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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

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
Discussion BusinessWhat 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
What Comprises Strategy? Business

  • Substantial Resource Commitments

  • Cross-functional Implications

  • Long-Term Effects

  • Enterprise-Level Thinking

What are the firm s goals
What are the Firm’s Goals Business

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

  • Strategic Goals- non-financial goals

Types of objectives

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 and strategic objectives examples

Financial Objectives financial performance

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
How do you plan to achieve goals? financial performance

  • Means to achieve goals:

  • Internal Analysis (SWOT)

    • Resource Allocations

  • External Analysis

    • Industry Structure

Strategy is
Strategy is….. financial performance

  • Making Choices

    • Goals

    • Means to achieve goals

    • Resource Allocation

What determines a firm s success
What determines a firm’s success? financial performance

Industry Attractiveness-

What industries should we be in?

Corporate Strategy

Competitive Positioning-

How should we compete?

Business Strategy

Operational effectiveness vs strategy
Operational Effectiveness vs. Strategy financial performance

  • 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
Strategy consists of: financial performance

  • 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
Objective of All Strategy Making Is… financial performance

  • 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
Strategic Management financial performance

  • 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
Strategic Management and Competitive Edge financial performance

  • 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
Key: Core Competencies financial performance

  • 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
Strategic Management Process financial performance

  • 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 process1
Strategic Management Process financial performance

  • 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
Step1: Develop a Vision and Create a Mission Statement financial performance

  • 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
Step 1: A Mission Statement financial performance

  • 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
Step 2: Assess Company Strengths and Weaknesses financial performance

  • 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
Step 3: Scan for Opportunities and Threats financial performance

  • 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 financial performance

External market forces1
External Market Forces financial performance

  • Include:

    • Technological

    • Economic

    • Social and Demographic

    • Political and Regulatory

    • Competitive

Step 4 identify key success factors
Step 4: Identify Key Success Factors financial performance

  • 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
Step 5: Analyze Competitors financial performance

  • 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 competitors1
Step 5: Analyze Competitors financial performance

  • 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 competitors2
Step 5: Analyze Competitors financial performance

  • 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
Knowledge Management financial performance

  • 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
Step 6: Create Company Goals and Objectives financial performance

  • 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
Step 7: Formulate Strategies financial performance

  • 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 financial performance

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

Step 7 formulate strategies1
Step 7: Formulate Strategies financial performance

  • Three basic strategies:

    • Cost Leadership – Examples?

    • Differentiation – Examples?

    • Focus – Examples?

Cost leadership
Cost Leadership financial performance

  • 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 financial performance

  • 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 financial performance

  • 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 financial performance

  • 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
Step 8: Strategies into Action Plans financial performance

  • Create projects by defining:

    • Purpose

    • Scope

    • Contribution

    • Resource

    • Timing

Step 9 establish accurate controls
Step 9: Establish Accurate Controls financial performance

  • The plan establishes the standards against which actual performance is measured.

  • The business owner must:

    • Identify and track performance indicators.

    • Take corrective action.

Discussion financial performance

  • How will these ideas apply to your clients?