives- objectives that improve a
  firms financial performance

• Strategic Objectives- outcomes that strengthen a
  firms competitiveness and long-term market
  position

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Financial and Strategic ObjectivesExamples

• Financial Objectives
• Revenue Growth of 10 per year
• Increase Earnings by 15 per year
• Increase Earnings per Share (EPS) by 5 per year
• Increase Net Profit margins from 2-6

• Strategic Objectives
• Increase market Share
• Quicker design-to- market times than rivals
• Higher product quality than rivals
• Lower costs relative to key competitors
• Better and faster innovations

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How do you plan to achieve goals?

• Means to achieve goals
• Internal Analysis (SWOT)
• Resource Allocations
• External Analysis
• Industry Structure

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Strategy is..

• Making Choices
• Goals
• Means to achieve goals
• Resource Allocation

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What determines a firms success?
Industry Attractiveness- What industries should
we be in?
Corporate Strategy
Competitive Positioning- How should we compete?
Business Strategy
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Operational Effectiveness vs. Strategy

• Operational Effectiveness - Performing similar
  activities better than rivals (Efficiency)
• Strategy Perform similar activities differently
  or perform different activities (Positioning)
• Operational Effectiveness is NOT Strategic
  Positioning

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Strategy consists of

• Creating a unique, valuable, and defensible
  offer, which addresses a significant target
  market (Positioning)
• Unique Differentiated from competitors
  product/service
• Valuable Addresses a clear customer need
• Defensible Sustainable by fit/alignment

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Objective of All Strategy Making Is

• Gain and/or Sustain Competitive Advantage
• Competitive Advantage consists in delivering
  value to the customer
• At a price lower than the competition
• Superior value at a higher price

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Strategic Management

• Is crucial to building a successful business.
• Involves developing a plan to guide a company as
  it strives to accomplish its goals and mission,
  and to keep it on its desired course.

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Strategic Management and Competitive Edge

• Developing a strategic plan is critical to
  creating the competitive advantage, the
  aggravation of factors that sets a company apart
  from its competitors and gives it a unique
  position in the market.

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Key Core Competencies

• A unique set of abilities a company develops in
  key areas, such as superior quality, customer
  service, innovation, team-building, flexibility,
  responsiveness, and others that allow it to vault
  past competitors.
• They are what a company does best.
• Best to rely on a natural advantage (often linked
  to a companys smallness).

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Strategic Management Process

• Step 1 Develop a vision and translate it into a
  mission statement.
• Step 2 Assess strengths and weaknesses.
• Step 3 Scan the environment for opportunities
  (internal) and threats (external).
• Step 4 Identify key success factors.

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Strategic Management Process

• Step 5 Analyze Competition.
• Step 6 Create Goals and Objectives.
• Step 7 Formulate Strategies.
• Step 8 Translate Plans into Actions.
• Step 9 Establish Accurate Control Measures.

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Step1 Develop a Vision and Create a Mission
Statement

• What is a vision? An expression of what an
  entrepreneur stands for and believes in.
• A vision is based on values.
• A clearly defined vision
• Provides direction
• Determines decisions
• Motivates people

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Step 1 A Mission Statement

• What does a Mission Statement Accomplish? It
  addresses the question What business are we
  in?
• It is a written expression of how the company
  will reflect the owners values, beliefs, and
  vision.
• It sets the tone for the entire company and
  serves as a decision guide.

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Step 2 Assess Company Strengths and Weaknesses

• Strengths Positive internal factors that
  contribute to accomplishing the mission, goals,
  and objectives.
• Weaknesses Negative internal factors that
  inhibit the achievement of the mission, goals,
  and objectives.

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Step 3 Scan for Opportunities and Threats

• Opportunities Positive external options the
  company can employ to accomplish its mission,
  goals, and objectives.
• Threats negative external forces that inhibit
  the firms ability to achieve its mission, goals,
  and objectives.

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External Market Forces
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External Market Forces

• Include
• Technological
• Economic
• Social and Demographic
• Political and Regulatory
• Competitive

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Step 4 Identify Key Success Factors

• Key Success Factors are
• Relationships between a controllable variable and
  a critical factor that influence a companys
  ability to compete in the market.
• They are the keys to unlocking the secrets of
  successfully competing in a particular market
  segment.

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Step 5 Analyze Competitors

• Analyzing key competitors allows a firm to
• Avoid surprises from existing competitors new
  strategies and products.
• Identify potential new competitors and the
  threats they pose.
• Improve reaction time to competitors actions.
• Anticipate rivals next strategic moves.

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Step 5 Analyze Competitors

• How can this be done?
• Monitor trade and industry publications.
• Talk to customers and suppliers.
• Listen to employees, especially sales reps. and
  purchasing agents.
• Attend trade shows and conferences.

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Step 5 Analyze Competitors

• Monitor competitors employment ads.
• Conduct searches for patents and trademarks filed
  by competitors.
• Search databases for types of materials and
  equipment that competitors are importing.
• Study competitors literature and benchmark their
  products and services.
• Visit competing businesses to observe their
  operations.

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Knowledge Management

• The process of gathering, organizing, and
  disseminating the collective wisdom and
  experience of a companys employees for the
  purpose of strengthening its competitive
  position.
• Knowledge management involves
• Taking inventory of the special knowledge the
  people in the firm possess.
• Organizing and disseminating the knowledge.

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Step 6 Create Company Goals and Objectives

• What are goals? Broad, long-range
  attributes to be accomplished.
• What are Objectives? Detailed specific targets
  that are designed to be
• Specific
• Measurable
• Assignable
• Realistic (yet challenging)
• Timely

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Step 7 Formulate Strategies

• A strategy is
• A map that guides a company through a dynamic
  environment as it seeks to accomplish its
  mission, goals, and objectives.
• Focused on the key success factors identified in
  Step 4.
• Mission, goals, and objectives Ends
• Strategy Means

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Strategy

• Simply stated, strategy is Coping with
  Competition.

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Step 7 Formulate Strategies

• Three basic strategies
• Cost Leadership Examples?
• Differentiation Examples?
• Focus Examples?

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Cost Leadership

• Goal to be the low-cost producer in the industry
  or market sector.
• Advantages reaching buyers who buy on the basis
  of price.
• Works well when
• Buyers are sensitive to price change
• Competing firms sell the same commodity products
• A company can benefit from economies of scale

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Differentiation

• A company seeks to build customer loyalty by
  positioning its product or services in a unique
  or different manner.
• Idea is to be unique at something customers
  value.
• KEY build basis for differentiation on core
  competencies, what the firm is uniquely good at
  performing.

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Focus

• A company selects one or more customer segments
  in a market, identifies specific customer needs,
  wants, or desires, and then targets them with a
  service designed specifically for them.
• Strategy builds on differences among market
  segments.

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Focus

• Rather than attempt to serve the total market,
  the company focuses on serving a niche within
  that market.
• Examples Craft Beer, Specialty Cheeses

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Step 8 Strategies into Action Plans

• Create projects by defining
• Purpose
• Scope
• Contribution
• Resource
• Timing

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Step 9 Establish Accurate Controls

• The plan establishes the standards against which
  actual performance is measured.
• The business owner must
• Identify and track performance indicators.
• Take corrective action.

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Discussion

• How will these ideas apply to your clients?