small business management mgmt5601 topic 4: planning and ... · • prepare a strategic plan for a...

©Mazzarol 2017 all rights reserved

Small Business Management MGMT5601

Topic 4: Planning and Strategy in Small FirmsProfessor Tim Mazzarol – UWA Business School

UWA Business School MBA Program [email protected] MGMT5601



• Prepare a strategic plan for a small business

• Understand the role of planning in the small business

• Recognize the importance of strategic focus and direction

• Understand the process required to undertake an industry and competitor analysis

• Conduct a SWOT analysis• Determine the competitive positioning

best adopted by a small firm

Learning outcomes


In this topic you should learn how to:


The importance of planning

• If you fail to plan you are planning to fail! Benjamin Franklin

• Having a formal business plan is not essential to small business success…

• But• Owner-managers that have one

are more likely to succeed than those who don’t.


Small Business Case Eden Organix



Discussion

Small Business Planning and Strategy Video

• What were the key considerations identified in starting up a new business?

• What was their approach to business planning?

• How did these successful business owners manage their finances?

• What was their approach to marketing and creating customers?


Lack of strategic thinking

• Small business owners suffer from Strategic Myopia

• Short NOT long term vision• Most owners do not plan

because they:– lack the time to do this.– lack the knowledge & skills

to develop a plan.– are unwilling to share ideas

& strategies.


Strategic orientation of small firms

Source: Borch & Huse, 1993

Managerial• Market oriented• Seeks competitive positioning

Technological• Seeks a competitive advantage

via new product or technology application

Traditional• Risk averse• Avoids growth or major shifts in

strategy

Impoverished• Lacks coherent strategy• Reactive to market pressures


Three “Generic” strategic options

Growth

• FOCUS:• Market opportunity• Innovation• Profitability

• NEEDS:• Visionary leadership• Strategic thinking

Exit

• FOCUS:• Preparation for sale• Succession planning• Wealth creation

• NEEDS:• Operational management

Stasis• FOCUS:

• Consolidation & Efficiency• Low stress & Profitability

• NEEDS:• Operational management

Source: Mazzarol & Reboud (2009)


The value of planning

• Few SME have formal plans.

• Lack of formal planning has been linked to failure.

• Debate continues over the link between formal planning and success.

• Formal planning does appear to be linked to– enhanced start up survival.– enhanced growth performance.


The value of planning in entrepreneurial ventures

• Value of Planning (49 empirical studies)– Small firms gain benefits from planning– Specific nature of this remains unclear– Entrepreneur remains the key

element • Past management

experience• Education• Entrepreneurial orientation

– Most entrepreneurs don’t formally plan

• Formality not linked to performance

• More support for sophisticated planning

• Used by entrepreneurs to mitigate risk

Source: Mazzarol & Reboud (2009)


What does research tell us about the value of planning?

©Mazzarol 2017 all rights reservedSource: Brinckmann, Grichnik & Kapsa (2010)

A review of 46 quantitative research studies found:

• Both young and established firms benefit from planning.

• Planning is of more value to small business owners.

• In uncertain environments basic planning is a better option.

• Focus on “contingency plans” and the control of resources.

• Planning works best in situations where quality and quantity of information is high.

• More formal and sophisticated planning significantly improves performance.


Major types of business plans


Application for Finance

• Bank Financing• Collateral• Capacity to repay • Character

• Venture Capital• Team structure• Market opportunity• Product innovation• Return on investment• Payback period

Plans for Customers &

Suppliers• Customers

• Reliability of supply• Quality of product• Pricing • Innovation

• Suppliers• Market share growth• Maintenance of

reputation• Loyalty of relationship

Plans for Internal Use

• What is the vision?• What is the mission?• What are the

values?• What are the critical

assets?• What are the KPIs?• When is the

deadline?• Who is responsible?


The “Do’s” and “Don’ts” of business plans


DO’s• A plan must be simple• A plan must be accurate• A plan must be useful

Don’ts

• Plans cannot save management from decision making• Plans should not be rigid or inflexible • Plans are only as good as the people who carry them

out


Small business planning for dummies



Outline of a business plan

1. Executive Summary• Key issues• Distinctive competencies

2. Market Analysis• Industry & outlook• Target markets• Market research • Lead times for orders• Competition• Regulatory requirements

3. Company Description• Nature of the business• Distinctive competencies

4. Marketing & Sales Activities• Overall marketing strategy• Sales strategy

Products & Services• Description of products/services• Product life-cycle• Copyrights, patents, trade marks, trade secrets

• R&D activity

Operations• Production & service delivery process

• Production & service delivery capability

• Operating competitive advantages• Suppliers

Management & Ownership• Staff structure• Key managers• Plans for new hires to management• Legal structure of business• Owners• Board of directors

Funds Required & Application• Current funding requirements• Funding required over next 5 years• Use of funds• Long-range financial strategies

Financial Data• Historical financial data (3 to 5 years)• Future forecasts next 3 to 5 years• Analysis of financial data (e.g. ratios & trends)

Appendices• Resumes of key managers• Photos of products• Professional references• Market studies• Patent disclosures• Insurances

Source: Ernst & Young (2001)


Blueprint for a business plan


Time Frame

When will you complete this prototype? Where will you be? How will you be in the business?

Organizational Design

Organize around functions NOT people. Prepare an organization chart for the ‘blueprint’ structure.

Prototype the positions and ‘replace yourself’ with a system.

Financials & Customers

Who is my customer? What is my value proposition to my customer?

What values does our business work by?

How much income is needed to make this worthwhile?

Focus & DirectionWhat is the business of this

business?What should this business be

like in 5 years time?What will my role in the

business be in 5 years time?What standards will be

needed for its operation?


How to approach an industry analysis


Analyze the current industry structure

• Existing competitors in the industry – (strategy, structure, rivalry)

• Potential for new entrants in next 3-5 years

• Possible substitutes (emerging technologies)

• The bargaining power of customers

• The bargaining power of suppliers

• What are the “Rules of the Game”?

Analyze historical changes in the industry structure

• PEST Analysis:• Political factors (e.g.

government regulation or taxation)

• Economic factors (e.g. business cycle forecasts)

• Social factors (e.g. consumer tastes, public opinion)

• Technological (e.g. disruptive innovations)

Analyze future trends in the industry structure

• Define the scope – what are the boundaries of your “industry”

• Identify key stakeholders (e.g. competitors, customers, suppliers, third party actors)

• Identify key trends (e.g. PEST)

• Identify key uncertainties (risk assessment)

• Develop initial scenarios (best case, worse case)

• Assess plausibility of each scenario

• Develop learning scenarios (case studies)

• Indentify knowledge gaps• Develop quantitative models

(business case analysis)• Evolve decision scenarios

(what should we do?)

Source: Lewis, 1999


Competitor analysis


Current Strategy

How is the competitor currently

competing within the market?

Capabilities

What are the competitor’s key strengths

and weaknesses?

Competitor’s Response

Profile

Is the competitor satisfied with its current market

position?

What likely moves or strategy shifts will

the competitor make?

Where is the competitor vulnerable?

What will provoke the greatest and most

effective retaliation by the competitor?

Future Goals

What are the competitor’s likely future goals based on market signals?

Assumptions

What does the

competitor assume

about itself and the

industry?

What drives the competitor?What the competitor is doing and can do?


SWOT Analysis


Strengths

Internal analysis

Factors within an organisations control

Advantages over competition

Threats

External analysis

Factors largely beyond the control of people in

the organisation

Unfavourable circumstances or events

S WO T

Weaknesses

Internal analysis

Factors within an organisations control

Disadvantages over competition

Opportunities

External environment

Factors largely beyond the control of people in the organisation

Favourable circumstance of event, potential or existing

Checklist:

Strengths + WeaknessesManagementEmployeesFinanceLegalProducts and servicesPurchasingResearch and developmentDistributionMarketingFacilitiesPosition in the industry

Opportunities + ThreatsPoliticalEconomicSocialTechnical


Generic positioning strategies


Cost Leadership Differentiation

Focus Cost Leadership

Focus Differentiation

Source: Porter, 1990

Broad Target Market

NicheTarget Market

Process Innovation Product Innovation


Criteria for sustained competitive advantage


• Elements of Sustained Competitive Advantage:– How the firm competes – marketing, production, financing– Where the firm competes – location, markets, segments– The basis of competition – skills, assets, resources

• For sustained competitive advantage a firm’s resources must be:– Valuable – exploits opportunities or neutralizes threats– Rare – not available to competitors– Imperfectly imitable – difficult to copy– Without strategically equivalent substitutes

Source: Aaker, 1989; Barney, 1991


Product-Market Growth


Growth by New Product Development

Growth by Diversification

ConsolidationGrowth by

New Market Development

New Product

Existing Product

New MarketExisting Market

Source: Ansoff (1965)

RISK


Strategic planning response types


Administrator• New Product• Existing Market• Medium risk• Operational

efficiency

CEO• New Product• New Market• High risk• Strategic

transformation

Shopkeeper• Existing product• Existing market• Low risk• Fine tuning

Salesman• Existing Product• New Market• Medium risk• Market

development

Source: Mazzarol & Reboud (2009)Simple

Complex

Certain Uncertain

Structured Strategic Planning

Intuitive Strategic Planning

Structured Operational

Planning

Ad-Hoc Operational

Planning

RISK

© Mazzarol 2017 all rights reserved

Customer Value

Proposition

Distinctive Competencies

Processes

Positions

Paths

Products & Services

Dynamic Capabilities

OpportunitiesThreats

Weaknesses Strengths

• Competitive rivalry• New market entrants• Substitutions • Regulatory• Supplier power• Buyer power• Social & demographic• Environmental

• Unmet market needs• Ability to add value• Ability to reduce cost• Niche or mass-market• Product innovation • Process innovation• Market innovation

Process weaknesses:• Management • Organisation LearningPositional weaknesses:• Technical, financial &

physical assets• Systems Path weaknesses:• History, culture

• Valuable• Rare• Difficult to copy• No substitutes• Organisational abilityTypes of assets:• Tangible - Intangible• Isolating mechanismsPath

dependencies

Gaps in knowledge

& resources

Technical, financial & Physical assets

Coordination & Learning

VRIO framework

Business Model Analysis

Lean Canvas Lean Start-Up


Developing a change plan


Mar

ketin

g Products & servicesMarketsCustomersGeographic coverageDistribution ChannelsCompetitionSales organizationDistributionSuppliers Promotional Mix

Res

ourc

es N

eede

d Premises and AccessEquipmentEmployeesMaterialsTransport & LogisticsSelling StockWorking Capital RequirementsFixed Capital Investment

Man

agem

ent Operations

ManagementMarketing ManagementFinancial ManagementHR ManagementProduction SystemsICT SystemsThird Party Financing

What will be the likely impact on each of these areas of implementing your new strategy?

What is the current capacity within the business of each area and is there room for change?


Elements of a management system


Forecast

Plan

Schedule

Implement

Report

Follow-up

• Any good management system must contain a process of linking the planning to the implementation.

• Key elements include:

1. Forecast – develop a forecast of future sales and the cash flow from these sales, plus what profit can be generated from these sales?

2. Plan – prepare a business plan based on these forecasts that also considers your firm’s ability to supply the demand with its existing resources.

3. Schedule – develop a work flow system that schedules the timing of anticipated work and allocates resources. This should factor in your cash flow and expenditures over the time period.

4. Implement – action your plan and work schedule through trading keeping regular data on progress.

5. Report – generate report at frequent intervals that compare forecasts against actuals and use this to review your forecasts.


Principles of an effective management system


ManagementSystem

Transparent

Work must be related

to time

Performanceexpectations

impactproductivity

Managethe whole

by managingThe parts

Continuousimprovements

Interdependent

Measurable

Strategy StandardsReview

Daily Review

FORECASTING PLANNING

Budget

BusinessPlan

VolumeForecast

Resource Schedule HRM

System

ActualMarket

Skills Flexibility

Matrix

BacklogControl

VarianceControl

ManagementReport

DWOR

SCHEDULE &CONTROL REPORTING

REAL WORLD

FORECAST WORLD ForecastReview

WeeklyReview

ActualVolume

DPSC

Quality Controls

Quality Work Standards

FEEDBACK

MANAGEMENT SYSTEM APPLIED


Case study – Comfort Homes


• How would you profile James?• Shopkeeper• Salesman• Administrator• CEO

• If James were to prepare a strategic plan for the future of his business what key things should he consider?

End of Presentation

small business management mgmt5601 topic 4: planning and ... · • prepare a strategic plan for a...

Documents