Strategy Strategy andand Entrepreneurship Entrepreneurship

StrategyStrategy A strategy is a long term plan of action

designed to achieve a particular goal. A strategy is a long term plan for success,

to achieve an advantage. In force terms this is the key milestones and targets for the coming year.

Describes the differentiating activities an organization pursues to gain competitive advantage. Strategy remains one of the most widely discussed and debated topics in the world of modern organizations.

Strategy is concerned with deciding what business an organization should be in, where it wants to be, and how it is going to get there.

A company's overall plan of development. Corporate strategy can be more formally defined as a comprehensive plan or action orientation that identifies the critical direction and guides the allocation of resources of an entire organization. The strategy is typically a statement about what should be done to ensure prosperity based on the company's vision, values and mission. Besides a corporate strategy, each business unit of a large corporation may have its own strategic plan.

A strategy is a planned, deliberate procedure goal-oriented (has an identifiable outcome) achieved with a sequence of steps subject to monitoring and modification

The logical framework and set of coordinated decisions linking development goals with the actions required to achieve them. The proposed strategy, having economic, social, environmental, and spatial components, specifies the major problems to be alleviated and the opportunities to be realized by short- to medium-term investments in specific projects.

A plan or method including options and priorities towards the achievement of a defined goal or objective.

The objective of this chapter is to examine selected The objective of this chapter is to examine selected concepts, principles, and techniques from the concepts, principles, and techniques from the domain of strategic management and to consider domain of strategic management and to consider their implications for entrepreneurship. This their implications for entrepreneurship. This lecture will develop understanding of the:lecture will develop understanding of the:

evolving nature of strategic management theory;

implications of an entrepreneurial approach to strategic management;

organizational structure and culture issues; impact of the market and general

environment forces on strategy formulation;entrepreneurial strategies effective within

the hospitality, tourism and leisure industries.

There is now a greater understanding of how There is now a greater understanding of how significant developments and changes in significant developments and changes in direction happen within organizations. What direction happen within organizations. What follows is a consideration of three key aspects follows is a consideration of three key aspects of strategic management. These aspects are: of strategic management. These aspects are: the entrepreneur playing a catalyst role in the entrepreneur playing a catalyst role in strategy formulation and strategic strategy formulation and strategic management; organizational issues, management; organizational issues, particularly relating to the involvement and particularly relating to the involvement and motivation of employees; and the changing motivation of employees; and the changing frame of reference relative to the future and frame of reference relative to the future and its implications for the strategies employed. its implications for the strategies employed.

The traditional view of strategic management The traditional view of strategic management was that a strategy for, say, a five-year was that a strategy for, say, a five-year period, was determined within a corporate period, was determined within a corporate planning department, agreed by the Board of planning department, agreed by the Board of Directors, and then implemented. Some Directors, and then implemented. Some writers have criticized this view as being writers have criticized this view as being dysfunctional to true strategic thinking, dysfunctional to true strategic thinking, owing to its emphasis on quantitatively owing to its emphasis on quantitatively expressed fixed views of the future. expressed fixed views of the future.

According to Ansoff (1994), in best strategic According to Ansoff (1994), in best strategic management practice:management practice:

… … general managers and implementers general managers and implementers participate in developing plans, staffs play participate in developing plans, staffs play catalyst roles, the planning process is catalyst roles, the planning process is coupled with the design and management of coupled with the design and management of discontinuous organizational transformation, discontinuous organizational transformation, the planning process blends creativity and the planning process blends creativity and rational analysis, the inevitable rational analysis, the inevitable organizational resistance to change is organizational resistance to change is anticipated and managed, and the key anticipated and managed, and the key impact of the key managers’ mind set and of impact of the key managers’ mind set and of the organizational culture is anticipated.the organizational culture is anticipated.

The need for organizational transformation is The need for organizational transformation is also a major theme in contemporary strategy also a major theme in contemporary strategy literature. Central to the strategic idea has literature. Central to the strategic idea has been the need for organizations to be been the need for organizations to be adaptive and to focus on staying close to and adaptive and to focus on staying close to and responsive to the consumer. responsive to the consumer.

Table 8.1Table 8.1 Changing the frame of reference for Changing the frame of reference for strategic managementstrategic managementToday’s frame of reference A new frame of reference

Long-term future is predictable to some extent Long term future is unknowable

Visions and plans are center to strategic management Dynamic agendas of strategic issues are central to effective strategic management

Visions: single-shared organization wide invention. A picture of future state

Challenge: multiple aspirations, stretching and ambiguous. Arising out of current ill-structured and conflicting issues with long-term consequences

Strongly shared cultures Contradictory counter cultures

Cohesive teams of managers operating in state of consensus

Learning groups of managers, surfacing conflict, engaging in dialogue, publicly testing assertions

Decision making as a purely logical, analytical process Decision making as an exploratory, experimental process based on intuition and reasoning by analogy

Long-term control and development as the monitoring of progress against plan milestones. Constraints provided by rules, systems and rational arguments

Control and development in open-ended situations as a political process. Constraints provided by need to build and sustain support. Control as self policing learning

Strategy as the realization of prior intent Strategy as spontaneously emerging from the chaos of challenge and contradiction, through a process of real-time learning and politics

Top management drives and controls strategic direction Top management creates favorable conditions for complex learning and politics

General mental models and prescriptions for many specific situations

New mental models required for each new strategic situations

Adaptive equilibrium with the environment Non-equilibrium, creative interaction with the enironment

Stacey (1993) adds to the debate in Stacey (1993) adds to the debate in proposing that we revise our frame of proposing that we revise our frame of reference on how organizations actually reference on how organizations actually develop strategically. As depicted in Table develop strategically. As depicted in Table 8.1, Stacey believes that the process of 8.1, Stacey believes that the process of strategic development is shaped by the strategic development is shaped by the reality of the long-term future being reality of the long-term future being substantially unknowable. He believes that substantially unknowable. He believes that the since the future is unknowable, strategy the since the future is unknowable, strategy is best formulated when spontaneously is best formulated when spontaneously emerging from the inevitable chaos of emerging from the inevitable chaos of challenge and contradiction. This challenge and contradiction. This corresponds to Schumpeter’s (1934) theories corresponds to Schumpeter’s (1934) theories of entrepreneurship emerging from of entrepreneurship emerging from situations in disequilibrium.situations in disequilibrium.

The general theme of a complex unfolding The general theme of a complex unfolding situation depicted in Stacey’s model is one situation depicted in Stacey’s model is one with which it can be identified. However, with which it can be identified. However, there are some challenging elements. there are some challenging elements. Specifically, Stacey’s view that a vision is too Specifically, Stacey’s view that a vision is too precise and should be replaced by a precise and should be replaced by a challenge comprising multiple aspirations is challenge comprising multiple aspirations is a departing point. A vision provides a clear a departing point. A vision provides a clear view what an organization wishes to become, view what an organization wishes to become, whilst still providing room for energetic whilst still providing room for energetic debate as to the specific form which the debate as to the specific form which the vision will take and how exactly it will be vision will take and how exactly it will be achieved. The idea of individual strategic achieved. The idea of individual strategic business units with their own cultures and business units with their own cultures and aspirations is not incompatible with the idea aspirations is not incompatible with the idea of a vision to which all are, in different ways, of a vision to which all are, in different ways, committed. committed.

There are contrasting views both as to the There are contrasting views both as to the worth of strategic management and how it worth of strategic management and how it works in reality. From these contrasting works in reality. From these contrasting views, where does contemporary strategic views, where does contemporary strategic theory and practice now stand? theory and practice now stand?

In respect of the formulation of In respect of the formulation of entrepreneurial strategy within entrepreneurial strategy within organizations, key questions can be organizations, key questions can be postulated, including:postulated, including:

how can strategies be formulated so that they harness the energies and creative abilities of employees?

what conditions will ensure the effective deployment of such strategies, engendering entrepreneurial behavior?

given an unknown future, to what degree should strategy formulation be spontaneous reflexive, and evolving in nature?

can strategy realistically incorporate the multiple aspirations of individuals in the organization or should the guiding vision of the founding entrepreneur(s) dominate?

Entrepreneurs and Entrepreneurs and strategystrategy

Moore (1992) observed, relative to Moore (1992) observed, relative to corporations, that strategy formulation is not corporations, that strategy formulation is not the singular product of one person’s mind, the singular product of one person’s mind, but a continuing organizational activity. The but a continuing organizational activity. The validity of this perspective requires further validity of this perspective requires further exploration within the domain of the exploration within the domain of the entrepreneurial firm. In this context, for a entrepreneurial firm. In this context, for a small to medium-sized enterprise, the small to medium-sized enterprise, the one one personperson very often equates to the total very often equates to the total organization, or may at least dominate its organization, or may at least dominate its decision making.decision making.

Therefore, the evolving strategy may, in fact, Therefore, the evolving strategy may, in fact, primarily be a product of one person’s mind, primarily be a product of one person’s mind, albeit shaped by history, current management albeit shaped by history, current management ideologies, environmental factors, available ideologies, environmental factors, available resources, competitive domain of operation, resources, competitive domain of operation, and distinctive competencies of the business. and distinctive competencies of the business. Some entrepreneurs are capable of growing Some entrepreneurs are capable of growing along with the organization, others are not. along with the organization, others are not. An entrepreneur’s ability to develop effective An entrepreneur’s ability to develop effective strategies at different stages of the strategies at different stages of the organization’s development is crucial for organization’s development is crucial for sustained success. Alternatively, the sustained success. Alternatively, the entrepreneur needs to let go to the extent entrepreneur needs to let go to the extent necessary to involve others who have the necessary to involve others who have the ability to contribute to strategy formulation.ability to contribute to strategy formulation.

Thus, it is necessary to understand the Thus, it is necessary to understand the behavioral issues which underlie behavioral issues which underlie entrepreneurial strategy decision making. entrepreneurial strategy decision making. This requires an examination of the This requires an examination of the organizational and cultural contexts of the organizational and cultural contexts of the task environment, as well as the individual task environment, as well as the individual personal characteristics of the entrepreneur. personal characteristics of the entrepreneur. Furthermore, such an understanding needs Furthermore, such an understanding needs to recognize the interplay of personal and to recognize the interplay of personal and business objectives, and characteristic business objectives, and characteristic entrepreneurial management which often entrepreneurial management which often defy rational economic decision-making defy rational economic decision-making philosophy. philosophy.

It has already been observed that many small It has already been observed that many small business proprietors have life style, rather business proprietors have life style, rather than achievement or financial reward, than achievement or financial reward, priorities. Whilst such business operators priorities. Whilst such business operators may not be considered entrepreneurial, it may not be considered entrepreneurial, it does illustrate that the motivations of does illustrate that the motivations of entrepreneurs and intrapreneurs are not entrepreneurs and intrapreneurs are not necessarily straightforward.necessarily straightforward.

Contemporary contributions to the strategy Contemporary contributions to the strategy literature consider strategic management as literature consider strategic management as working towards developing and maintaining working towards developing and maintaining a strategic fit. This involves an effective a strategic fit. This involves an effective combination of the firm’s objectives; internal combination of the firm’s objectives; internal resources; resource application; management resources; resource application; management capabilities; external threats and changing capabilities; external threats and changing market opportunities; strategic analysis, market opportunities; strategic analysis, decision making, and implementation.decision making, and implementation. They They consider that only with the achievement of consider that only with the achievement of this will success result. A considerable this will success result. A considerable amount of entrepreneurship research has also amount of entrepreneurship research has also focused on the achievement of such a fit. focused on the achievement of such a fit.

Relative to the entrepreneurial firm the Relative to the entrepreneurial firm the components can be regarded as:components can be regarded as: entrepreneur(s)/ intrapreneurs: this component

represents the prime managerial resource, the motivations, quality, and effectiveness of which will be influenced by the factors identified and discussed comprehensively in;

organization: it is the product of the decisions made by the entrepreneur(s) which have shaped the business. In a long-established organization it will be how it has been shaped by the previous entrepreneurs or intrapreneurs. Associated characteristics will include the established culture, structure, control, competencies, and capabilities;

environment: the factors at work which promote and /or inhibit entrepreneurial behavior arising from social, technological, economic, and political changes, which may alter market conditions and possibilities for enterprise.

These three components may be These three components may be considered as overlapping or considered as overlapping or intersecting circles, as illustrated in intersecting circles, as illustrated in Figure 8.1.Figure 8.1.

Entrepreneur/Entrepreneur/IntrapreneurIntrapreneur

OrganizationOrganization

EnvironmentEnvironment

The point at which the circles intersect is The point at which the circles intersect is where an entrepreneurial strategy fit can be where an entrepreneurial strategy fit can be achieved. Storey (1994) found that those achieved. Storey (1994) found that those firms which achieved this generally: shared firms which achieved this generally: shared equity with external individuals or equity with external individuals or organizations (e.g. venture capital providers); organizations (e.g. venture capital providers); made conscious decisions relative to market made conscious decisions relative to market position; exploited differentiated and quality position; exploited differentiated and quality advantages; introduced new products on a advantages; introduced new products on a regular basis; and selected, motivated and regular basis; and selected, motivated and retained individuals in the creation of a retained individuals in the creation of a strong managerial team. strong managerial team.

These approaches imply an existence of a These approaches imply an existence of a strategic awareness on the part of the strategic awareness on the part of the entrepreneur, in that they are externally entrepreneur, in that they are externally focused towards assistance and markets, and focused towards assistance and markets, and at the same time internally focused towards at the same time internally focused towards innovation, delegation, and team innovation, delegation, and team management, to the ultimate benefit of the management, to the ultimate benefit of the organization.organization.

Authors such as Greenley (1989) and Kotler Authors such as Greenley (1989) and Kotler (1991) have refocused general definitions of (1991) have refocused general definitions of strategic management to incorporate the strategic management to incorporate the reality of the entrepreneurial firm. reality of the entrepreneurial firm. Specifically, this recognizes that decision–Specifically, this recognizes that decision–making motivation cannot always be assumed making motivation cannot always be assumed to be driven purely by perceived economic to be driven purely by perceived economic outcomes, and rational business growth outcomes, and rational business growth objectives. In addition, it takes account of the objectives. In addition, it takes account of the dynamic nature of the entrepreneur, dynamic nature of the entrepreneur, organization, and environment. organization, and environment.

The description of entrepreneurial The description of entrepreneurial strategy, which is particularly strategy, which is particularly relevant to the hospitality, tourism relevant to the hospitality, tourism and leisure industries reads as and leisure industries reads as follows:follows:

A dynamic managerial process which A dynamic managerial process which operates within the realities of the market. It operates within the realities of the market. It is about achieving strategic fit between the is about achieving strategic fit between the components of the entrepreneurcomponents of the entrepreneur // intrapreneur, organization, and environment, intrapreneur, organization, and environment, to bring about sustained business success.to bring about sustained business success.

Given the characteristics of the Given the characteristics of the entrepreneur(s)entrepreneur(s) // intrapreneur(s), intrapreneur(s), organization and environment, what organization and environment, what managerial actions, once the business has managerial actions, once the business has been created, are likely to be associated with been created, are likely to be associated with the achievement of a strategic fit? In the achievement of a strategic fit? In attempting to address this question issues attempting to address this question issues relevant to the organization and the relevant to the organization and the environment prior to presenting a range of environment prior to presenting a range of entrepreneurial strategies are explored.entrepreneurial strategies are explored.

Organizational cultureOrganizational culture

Culture is important in affecting Culture is important in affecting organizational effectiveness. Organizational organizational effectiveness. Organizational culture is affected by both internal and culture is affected by both internal and external influences. The mix of affecting external influences. The mix of affecting variables will be unique to each organization; variables will be unique to each organization; it is not productive to suggest one optimum it is not productive to suggest one optimum culture. The implication of this is that culture culture. The implication of this is that culture should be managed in a contingent way, should be managed in a contingent way, dependent upon the situation in which the dependent upon the situation in which the organization finds itself.organization finds itself.

This supports the contention that, rather than This supports the contention that, rather than have rigid views of the way forward, the have rigid views of the way forward, the organization needs to learn through organization needs to learn through experience and exploration. Furthermore, to experience and exploration. Furthermore, to facilitate a learning organization it is facilitate a learning organization it is necessary to have cultural and political necessary to have cultural and political conflicts within the organization, and to conflicts within the organization, and to prevent the closed-mindedness which comes prevent the closed-mindedness which comes from a strongly defined corporate culture. This from a strongly defined corporate culture. This can be at odds with the entrepreneurial drive, can be at odds with the entrepreneurial drive, energy, and focus required setting up and energy, and focus required setting up and managing a venture. managing a venture.

Though entrepreneurs need to adapt to Though entrepreneurs need to adapt to changing situations, they also need to be changing situations, they also need to be determined and single minded to realize their determined and single minded to realize their dreams. Whilst closed-mindedness dreams. Whilst closed-mindedness undoubtedly brings problems, too much undoubtedly brings problems, too much conflict can also bring with it its own conflict can also bring with it its own difficulties. Debate about the most difficulties. Debate about the most advantageous way forward can be healthy, advantageous way forward can be healthy, but too much organizational uncertainty can but too much organizational uncertainty can also internalize energies and inhibit or delay also internalize energies and inhibit or delay action.action.

Certainly the entrepreneur/intrapreneur will Certainly the entrepreneur/intrapreneur will play a defining role in establishing and play a defining role in establishing and maintaining the intervening factors – maintaining the intervening factors – perception, communication, motivation, perception, communication, motivation, planning, decision-making, control, co-planning, decision-making, control, co-ordination. Depending on the entrepreneur’s ordination. Depending on the entrepreneur’s own traits and motivations, the organization own traits and motivations, the organization and its cultural norms will develop in very and its cultural norms will develop in very different ways. Whether or not the end result different ways. Whether or not the end result is effective will depend upon the degree of fit is effective will depend upon the degree of fit with the circumstances of the moment and with the circumstances of the moment and the nature of the venture. the nature of the venture.

Organizational structure Organizational structure and controland control

In organizations within the hospitality, tourism In organizations within the hospitality, tourism and leisure industries there are a substantial and leisure industries there are a substantial number of additional variables which need to number of additional variables which need to be brought together to launch a concept and be brought together to launch a concept and then achieve efficient and effective service then achieve efficient and effective service delivery. In a multiunit situation we have delivery. In a multiunit situation we have previously argued that a control culture may previously argued that a control culture may be viewed as appropriate, to ensure consistent be viewed as appropriate, to ensure consistent service delivery against corporate-wide service delivery against corporate-wide standards.standards.

However, it is the authors’ view that even However, it is the authors’ view that even within a standardized multi-unit operation, within a standardized multi-unit operation, service delivery will inevitably involve service delivery will inevitably involve unanticipated challenges, and these are best unanticipated challenges, and these are best responded to by local initiative and creativity. responded to by local initiative and creativity. The cultural management challenge is to The cultural management challenge is to design and incorporate systems, and design and incorporate systems, and standards of performance, in such a way that standards of performance, in such a way that they are perceived as positive aids to they are perceived as positive aids to effective action, rather than as obstacles and effective action, rather than as obstacles and excuses for inadequate response. excuses for inadequate response.

Entrepreneurs have been shown as more likely Entrepreneurs have been shown as more likely to emerge from a social culture where there to emerge from a social culture where there are positive entrepreneurial role models. are positive entrepreneurial role models. Consequently, an enterprise culture, once Consequently, an enterprise culture, once established within an organization, has the established within an organization, has the potential to gain momentum as more potential to gain momentum as more individuals perceive that entrepreneurial individuals perceive that entrepreneurial behavior is both welcomed and rewarded. behavior is both welcomed and rewarded. Once established, an entrepreneurial culture Once established, an entrepreneurial culture will create a virtuous spiral where a can do will create a virtuous spiral where a can do culture positively reinforces itself.culture positively reinforces itself.

Influencing the components of the intervening Influencing the components of the intervening culture, including perception, communication, culture, including perception, communication, and motivation, is therefore a vital component and motivation, is therefore a vital component of effective entrepreneurial strategic of effective entrepreneurial strategic management. Systems need to support a management. Systems need to support a culture where enterprise can flourish, whilst culture where enterprise can flourish, whilst at the same time exercising sufficient control at the same time exercising sufficient control to ensure consistent operating standards. It to ensure consistent operating standards. It can be difficult to get the balance right.can be difficult to get the balance right. In In entrepreneurial stream, whilst supporting the entrepreneurial stream, whilst supporting the culture which allows bounded change and culture which allows bounded change and development of the mainstream.development of the mainstream.

A further related perspective is presented by A further related perspective is presented by Stacey (1996) and his idea of ordinary and Stacey (1996) and his idea of ordinary and extraordinary management. This seems extraordinary management. This seems particularly relevant to the hospitality, particularly relevant to the hospitality, tourism and leisure industries, with the need tourism and leisure industries, with the need to practice ordinary management in to practice ordinary management in exercising the ongoing control to achieve exercising the ongoing control to achieve product/service consistency, and to manage product/service consistency, and to manage functionally. Against this, in such fast-moving functionally. Against this, in such fast-moving industries there is also the need for industries there is also the need for extraordinary management to ensure that the extraordinary management to ensure that the business continues to develop dynamically business continues to develop dynamically alongside its market.alongside its market.

Clearly, the task of maintaining both Clearly, the task of maintaining both dimensions of management concurrently is dimensions of management concurrently is considerable. Specifically, for the smaller considerable. Specifically, for the smaller independently owned business units, independently owned business units, achievement of this management balance achievement of this management balance presents significant challenges. Furthermore, presents significant challenges. Furthermore, for individual entrepreneurs, directly for individual entrepreneurs, directly responsible for service delivery (often in a responsible for service delivery (often in a hands on way), it can be almost impossible to hands on way), it can be almost impossible to find sufficient time and energy to reflect and find sufficient time and energy to reflect and create. create.

Companies lacking clear strategies may Companies lacking clear strategies may achieve some success in the short run, but as achieve some success in the short run, but as soon as competitive conditions stiffen or an soon as competitive conditions stiffen or an unanticipated threat arises, they usually “hit unanticipated threat arises, they usually “hit the wall” and fold. In today’s global the wall” and fold. In today’s global competitive environment, any business, large competitive environment, any business, large or small, that is not thinking and acting or small, that is not thinking and acting strategically is extremely vulnerable. Every strategically is extremely vulnerable. Every business is exposed to the forces of a rapidly business is exposed to the forces of a rapidly changing competitive environment, and in the changing competitive environment, and in the future small business executives can expect future small business executives can expect even greater change and uncertainty.even greater change and uncertainty.

From sweeping political changes around the From sweeping political changes around the planet and rapid technological advances to planet and rapid technological advances to more intense competition and newly more intense competition and newly emerging global markets, the business emerging global markets, the business environment has become more turbulent and environment has become more turbulent and challenging to business owners. Although challenging to business owners. Although this market turbulence creates many this market turbulence creates many challenges for small businesses, it also challenges for small businesses, it also creates opportunities for those companies creates opportunities for those companies that have in place strategies to capitalize on that have in place strategies to capitalize on them. Entrepreneurs’ willingness to create them. Entrepreneurs’ willingness to create change, to experiment with new business change, to experiment with new business models, and to break traditional rules has models, and to break traditional rules has become more important than ever. become more important than ever.

The rules of competitive game of business The rules of competitive game of business have changed dramatically. To be successful, have changed dramatically. To be successful, entrepreneurs can no longer do things in the entrepreneurs can no longer do things in the way they have always done them. way they have always done them. Fortunately, successful entrepreneurs have at Fortunately, successful entrepreneurs have at their disposal a powerful weapon to cope with their disposal a powerful weapon to cope with a hostile, ever-changing environment: the a hostile, ever-changing environment: the process of strategic management. Strategic process of strategic management. Strategic management involves developing a game plan management involves developing a game plan to guide a company as it strives to accomplish to guide a company as it strives to accomplish its vision, mission, goals, and objectives and its vision, mission, goals, and objectives and to keep it from straying off its desired course. to keep it from straying off its desired course.

Building a Competitive Building a Competitive AdvantageAdvantage

The goal of developing a strategic plan is to The goal of developing a strategic plan is to create for the small company a competitive create for the small company a competitive advantage – the aggregation of factor that advantage – the aggregation of factor that sets a small business apart from its sets a small business apart from its competitors and gives it a unique position in competitors and gives it a unique position in the market superior to its competition.the market superior to its competition.

Building a competitive advantage alone is not Building a competitive advantage alone is not enough; the key to success is building a enough; the key to success is building a sustainable competitive advantage. In the sustainable competitive advantage. In the long run, a company gains a sustainable long run, a company gains a sustainable competitive advantage through its ability to competitive advantage through its ability to develop a set of core competencies that develop a set of core competencies that enables it to serve its selected target enables it to serve its selected target customers better than its rivals. Core customers better than its rivals. Core competencies are a unique set of capabilities competencies are a unique set of capabilities that a company develops in key areas, such that a company develops in key areas, such as superior quality, customer service, as superior quality, customer service, innovation, team building, flexibility, innovation, team building, flexibility, responsiveness, and others that allow it to responsiveness, and others that allow it to vault past competitors. vault past competitors.

Typically, a company is likely to build core Typically, a company is likely to build core competences in no more than five or six competences in no more than five or six (sometimes fewer) areas. These core (sometimes fewer) areas. These core competencies become the nucleus of a competencies become the nucleus of a company’s competitive advantage and are company’s competitive advantage and are usually quite enduring over time. To be usually quite enduring over time. To be effective, these competencies should be effective, these competencies should be difficult for competitors to duplicate, and they difficult for competitors to duplicate, and they must provide customers with an important must provide customers with an important perceived benefit. Small companies’ core perceived benefit. Small companies’ core competencies often have to do with the competencies often have to do with the advantages of their size – for example, agility, advantages of their size – for example, agility, speed, closeness to their customers, superior speed, closeness to their customers, superior service, and ability to innovate.service, and ability to innovate.

When it comes to developing a strategy for When it comes to developing a strategy for establishing a competitive advantage, small establishing a competitive advantage, small companies have a variety of natural companies have a variety of natural advantages over their larger competitors. advantages over their larger competitors. Small businesses often have narrower Small businesses often have narrower product lines, more clearly defined customer product lines, more clearly defined customer bases, and more specific geographic market bases, and more specific geographic market areas than big businesses. areas than big businesses.

Because of the simplicity of their Because of the simplicity of their organizational structures, small business organizational structures, small business owners are in touch with employees daily, owners are in touch with employees daily, often working side by side with them, often working side by side with them, allowing them to communicate strategic allowing them to communicate strategic moves firsthand.moves firsthand. Consequently, small businesses find that Consequently, small businesses find that strategic management comes more naturally strategic management comes more naturally to them than larger companies with their to them than larger companies with their layers of bureaucracy and far-flung layers of bureaucracy and far-flung operations. operations.

Strategic management can increase a small Strategic management can increase a small company’s effectiveness, but entrepreneurs company’s effectiveness, but entrepreneurs first must have a process designed to meet first must have a process designed to meet their needs and their business’s special their needs and their business’s special characteristics. It is mistake to attempt to characteristics. It is mistake to attempt to apply a big business’s strategic development apply a big business’s strategic development techniques to a small business because a techniques to a small business because a small business is not a little big business. small business is not a little big business.

Because of their size and their particular Because of their size and their particular characteristics – small resource base, flexible characteristics – small resource base, flexible managerial style, informal organizational managerial style, informal organizational structure, and adaptability to change – small structure, and adaptability to change – small businesses need a different approach to businesses need a different approach to strategic management process. In developing strategic management process. In developing a strategic management procedure for a small a strategic management procedure for a small business, an entrepreneur should:business, an entrepreneur should:

Use a relatively short planning horizon – two years or less for most small companies.

Be informal and not overly structured; a shirt-sleeve approach is ideal.

Encourage the participation of employees and outside parties to improve the reliability and creativity of resulting plan.

Not being with setting objectives, as extensive objective setting early on may interfere with the creative process of strategic management.

Maintain flexibility; competitive conditions change too rapidly for any plan to be considered permanent.

Focus on strategic thinking, not just planning, by linking long-range goals to day-to-day operations.

Strategic Management Strategic Management ProcessProcess

Strategic planning is a continuous process Strategic planning is a continuous process that consists of nine steps: that consists of nine steps:

Step 1:Step 1: Develop a clear vision and translate it Develop a clear vision and translate it into a meaningful mission statement.into a meaningful mission statement.Step 2:Step 2: Assess the company’s strengths and Assess the company’s strengths and weaknesses.weaknesses.Step 3:Step 3: Scan the environment for significant Scan the environment for significant opportunities and threats facing the business.opportunities and threats facing the business.Step 4:Step 4: Identify the key factors for success in Identify the key factors for success in the business.the business.

Step 5:Step 5: Analyze the competition. Analyze the competition.Step 6:Step 6: Create company goals and objectives. Create company goals and objectives.Step 7:Step 7: Formulate strategic options and select Formulate strategic options and select appropriate strategies.appropriate strategies.Step 8:Step 8: Translate strategic plans into actions. Translate strategic plans into actions.Step 9:Step 9: Establish accurate controls. Establish accurate controls.

VisionVision

The purpose of any vision is the same: to The purpose of any vision is the same: to focus everyone’s attention on the same focus everyone’s attention on the same target and to inspire them to reach it. The target and to inspire them to reach it. The vision touches everyone associated with the vision touches everyone associated with the company – employees, investors, lenders, company – employees, investors, lenders, customers, and the community. It is an customers, and the community. It is an expression of what the owner believes in and expression of what the owner believes in and stands for.stands for. A vision is the result of an entrepreneur’s A vision is the result of an entrepreneur’s dream of something that does not exist yet dream of something that does not exist yet and the ability to paint a compelling picture and the ability to paint a compelling picture of that dream for everyone to see. of that dream for everyone to see.

A clearly defined vision helps a A clearly defined vision helps a company in three ways:company in three ways:

Vision provides direction. Entrepreneurs who spell out the vision for their company focus everyone’s attention on the future and determine the path the business will take to get there.

Vision determines decisions. The vision influences the decisions, no matter how big or how small, that owners, managers, and employees make every day in business. This influence can be negative or positive, depending on how well defined the business is.

Vision motivates people. A clear vision excites and ignites people to action. People want to work for a company that set its sights high.

Vision is based on an entrepreneur’s values. Vision is based on an entrepreneur’s values. Winning companies first emphasize values – Winning companies first emphasize values – the beliefs that the business owner have the beliefs that the business owner have about employees, customers, quality, ethics, about employees, customers, quality, ethics, integrity, social responsibility, growth, integrity, social responsibility, growth, stability, innovation, and flexibility. Managing stability, innovation, and flexibility. Managing by values –not by profits- is a powerful by values –not by profits- is a powerful process. process.

Successful entrepreneurs build their Successful entrepreneurs build their businesses around a set of three to six core businesses around a set of three to six core values, which might range from respect for values, which might range from respect for the individual and innovation to creating the individual and innovation to creating satisfied customers and making the worlds a satisfied customers and making the worlds a better place. better place. The best way to put values into action is to The best way to put values into action is to create a written mission statement that create a written mission statement that communicates those values to everyone the communicates those values to everyone the company touches.company touches.

MissionMission

The mission statement addresses the first The mission statement addresses the first question of any business venture: What question of any business venture: What business are we in? Establishing the purpose business are we in? Establishing the purpose of the business in writing must come first in of the business in writing must come first in order to give the company a sense of order to give the company a sense of direction. direction.

Without a concise, meaningful mission Without a concise, meaningful mission statement, a small business risks wandering statement, a small business risks wandering aimlessly in the marketplace, with no idea of aimlessly in the marketplace, with no idea of where to go or how to get there. The mission where to go or how to get there. The mission statement sets the tone for the entire statement sets the tone for the entire company and focuses its attention on the company and focuses its attention on the right direction. right direction.

Elements of a Mission StatementElements of a Mission Statement

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

Who are the company’s target customers?What are our basic products and services?

What customer needs and wants they satisfy?

A sound mission statement needs not to be A sound mission statement needs not to be lengthy to be effective. Some of the key lengthy to be effective. Some of the key issues an entrepreneur and employees issues an entrepreneur and employees should address as they develop a mission should address as they develop a mission statement for the company include:statement for the company include:

Why should customers do business with us rather than the competitor down the street (or across town, on the other coast, on the other side of the globe)?

What constitutes value to our customers? How can we offer them better value?

What is our competitive advantage? What is its source?

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

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

A company’s mission statement may be the A company’s mission statement may be the most essential and basic communication that most essential and basic communication that it puts forward. The mission statement it puts forward. The mission statement expresses the firm’s character, identity, and expresses the firm’s character, identity, and scope of its operations, but writing it is only scope of its operations, but writing it is only half the battle, at best. The most difficult part half the battle, at best. The most difficult part is living that mission every day. To be is living that mission every day. To be effective, a mission statement must become a effective, a mission statement must become a natural part of the organization, embodied in natural part of the organization, embodied in the minds, habits, attitudes, and decisions of the minds, habits, attitudes, and decisions of everyone in the company every day. A well-everyone in the company every day. A well-used mission statement serves as a strategic used mission statement serves as a strategic compass for a small company. compass for a small company.

A company may have a powerful competitive A company may have a powerful competitive advantage, but it is wasted unless (1) the advantage, but it is wasted unless (1) the owner has communicated that advantage to owner has communicated that advantage to workers, who, in turn, are working hard to workers, who, in turn, are working hard to communicate it to customers and potential communicate it to customers and potential customers and (2) customers are customers and (2) customers are recommending the company to their friends recommending the company to their friends because they understand the benefits they because they understand the benefits they are getting from it that they cannot get are getting from it that they cannot get elsewhere. That’s the real power of a mission elsewhere. That’s the real power of a mission statement. statement.