The Importance of Strategy Development for the Small Business Presented by: Brian J. Walters, MBA, CBA The Akron Small Business Development Center at the Summit-Medina Business Alliance

Discussion What is Strategy? What does it mean for a business, large or small? Why is strategy formulation important? “Strategy is coping with competition.” Michael Porter, 1979.

What Comprises Strategy? Substantial Resource Commitments Cross-functional Implications Long-Term Effects Enterprise-Level Thinking

What are the Firm’s Goals Financial Goals- accounting based, Stock Market based (if applicable) Strategic Goals- non-financial goals

Types of Objectives Financial Objectives- objectives that improve a firm’s financial performance Strategic Objectives- outcomes that strengthen a firm’s competitiveness and long-term market position

Financial and Strategic Objectives Examples Financial Objectives Revenue Growth of 10% per year Increase Earnings by 15% per year Increase Earnings per Share (EPS) by 5% per year Increase Net Profit margins from 2%-6% Strategic Objectives Increase market Share Quicker design-to- market times than rivals Higher product quality than rivals Lower costs relative to key competitors Better and faster innovations

How do you plan to achieve goals? Means to achieve goals: Internal Analysis (SWOT) Resource Allocations External Analysis Industry Structure

Strategy is….. Making Choices Goals Means to achieve goals Resource Allocation

What determines a firm’s success? Industry Attractiveness- What industries should we be in? Corporate Strategy Competitive Positioning- How should we compete? Business Strategy

Operational Effectiveness vs. Strategy Operational Effectiveness - Performing similar activities better than rivals (Efficiency) Strategy – Perform similar activities differently or perform different activities (Positioning) Operational Effectiveness is NOT Strategic Positioning

Strategy consists of: Creating a unique, valuable, and defensible offer, which addresses a significant target market (Positioning) Unique: Differentiated from competitors’ product/service Valuable: Addresses a clear customer need Defensible: Sustainable by fit/alignment

Objective of All Strategy Making Is… Gain and/or Sustain Competitive Advantage Competitive Advantage consists in delivering value to the customer At a price lower than the competition Superior value at a higher price

Strategic Management Is crucial to building a successful business. Involves developing a plan to guide a company as it strives to accomplish its goals and mission, and to keep it on its desired course.

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

Key: Core Competencies A unique set of abilities a company develops in key areas, such as superior quality, customer service, innovation, team-building, flexibility, responsiveness, and others that allow it to vault past competitors. They are what a company does best. Best to rely on a natural advantage (often linked to a company’s “smallness”).

Strategic Management Process Step 1: Develop a vision and translate it into a mission statement. Step 2: Assess strengths and weaknesses. Step 3: Scan the environment for opportunities (internal) and threats (external). Step 4: Identify key success factors.

Strategic Management Process Step 5: Analyze Competition. Step 6: Create Goals and Objectives. Step 7: Formulate Strategies. Step 8: Translate Plans into Actions. Step 9: Establish Accurate Control Measures.

Step1: Develop a Vision and Create a Mission Statement What is a vision? An expression of what an entrepreneur stands for and believes in. A vision is based on values. A clearly defined vision: Provides direction Determines decisions Motivates people

Step 1: A Mission Statement What does a Mission Statement Accomplish? It addresses the question: “What business are we in?” It is a written expression of how the company will reflect the owner’s values, beliefs, and vision. It sets the tone for the entire company and serves as a decision guide.

Step 2: Assess Company Strengths and Weaknesses Strengths: Positive internal factors that contribute to accomplishing the mission, goals, and objectives. Weaknesses: Negative internal factors that inhibit the achievement of the mission, goals, and objectives.

Step 3: Scan for Opportunities and Threats Opportunities: Positive external options the company can employ to accomplish its mission, goals, and objectives. Threats: negative external forces that inhibit the firm’s ability to achieve its mission, goals, and objectives.

External Market Forces

External Market Forces Include: Technological Economic Social and Demographic Political and Regulatory Competitive

Step 4: Identify Key Success Factors Key Success Factors are: Relationships between a controllable variable and a critical factor that influence a company’s ability to compete in the market. They are the keys to unlocking the secrets of successfully competing in a particular market segment.

Step 5: Analyze Competitors Analyzing key competitors allows a firm to: Avoid surprises from existing competitors’ new strategies and products. Identify potential new competitors and the threats they pose. Improve reaction time to competitors’ actions. Anticipate rivals’ next strategic moves.

Step 5: Analyze Competitors How can this be done? Monitor trade and industry publications. Talk to customers and suppliers. Listen to employees, especially sales reps. and purchasing agents. Attend trade shows and conferences.

Step 5: Analyze Competitors Monitor competitors’ employment ads. Conduct searches for patents and trademarks filed by competitors. Search databases for types of materials and equipment that competitors are importing. Study competitors’ literature and benchmark their products and services. Visit competing businesses to observe their operations.

Knowledge Management The process of gathering, organizing, and disseminating the collective wisdom and experience of a company’s employees for the purpose of strengthening its competitive position. Knowledge management involves: Taking inventory of the special knowledge the people in the firm possess. Organizing and disseminating the knowledge.

Step 6: Create Company Goals and Objectives What are goals? Broad, long-range attributes to be accomplished. What are Objectives? Detailed specific targets that are designed to be: Specific Measurable Assignable Realistic (yet challenging) Timely

Step 7: Formulate Strategies A strategy is: A map that guides a company through a dynamic environment as it seeks to accomplish its mission, goals, and objectives. Focused on the key success factors identified in Step 4. Mission, goals, and objectives = Ends Strategy = Means

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

Step 7: Formulate Strategies Three basic strategies: Cost Leadership – Examples? Differentiation – Examples? Focus – Examples?

Cost Leadership Goal: to be the low-cost producer in the industry or market sector. Advantages: reaching buyers who buy on the basis of price. Works well when: Buyers are sensitive to price change Competing firms sell the same commodity products A company can benefit from economies of scale

Differentiation A company seeks to build customer loyalty by positioning its product or services in a unique or different manner. Idea is to be unique at something customers value. KEY: build basis for differentiation on core competencies, what the firm is uniquely good at performing.

Focus A company selects one or more customer segments in a market, identifies specific customer needs, wants, or desires, and then targets them with a service designed specifically for them. Strategy builds on differences among market segments.

Focus Rather than attempt to serve the total market, the company focuses on serving a niche within that market. Examples: Craft Beer, Specialty Cheeses

Step 8: Strategies into Action Plans Create projects by defining: Purpose Scope Contribution Resource Timing

Step 9: Establish Accurate Controls The plan establishes the standards against which actual performance is measured. The business owner must: Identify and track performance indicators. Take corrective action.

Discussion How will these ideas apply to your clients?