Strategic Action Planning For The Small Business

No transatlantic ship captain would dare leave port without a Navigation Plan. Likewise, the successful voyage of a business over time requires a similar instrument. It is called The Strategic Plan.
 

The Strategic Plan is the process by which we can envision the future and develop the necessary procedures and operations to influence and achieve that future. It is the life-support system that, if followed, assures your business a successful future.
 

The 10 absolutes of a Strategic Action Plan:

Develop a clear vision and translate it into a meaningful mission statement.

This step should locate the firm's present position in the marketplace as well as suggest its future direction. The mission statement's focus should be on creating a competitive advantage for the firm by identifying a new, better, or different way to satisfy customer needs. This bottom-up approach for defining the scope of the business operation should include identifying segments of the market to target as customer bases as well as positioning the company (and its goods and services) to reach these market segments most effectively.

A sound mission statement need not be lengthy to be effective. It should, however, answer certain key questions.

1. What are the basic beliefs and values of the organization? What do we
    stand for?

2. Who are the company's target customers, and what are they like?

3. What needs and wants do they satisfy when they buy from us?

4. How can we better satisfy these needs and wants?

5. What constitutes value to the customer? How can we offer our customers
    better value?

6. What are the firm's basic products and services?

7. In which markets (or market segments) will we choose to compete?

8. What will happen to those markets over the next few years?

9. What are our major strengths and competitive ad vantages?

10. What are our primary weaknesses?

11. What external opportunities and threats do we face?

12. Who are the key stakeholders in our company and what affect do they
      have on it?

13. What is our desired public image?

By answering such basic questions, the company will have a much clearer picture of what it is and what it wants to be.

Define the Company's Driving Force and Identify Its Market Position

When choosing a driving force, a Business Owner must consider several key issues.

1. How many competitors will we have?

2. How broad will our customer base be?

3. How vulnerable would our business be to sudden changes in economic, social, or political conditions?

4. To what extent does this focus build on skills that we already have?

5. How will this focus affect our financial structure?

Access your company’s strengths and weaknesses.

Having identified the firm' s driving force and desired position in the market, the business owner can turn their attention to assessing company strengths and weaknesses. Building a successful competitive strategy demands that a business magnify its strengths and overcome or compensate for its weaknesses. Strengths are positive internal factors that contribute to the accomplishment of objectives; weaknesses are negative internal factors that inhibit the accomplishment of objectives. Identifying strengths and weaknesses helps the owner understand her business as it exists (or will exist).

One very effective technique for taking this strategic inventory is to prepare a balance sheet of company strengths and weaknesses. The positive side should reflect important skills, knowledge, or resources that contribute to the firm's success. The negative side should record honestly key limitations that detract from the company's ability to compete.
 

Strengths (+)Weaknesses (-)

1.Specific skills of the firm

1.Lacking in skills

2.Unique knowledge

2.What do we know about our business or
    customers?

3.Special resources of the firm

3.Resources the firm is lacking--e.g. cash


This balance sheet should analyze all key performance areas of the business: personnel, finance, production, marketing, product development, organization, and others. This analysis should give owners a more realistic perspective of their businesses. It will point out foundations on which they can build future strengths and obstacles that they must remove for business progress. This exercise can help owners move from their present positions to future actions.

Scan the environment for significant Opportunities and Threats facing your Business.

Once entrepreneurs have taken an internal inventory of company strengths and weaknesses, they must turn to the external environment to identify any opportunities and threats that might have a significant impact on the business.

Opportunities are positive external options the firm could employ to accomplish its objectives. The number of potential opportunities is limitless, so managers must analyze only factors significant to the business (probably two or three at most). For example, the owner of a small restaurant concluded that he faced two realistic opportunities: opening a second shop across town or buying a franchised outlet from a national company. When identifying opportunities, the owner must pay close attention to new potential markets. Are competitors overlooking a niche in the market?

Threats are negative external forces that inhibit the firm's ability to achieve its objectives. Threats to the business can take a variety of forms, such as new competitors entering the local market, a government mandate regulating a business activity, an economic recession, rising interest rates, and technological advances making a company's product obsolete. The owner must prepare a plan for shielding his business from such threats.

Identify the Key Factors for success in your business.

Every business is characterized by a set of controllable variables that determine the relative success of market participants. Identifying these variables and manipulating them is how a small business gains a competitive advantage Such factors lead to what are often dramatic differences in performance levels within the same business. Companies that understand these key success factors tend to be leaders of the pack, while those who fail to recognize them become "also rans".

For example, the restaurant business is characterized by several key success factors, including the following.

  • tight cost control (labor, 15-18 percent of sales, and food costs, 35-40 percent of sales)

  • trained, dependable in-store management

  • close monitoring of waste

  • careful site selection (the right location)

  • maintenance of food quality

  • consistency

  • cleanliness

  • friendly and attentive service

These controllable variables determine the ability of any given restaurant to compete. Restaurants lacking these key success factors are not likely to survive, while those who build strategies with these factors in mind will prosper.

Analyze the Competition.

In a recent national survey, small business owners cited competition as the single biggest challenge facing their companies in the next decade. Another survey, from the Conference Board, found that 68 percent of the companies believed it was "very important" to monitor competitors' activities.

How can a small business owner gather competitive information?

1. Devote a specific time for managers and companies to evaluate the competition. A monthly meeting designed to share information is ideal.

2. Create an intelligence file on key competitors. This helps keep the information organized in a useful manner.

3. Check industry and trade publications for information on competitors. Articles can be a tremendous source of valuable data.

4. Listen to customers and sales people. "Customers and salespeople are our best sources of information," says one successful small business owner "We listen to our customers and act on what we hear."

5. Attend industry trade shows, exhibits, and conferences, You can learn a great deal from competitors' booths at such shows.

6. Read the local papers where major competitors are located.

7. Study competitors' literature. Sales, product, and service brochures offer valuable information on rivals' strategies and how they position themselves in the market.

8. Buy competitors' products. Purchasing rivals' products and taking them apart-benchmarking-is a rich source of information.

9. Obtain credit reports on competitors. Companies like Dun & Bradstreet make standard credit reports available to anyone.

10. Avoid ethical dilemmas. Unethical means of gathering information-bribery, payoffs, wiretaps may produce short-term benefits, but in the long term, these owners and their companies lose-often dramatically. One business owner who regularly monitors his competitors' actions says, "What we do here is not covert in nature; it's more a matter of keeping your ear to the ground."

Create company goals and objectives.

Goals

Goals are the broad, long range attributes the business seeks to accomplish; they tend to be general and sometimes even abstract. Goals are not intended to be specific enough for a manager to act on, but simply state the general level of accomplishment sought. Addressing these broad issues will help you focus on the next phase, developing specific, realistic objectives.

Objectives

Objectives are more detailed, specific targets of performance. Common objectives concern profitability, markets, productivity, growth, efficiency, financial resources, physical facilities, organizational structure, employee welfare, and social responsibility. Because some of these objectives might conflict with one another, the manager must establish priorities. Which objectives are most important? Which are least important? Arranging objectives in a hierarchy according to their priority can help the small business manager resolve conflicts when they arise.

Well written objectives have the following characteristics.

They are S M A R T

S-pecific,

M-easurable,

A-chievable,

R-ealistic, and

T-imely.

Formulate Strategic Options and select the appropriate strategies.

By now, the small business owner should have a clear picture of what their business does best and what its competitive advantages are. Similarly, they should know their firm's weaknesses and limitations as well as those of its competitors. The next step is to evaluate strategic options and then prepare a game plan designed to accomplish the business's objectives.

A strategy is a road map of the actions the owner develops to achieve the firm's mission, goals, and objectives. In other words, the mission, goals, and objectives spell out the ends, and the strategy defines the means for reaching them. Strategy is the master plan that covers all of the major parts of the organization and ties them together into a unified whole.

Obviously, the number of strategies from which the small business owner can choose is infinite. When all the glitter is stripped away, however, three broad-based, generic strategies remain.

1. cost leadership

2. differentiation

3. focus

Cost leadership. Although most companies today claim that customer service and satisfaction are their first priority, a recent survey indicates otherwise. Nearly 75 percent of the respondents said that "the only way to survive is on price competition." These companies are prime candidates for a cost leadership strategy.

There are many ways to build a low-cost strategy, but the most successful cost leaders know where they have cost advantages over their competitors, and they use these as the foundation for their strategies.

Differentiation. A company following a differentiation strategy seeks to build customer loyalty by positioning its goods or service in a unique or different fashion. In other words, the firm strives to be better than its competitors at something that customers value. There are many ways to create a differentiation strategy, but the key concept is to be special at something that is important to the customer If a small company can either improve the product's (or service's) performance, reduce the customer's cost and risk of purchasing it, or both, it has the potential to differentiate.

Focus. A focus strategy recognizes that not all markets are homogeneous. In fact, within any given market, there are many different customer segments, each having different needs, wants, and characteristics. The primary idea of this strategy, is to select one (or more) segment(s), identify, customers' special needs, wants, and interests, and approach them with a good or service designed to excel in meeting these needs, wants, and interests. Focus strategies build on differences among market segments.

Translate Strategic Plans into Action Plans.

No strategic plan is complete until it is put into action. The small business manager must convert strategic plans into operating plans that guide the company on a daily basis and become a visible, active part of the business. The small business does not benefit from a strategic plan sitting on a shelf collecting dust.

Establish Accurate Controls.

Controlling projects and keeping them on schedule means the owner must identify and track performance indicators.

The source of these indicators is the operating data from the company’s normal business activity:

  • accounting,

  • production,

  • sales,

  • inventory,

  • and other operating records are primary sources of data.

As conditions change, the manager must make corrections in performances, policies, strategies, and objectives to get performance back on track. A practical control system is also economical to operate.

Most small businesses have no need for a sophisticated, expensive control system.

The system should be so practical that it becomes a natural part of the management process.


Conclusion


Planning for profit is generally more useful than hoping for profit. With a little planning you can sometimes make your own luck.

Planning can include what you are going to do for the next minute, hour, day, week month or year and beyond.

Strategic Planning is the formal process of defining what you or your organization would like to be then devising a way to get there.

The plan will vary for each business but the process is the same.

In order for a plan to be successful it is important for the people that are going to carry out the action plans understand the mission statement. They must know the goals of the organization and on what criteria success is going to be evaluated. Commitment to the process is significantly improved if those carrying out the action plans are involved in the planning process.

A strategic plan allows an organization to focus on what they want to achieve. It reduces the risk of allocating resources to areas that do not fit with the mission statement and the goals of the organization.


The Alice Syndrome

alice1.gif (3355 bytes) blank2.gif (827 bytes) Before small business owners can build a comprehensive set of strategies, they must first establish business goals and objectives, which give them targets to aim for and provide a basis for evaluating company performance.

Without them, the owner cannot know where the business is going or how well it is performing.

alice2.gif (2508 bytes) blank2.gif (827 bytes)

 

The following conversation between Alice and the Cheshire Cat, taken from Lewis Carol's Alice In Wonderland, illustrates the point.

"Would you tell me please, which way I ought to go from here?" asked Alice. "That depends a good deal on where you want to get to," said the Cat. "I don't much care where . . . ," said Alice. "Then it doesn't matter which way you go," said the Cat.


 

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