The Importance of Strategy Development for the The Importance of Strategy Development for the Small BusinessSmall Business

Presented by:Presented by:

Brian J. Walters, MBA, CBABrian J. Walters, MBA, CBA

The Akron Small Business Development Center at the The Akron Small Business Development Center at the Summit-Medina Business AllianceSummit-Medina Business Alliance

DiscussionDiscussionWhat is Strategy?What is Strategy?

• What does it mean for a business, What does it mean for a business, large or small?large or small?

• Why is strategy formulation Why is strategy formulation important?important?

• ““Strategy is coping with Strategy is coping with competition.” Michael Porter, 1979.competition.” Michael Porter, 1979.

What Comprises Strategy?What Comprises Strategy?

• Substantial Resource CommitmentsSubstantial Resource Commitments

• Cross-functional ImplicationsCross-functional Implications

• Long-Term EffectsLong-Term Effects

• Enterprise-Level ThinkingEnterprise-Level Thinking

What are the Firm’s GoalsWhat are the Firm’s Goals

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

• Strategic Goals- non-financial goalsStrategic Goals- non-financial goals

Types of ObjectivesTypes of Objectives

• Financial Financial Objectives- Objectives- objectives that objectives that improve a firm’s improve a firm’s financial financial performanceperformance

• Strategic Strategic Objectives- Objectives- outcomes that outcomes that strengthen a firm’s strengthen a firm’s competitiveness competitiveness and long-term and long-term market positionmarket position

Financial and Strategic Financial and Strategic ObjectivesObjectivesExamplesExamples• Financial ObjectivesFinancial Objectives

– Revenue Growth of 10% Revenue Growth of 10% per yearper year

– Increase Earnings by Increase Earnings by 15% per year15% per year

– Increase Earnings per Increase Earnings per Share (EPS) by 5% per Share (EPS) by 5% per yearyear

– Increase Net Profit Increase Net Profit margins from 2%-6%margins from 2%-6%

• Strategic ObjectivesStrategic Objectives– Increase market ShareIncrease market Share– Quicker design-to- Quicker design-to-

market times than market times than rivalsrivals

– Higher product quality Higher product quality than rivalsthan rivals

– Lower costs relative to Lower costs relative to key competitorskey competitors

– Better and faster Better and faster innovationsinnovations

How do you plan to achieve How do you plan to achieve goals?goals?

• Means to achieve goals:Means to achieve goals:

• Internal Analysis (SWOT)Internal Analysis (SWOT)– Resource AllocationsResource Allocations

• External AnalysisExternal Analysis– Industry StructureIndustry Structure

Strategy is…..Strategy is…..

• Making ChoicesMaking Choices

– GoalsGoals– Means to achieve goalsMeans to achieve goals– Resource AllocationResource Allocation

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

Industry Attractiveness- What industries should we be in?

Corporate Strategy

Competitive Positioning-How should we compete?

Business Strategy

Operational Effectiveness vs. Operational Effectiveness vs. StrategyStrategy

• Operational Effectiveness - Operational Effectiveness - Performing similar activities better Performing similar activities better than rivals (Efficiency)than rivals (Efficiency)

• Strategy – Perform similar activities Strategy – Perform similar activities differently or perform different differently or perform different activities (Positioning)activities (Positioning)

• Operational Effectiveness is NOT Operational Effectiveness is NOT Strategic PositioningStrategic Positioning

Strategy consists of:Strategy consists of:

• Creating a unique, valuable, and Creating a unique, valuable, and defensible offer, which addresses a defensible offer, which addresses a significant target market (Positioning)significant target market (Positioning)– Unique: Differentiated from competitors’ Unique: Differentiated from competitors’

product/serviceproduct/service– Valuable: Addresses a clear customer Valuable: Addresses a clear customer

needneed– Defensible: Sustainable by fit/alignmentDefensible: Sustainable by fit/alignment

Objective of All Strategy Objective of All Strategy Making Is…Making Is…

• Gain and/or Sustain Competitive Gain and/or Sustain Competitive AdvantageAdvantage

• Competitive Advantage consists in Competitive Advantage consists in delivering value to the customerdelivering value to the customer– At a price lower than the competitionAt a price lower than the competition– Superior value at a higher priceSuperior value at a higher price

Strategic ManagementStrategic Management

• Is crucial to building a successful Is crucial to building a successful business.business.

• Involves developing a plan to guide a Involves developing a plan to guide a company as it strives to accomplish company as it strives to accomplish its goals and mission, and to keep it its goals and mission, and to keep it on its desired course.on its desired course.

Strategic Management and Strategic Management and Competitive EdgeCompetitive Edge

• Developing a strategic plan is critical Developing a strategic plan is critical to creating the to creating the competitive competitive advantage, advantage, the aggravation of the aggravation of factors that sets a company apart factors that sets a company apart from its competitors and gives it a from its competitors and gives it a unique position in the market. unique position in the market.

Key: Core CompetenciesKey: Core Competencies

• A unique set of abilities a company A unique set of abilities a company develops in key areas, such as superior develops in key areas, such as superior quality, customer service, innovation, quality, customer service, innovation, team-building, flexibility, team-building, flexibility, responsiveness, and others that allow it responsiveness, and others that allow it to vault past competitors.to vault past competitors.– They are what a company does best.They are what a company does best.– Best to rely on a natural advantage (often Best to rely on a natural advantage (often

linked to a company’s “linked to a company’s “smallnesssmallness”). ”).

Strategic Management Strategic Management Process Process • Step 1: Develop a vision and translate Step 1: Develop a vision and translate

it into a mission statement.it into a mission statement.

• Step 2: Assess strengths and Step 2: Assess strengths and weaknesses.weaknesses.

• Step 3: Scan the environment for Step 3: Scan the environment for opportunities (internal) and threats opportunities (internal) and threats (external).(external).

• Step 4: Identify key success factors.Step 4: Identify key success factors.

Strategic Management Strategic Management ProcessProcess

• Step 5: Analyze Competition.Step 5: Analyze Competition.

• Step 6: Create Goals and Objectives.Step 6: Create Goals and Objectives.

• Step 7: Formulate Strategies.Step 7: Formulate Strategies.

• Step 8: Translate Plans into Actions.Step 8: Translate Plans into Actions.

• Step 9: Establish Accurate Control Step 9: Establish Accurate Control Measures.Measures.

Step1: Develop a Vision and Step1: Develop a Vision and Create a Mission StatementCreate a Mission Statement

• What is a vision? An expression of What is a vision? An expression of what an entrepreneur stands for and what an entrepreneur stands for and believes in.believes in.

• A vision is based on values.A vision is based on values.

• A clearly defined vision:A clearly defined vision:– Provides directionProvides direction– Determines decisionsDetermines decisions– Motivates peopleMotivates people

Step 1: A Mission StatementStep 1: A Mission Statement

• What does a Mission Statement What does a Mission Statement Accomplish? It addresses the Accomplish? It addresses the question: “What business are we in?”question: “What business are we in?”

• It is a written expression of how the It is a written expression of how the company will reflect the owner’s company will reflect the owner’s values, beliefs, and vision.values, beliefs, and vision.

• It sets the tone for the entire company It sets the tone for the entire company and serves as a decision guide.and serves as a decision guide.

Step 2: Assess Company Step 2: Assess Company Strengths and WeaknessesStrengths and Weaknesses

• Strengths: Positive Strengths: Positive internal internal factors factors that contribute to accomplishing the that contribute to accomplishing the mission, goals, and objectives.mission, goals, and objectives.

• Weaknesses: Negative internal Weaknesses: Negative internal factors that inhibit the achievement factors that inhibit the achievement of the mission, goals, and objectives.of the mission, goals, and objectives.

Step 3: Scan for Opportunities Step 3: Scan for Opportunities and Threatsand Threats

• Opportunities: Positive Opportunities: Positive external external options the company can employ to options the company can employ to accomplish its mission, goals, and accomplish its mission, goals, and objectives.objectives.

• Threats: negative external forces Threats: negative external forces that inhibit the firm’s ability to that inhibit the firm’s ability to achieve its mission, goals, and achieve its mission, goals, and objectives.objectives.

External Market ForcesExternal Market Forces

External Market ForcesExternal Market Forces

• Include:Include:– TechnologicalTechnological– EconomicEconomic– Social and DemographicSocial and Demographic– Political and RegulatoryPolitical and Regulatory– CompetitiveCompetitive

Step 4: Identify Key Success Step 4: Identify Key Success FactorsFactors

• Key Success Factors are:Key Success Factors are:– Relationships between a controllable Relationships between a controllable

variable and a critical factor that variable and a critical factor that influence a company’s ability to influence a company’s ability to compete in the market.compete in the market.

– They are the keys to unlocking the They are the keys to unlocking the secrets of successfully competing in a secrets of successfully competing in a particular market segment.particular market segment.

Step 5: Analyze CompetitorsStep 5: Analyze Competitors

• Analyzing key competitors allows a firm Analyzing key competitors allows a firm to:to:– Avoid surprises from existing competitors’ Avoid surprises from existing competitors’

new strategies and products.new strategies and products.– Identify potential new competitors and the Identify potential new competitors and the

threats they pose.threats they pose.– Improve reaction time to competitors’ Improve reaction time to competitors’

actions.actions.– Anticipate rivals’ next strategic moves.Anticipate rivals’ next strategic moves.

Step 5: Analyze CompetitorsStep 5: Analyze Competitors

• How can this be done?How can this be done?– Monitor trade and industry publications.Monitor trade and industry publications.– Talk to customers and suppliers.Talk to customers and suppliers.– Listen to employees, especially sales Listen to employees, especially sales

reps. and purchasing agents.reps. and purchasing agents.– Attend trade shows and conferences.Attend trade shows and conferences.

Step 5: Analyze CompetitorsStep 5: Analyze Competitors

– Monitor competitors’ employment ads.Monitor competitors’ employment ads.– Conduct searches for patents and Conduct searches for patents and

trademarks filed by competitors.trademarks filed by competitors.– Search databases for types of materials and Search databases for types of materials and

equipment that competitors are importing.equipment that competitors are importing.– Study competitors’ literature and Study competitors’ literature and

benchmark their products and services.benchmark their products and services.– Visit competing businesses to observe their Visit competing businesses to observe their

operations.operations.

Knowledge ManagementKnowledge Management

• The process of gathering, organizing, The process of gathering, organizing, and disseminating the collective and disseminating the collective wisdom and experience of a company’s wisdom and experience of a company’s employees for the purpose of employees for the purpose of strengthening its competitive position.strengthening its competitive position.

• Knowledge management involves:Knowledge management involves:– Taking inventory of the special knowledge the Taking inventory of the special knowledge the

people in the firm possess.people in the firm possess.– Organizing and disseminating the knowledge.Organizing and disseminating the knowledge.

Step 6: Create Company Goals Step 6: Create Company Goals and Objectivesand Objectives

• What are goals? Broad, long-range What are goals? Broad, long-range attributes to be accomplished.attributes to be accomplished.

• What are Objectives? Detailed specific What are Objectives? Detailed specific targets that are designed to be:targets that are designed to be:– SpecificSpecific– MeasurableMeasurable– AssignableAssignable– Realistic (yet challenging)Realistic (yet challenging)– TimelyTimely

Step 7: Formulate StrategiesStep 7: Formulate Strategies

• A strategy is:A strategy is:– A map that guides a company through a A map that guides a company through a

dynamic environment as it seeks to dynamic environment as it seeks to accomplish its mission, goals, and accomplish its mission, goals, and objectives.objectives.

– Focused on the key success factors Focused on the key success factors identified in Step 4.identified in Step 4.• Mission, goals, and objectives = EndsMission, goals, and objectives = Ends

• Strategy = MeansStrategy = Means

StrategyStrategy

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

Step 7: Formulate StrategiesStep 7: Formulate Strategies

• Three basic strategies:Three basic strategies:– Cost Leadership – Examples?Cost Leadership – Examples?– Differentiation – Examples?Differentiation – Examples?– Focus – Examples?Focus – Examples?

Cost LeadershipCost Leadership

• Goal: to be Goal: to be thethe low-cost producer in the low-cost producer in the industry or market sector.industry or market sector.

• Advantages: reaching buyers who buy Advantages: reaching buyers who buy on the basis of price.on the basis of price.

• Works well when:Works well when:– Buyers are sensitive to price changeBuyers are sensitive to price change– Competing firms sell the same Competing firms sell the same commodity commodity

productsproducts– A company can benefit from economies of scaleA company can benefit from economies of scale

DifferentiationDifferentiation

• A company seeks to build customer A company seeks to build customer loyalty by positioning its product or loyalty by positioning its product or services in a unique or different manner.services in a unique or different manner.

• Idea is to be unique at something Idea is to be unique at something customers value.customers value.

• KEY: build basis for differentiation on KEY: build basis for differentiation on core competencies, what the firm is core competencies, what the firm is uniquely good at performing.uniquely good at performing.

FocusFocus

• A company selects one or more A company selects one or more customer segments in a market, customer segments in a market, identifies specific customer needs, identifies specific customer needs, wants, or desires, and then targets wants, or desires, and then targets them with a service designed them with a service designed specifically for them.specifically for them.

• Strategy builds on Strategy builds on differences differences among among market segments.market segments.

FocusFocus

• Rather than attempt to serve the Rather than attempt to serve the total market, the company focuses total market, the company focuses on serving a niche within that on serving a niche within that market.market.

• Examples: Craft Beer, Specialty Examples: Craft Beer, Specialty Cheeses Cheeses

Step 8: Strategies into Action Step 8: Strategies into Action PlansPlans

• Create projects by defining:Create projects by defining:– PurposePurpose– ScopeScope– ContributionContribution– Resource Resource – TimingTiming

Step 9: Establish Accurate Step 9: Establish Accurate ControlsControls

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

• The business owner must:The business owner must:– Identify and track performance Identify and track performance

indicators.indicators.– Take corrective action.Take corrective action.

Discussion Discussion

• How will these ideas apply to your How will these ideas apply to your clients?clients?