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. Discussion What is Strategy?. What does it mean for a business, large or small?

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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


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.


What Comprises Strategy?

  • Substantial Resource Commitments

  • Cross-functional Implications

  • Long-Term Effects

  • Enterprise-Level Thinking


What are the Firm’s Goals

  • Financial Goals- accounting based, Stock Market based (if applicable)

  • Strategic Goals- non-financial goals


Financial Objectives- objectives that improve a firm’s financial performance

Strategic Objectives- outcomes that strengthen a firm’s competitiveness and long-term market position

Types of Objectives


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

Financial and Strategic ObjectivesExamples


How do you plan to achieve goals?

  • Means to achieve goals:

  • Internal Analysis (SWOT)

    • Resource Allocations

  • External Analysis

    • Industry Structure


Strategy is…..

  • Making Choices

    • Goals

    • Means to achieve goals

    • Resource Allocation


What determines a firm’s success?

Industry Attractiveness-

What industries should we be in?

Corporate Strategy

Competitive Positioning-

How should we compete?

Business Strategy


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


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


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


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.


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.


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 company’s “smallness”).


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.


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.


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


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 owner’s values, beliefs, and vision.

  • It sets the tone for the entire company and serves as a decision guide.


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.


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 firm’s ability to achieve its mission, goals, and objectives.


External Market Forces


External Market Forces

  • Include:

    • Technological

    • Economic

    • Social and Demographic

    • Political and Regulatory

    • Competitive


Step 4: Identify Key Success Factors

  • Key Success Factors are:

    • Relationships between a controllable variable and a critical factor that influence a company’s ability to compete in the market.

    • They are the keys to unlocking the secrets of successfully competing in a particular market segment.


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.


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.


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.


Knowledge Management

  • The process of gathering, organizing, and disseminating the collective wisdom and experience of a company’s 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.


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


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


Strategy

  • Simply stated, strategy is “Coping with Competition”.


Step 7: Formulate Strategies

  • Three basic strategies:

    • Cost Leadership – Examples?

    • Differentiation – Examples?

    • Focus – Examples?


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


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.


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.


Focus

  • Rather than attempt to serve the total market, the company focuses on serving a niche within that market.

  • Examples: Craft Beer, Specialty Cheeses


Step 8: Strategies into Action Plans

  • Create projects by defining:

    • Purpose

    • Scope

    • Contribution

    • Resource

    • Timing


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.


Discussion

  • How will these ideas apply to your clients?


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