Strategic Planning for Small Business Chapter 6 PDF

CHAPTER 6 Strategic Planning for Small Business S T R AT E G I C P L A N N I N G F O R S M A L L BUSINESS The concept, called strategic planning, is borrowed from the military and has found useful applications in large corporate enterprise. Its relevance to small business, however, has...

CHAPTER 6 Strategic Planning for Small Business S T R AT E G I C P L A N N I N G F O R S M A L L BUSINESS The concept, called strategic planning, is borrowed from the military and has found useful applications in large corporate enterprise. Its relevance to small business, however, has also been recognized. W H AT I S S T R AT E G I C PLANNING? Strategic planning refers to the process of determining the primary objectives of the entrepreneurship and then adopting courses of action and allocating resources to achieve those objectives. The definition involves three distinct steps: 1. Determination of objectives, 2. adoption of course of action, and 3. allocation of resources. T H E D E T E R M I N AT I O N O F OBJECTIVES The objectives of the firm are important components of the firm’s strategic planning activities but before these are determined, the firm’s mission statement must first be developed. The Mission Statement This term refers to the basic description of the fundamental nature, rationale, and direction of the firm. It consists of three concerns. 1. how the entrepreneur intends to use his resources; 2. how the entrepreneurs expects to relate to the ever-changing environment; and 3.the kinds of values the entrepreneur intends to offer to his customers.  Strategic Objectives This term refers to specific performance targets that the entrepreneurship hopes to accomplish. The objectives define, in specific terms, how the firm’s mission will be realized. ADOPTION OF COURSE OF ACTION After the primary (or strategic) objectives are established, the entrepreneur must develop a strategy which is alternately called course of action. In developing realistic strategies, the entrepreneur can make use of the most popular tools. These are the following: 1. SWOT analysis, and 2. forecasts of future sales performance.  SWOT Analysis The firm which is fully aware of its internal environment (specifically its strengths and weaknesses) as well as its external environment (specifically threats and opportunities) is most likely to develop a strategy that considers the firm’s needs. The firm’s STRENGTH refers to a skill, a competence, a valuable organizational resource or competitive capability, or an achievement that gives the firm a market advantage.  The firm’s WEAKNESS refers to something a company lacks or does poorly (compared with others) or a condition that puts it at a disadvantage. OPPORTUNITY refers to the chance offered by the external environment to improve the firm’s situation significantly. THREATS refer to a challenge posed by an unfavorable trend or development in the external environment that would lead to, in the absence of purposeful entrepreneurial action, the erosion of the entrepreneurship’s position.  Forecasts of Future Sales Performance Forecasts are supplementary tools for SWOT analysis. It is an estimate prediction of the future sales or income of the firm. I M P L E M E N T I N G S T R AT E G I C PLANS Strategies are useless unless they are implemented. To put strategies into action, the following activities are required: 1. identifying the specific methods to be used; and 2. deploying the resources needed to implement the intended plans.  Identifying Specific Methods Strategies determine the best way to use resources. There is a need, however, to develop tactics which will be used to implement the strategies. Deploying the Resources the specific aim of planning is to be able to deploy the right quality and quantity of resources in the various activities required to achieved the objectives. F U N D A M E N TA L S T R AT E G I E S F O R S M A L L B U S I N E SS There are certain basic strategies that are necessary for the survival of small business. These are the following: 1. the flexibility strategy; 2. the strategy of effectiveness as priority; and 3. the strategy of starting simple.  The Flexibility Strategy Small business ventures are not usually afforded the advantages enjoyed by large business. It is very difficult for small business to effect changes in its environment because its resources are usually limited. The Strategy of Effectiveness as a Higher Priority Effectiveness is sometimes sacrificed for the sake of efficiency. Although efficiency is a desirable goal, it is oftentimes disastrous for small business to neglect effectivenss.  Start Simple In starting a new business venture, the entrepreneur often encounters problems related to financing. The temptation is great for the entrepreneur to finance all the activities required in operating the venture. S T R AT E G Y C O N C E R N S O F S M A L L BUSINESS In determining what strategy to adapt, the entrepreneur is confronted with two general situations: 1. Is he organizing a new business, or 2. Is he currently running an old business?  New Business This term refers to one that will be operated for the first time by the small business operator. If so, his options consist of the following: 1. acquiring an existing business; 2. organizing a new business; and 3. buying a franchise.  Strategies for a Going Concern The strategic problems of small business are not as intense as those large business. Any or all of the following strategies are applicable to small business: 1. Segment markets – The small business operator will have to identify the market segment with which it has an expertise, then compete.  2. Efficient use of research and development – Since the small business cannot fight the research and development efforts of big companies, it must concentrate its R and D efforts to lowering process costs or to bring new products to the market. 3. Think small – The small business can still be strong with being small. The emphasis must be on profits rather than sales growth, and specialization rather than diversification. WHY SMALL BUSINESS O P E R AT O R S I G N O R E S T R AT E G I C P L A N N I N G ? Important as it is, strategic planning in small business management is often ignored. This situation is true in many parts of the world including Philippines. The reasons could be any of the following: 1. Lack of expertise – Few small business operators are trained in strategic planning. 2. Inability to get started – Even if small business operators are convinced about the importance of planning, they fail to get started for lack of sufficient exposure to planning activities.  3. Uncontrollable, often intangible variables – The uncontrollable and often in tangible variables complicate planning which later on discourages the small business operator from repeating the exercise. 4. Resource poverty – Planning requires time, but the small business operator oftentimes does not have it 5. Focus on daily operations – The daily requirements of small business usually keep the small business operator so busy that he is left with no time for planning.  6. Failure to realize the importance of strategic planning – The small business operator is exposed to the environment of successful Filipino businessmen who do not engage in strategic planning.