Strategic Planning for Small Businesses PDF

Study Guide in Entrepreneurship Chapter 5 CHAPTER 5 STRATEGIC PLANNING FOR SMALL BUSINESS OVERVIEW It is unfortunate that several Small to Medium Enterprises (SME...

Study Guide in Entrepreneurship Chapter 5 CHAPTER 5 STRATEGIC PLANNING FOR SMALL BUSINESS OVERVIEW It is unfortunate that several Small to Medium Enterprises (SMEs) in many parts of the world including the Philippines are still unable to execute proper strategic plan in their business. This can be attributed with the lack of awareness and knowledge about strategic planning and the significant role it plays in businesses. Thus, this module will focus on discussing the concept and importance of Strategic Planning in entrepreneurship, specifically for small businesses. Because strategies are useless unless they are implemented, this module will also discuss the proper implementation of strategic plans and the fundamental strategies that small businesses can adapt. Finally, this module will also examine the common reasons why despite its importance, many small business operators still ignore and fails to incorporate strategic planning in their business management. LEARNING OBJECTIVES At the end of this module, students should be able to do the following: 1. Define what Strategic Planning is 2. Explain the proper implementation of strategic plans 3. Enumerate and explain the different fundamental strategies for small business 4. Examine why small business operators often neglect strategic planning LEARNING CONTENTS (What is Strategic Planning?) Small businesses, compared to established and large businesses, are at a higher risk for business failures. As such, it is important that entrepreneurs who manage start-up or small business are knowledgeable about strategic planning. Strategic Planning refers to the process of determining the primary objectives of entrepreneurship and then adopting courses of action and allocating resources to achieve those objectives. As stated in the definition, strategic planning involves three distinct steps illustrated below: Determination of objectives Adoption of Course of Action Allocation of Resources Figure 1: The Steps in Strategic Planning PANGASINAN STATE UNIVERSITY Study Guide in Entrepreneurship Chapter 5 I. Determination of ObjectivesCTIVITY 1 Strategic Planning begins with a restatement of the mission of the venture, as well as, determination of its strategic objectives. Mission statement –the mission statement refers to the basic description of the fundamental nature, rationale and direction of the business. It should reflect the long-term vision of the entrepreneur, including how he/she intends to use the resources and relate to the ever changing environments. It must also include the kinds of values that the entrepreneur intends to offer to his customers. On the other hand, Strategic Objectives refer to specific performance targets that the entrepreneurship hopes to accomplish. II. Adoption of Course of Actions After the strategic objectives are established, the entrepreneur must develop a strategy which is alternately called course of action. A course of action is a carefully designed plan which indicates how the entrepreneur will attempt to accomplish the goals and objectives while taking into account the resources available. In developing realistic strategies, the entrepreneur can make use of the most popular tools, namely SWOT Analysis and Forecasts of Future Sales Performance. 1. SWOT Analysis - It is an organized method of assessing the firm’s internal environment (strengths and weaknesses) and the opportunities and threats in the external environment that confront or will confront the firm. Strength- refers to a valuable organizational resource or competitive capability that gives the business a market advantage. Weakness -refers to something a company lacks or does poorly (compared with others). 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 led to, in the absence of purposeful entrepreneurial action, the erosion of the entrepreneurship position. Figure 2: SWOT Analysis PANGASINAN STATE UNIVERSITY Study Guide in Entrepreneurship Chapter 5 2. Forecasts of Future Sales Performance -Forecasts are supplementary tools for SWOT analysis. -Sales Forecast refers to an estimate or prediction of the future sales or income of the firm. It can be determined through a combination of statistical and intuitive forecasts tempered by the experience of entrepreneur. It may be short term forecast (one year or less), medium –term (one to five years), and long-term (over five years). LEARNING CONTENTS (Implementing Strategic Plans) Strategies are useless unless they are implemented. To put strategies into action, the following activities are required: Identifying the specific methods to be used Deploying the resources needed to implement the intended plans 1. Identifying the specific methods to be used - If the strategy is to “establish branches in strategic locations”, therefore the tactical plan to implement it may appear as follows: Identify strategic locations, determine the potentials of the identified locations, and set a timetable for installing the branches. 2. Deploying the resources needed to implement the intended plans -The specific aim of planning is to be able to deploy the right quality and quantity of resources in the various activities required to achieve the objectives. The resources would be indicated in terms of human and nonhuman elements. LEARNING CONTENTS (Fundamental Strategies for Small Business) Even if small businesses cannot directly compete with big businesses because of its size and amount of resources, small businesses possessed advantages in some areas. One of the most common is that small businesses are easier to manage and its strategic problems are not as intense as those of large businesses. Before determining what strategy to adapt, entrepreneurs are first confronted with two general strategy situations: 1. Is the entrepreneur organizing a New Business? 2. Is the entrepreneur running an Old Business? PANGASINAN STATE UNIVERSITY Study Guide in Entrepreneurship Chapter 5 A New Business is defined as the business that will be operated for the first time by the entrepreneur. If the entrepreneur plans to organize a new business, then his/her options will consist of the following: Acquiring an existing business, Organizing a new business, and Buying a franchise. On the other hand, when the entrepreneur runs an old business, he/she can either compete with small business or large business. The entrepreneur can choose any or all of the following basic strategies: FUNDAMENTAL STRATEGIES FOR SMALL BUSINESS 1. Segment Market (The flexibility strategy) - the small business operator will have to identify the market segment with which it has an expertise, and then compete. 2. Efficient use or research and development (The strategy of effectiveness as priority) - 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 strategy of starting simple) - 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. LEARNING CONTENTS (Why Small Business Operators Ignore Strategic Planning) Despite its importance, strategic planning in small business management is often ignored. This situation is true in several parts of the world including the Philippines. Overall, there are 6 reasons that could explain why small business operators ignore strategic planning in their business management: 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 intangible variables complicate planning and later on discourage the small business operator from repeating the exercise. 4. Resource Poverty - Planning requires time but the small business operator oftentimes does not have it. This is because he must attend to the problems related to lack of adequate capital, managerial experience, outside advice, management specialist, and other key assets. 5. Focus on daily operations - The daily requirements of small business usually keep the small business operator busy that he is left with no time for planning. PANGASINAN STATE UNIVERSITY Study Guide in Entrepreneurship Chapter 5 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. This gives sufficient reason to disregard the benefits of strategic planning. It is ironic that even if studies show the usefulness of strategic planning this activity is not fully appreciated. LEARNING ACTIVITY 1 Identification. Write the answer on the space provided. _____________1. It is one of the fundamental strategies that can be used by small business, wherein the entrepreneur will have to identify the market segment with which it has an expertise, and then compete. _____________2. It refers to an estimate or prediction of the future sales or income of the firm. _____________3. It refers to the chance offered by the external environment to improve the firm’s situation significantly. _____________4. It is defined as the process of determining the primary objectives of entrepreneurship and then adopting courses of action and allocating resources to achieve those objectives. _____________5. It is defined as the business that will be operated for the first time by the entrepreneur. LEARNING ACTIVITY 2 ESSAY 1. Aside from the reasons enumerated in this module, can you think of other plausible explanation why small business operators ignore strategic planning in their business management? 2. Assume that you own a small business, will you include strategic planning in your business management? Why or why not? SUMMARY This module focused on the concept of Strategic Planning for small businesses. As it is defined, strategic planning includes three steps beginning from determining the objectives, choosing a course of action, to allocation of resources. Overall, small business operators may choose any or all of the following strategies for small businesses: The Flexibility Strategy, The Strategy of Effectiveness as Priority, and The Strategy of Starting Simple. Although studies have already proven the advantages and importance of strategic planning in business management, small business operators still fail to put it in practice. This can be explain by the following reasons: lack of expertise, inability to get started, Uncontrollable often intangible variables, resource poverty, focus on daily operations, and failure to realize the importance of strategic planning. PANGASINAN STATE UNIVERSITY Study Guide in Entrepreneurship Chapter 5 REFERENCES Essentials of Entrepreneurship. 3G Elearning FZ LLC, 2016. Hisrich, R. & Peters, M. (1999). Entrepreneurship. Fourth Edition. Irwin/Mcgraw-Hill. Medina, R. (2010). Entrepreneurship and Small Business Management (2 nd ed). Manila: Rex Bookstore Naffziger, D.W.(1999). Strategic Planning in Small Businesses: Process and Content Realities. Retrieved from: https://www.researchgate.net/publication/240621107_Strategic_Planning_in_Small_Busines ses_Process_and_Content_Realities PANGASINAN STATE UNIVERSITY