Strategy and the Small Business
10 important questions on Strategy and the Small Business
Competitive strategy, defined by Porter, 3 questions
- how to compete
- what are the goals
- what policies are needed to carry out those goals
The essence of a good strategy
- must be feasible (haalbaar), consistent with org. resources
- must provide clear competitive advantage
- must be a fit between org. and external environment
- must have clear understanding of market & competitors
Often a SE has no formal strategy, it reflects personal goals of owner.
Strategy making in SE is characterized by
- Improvisation (design & execution occur simultaneously)
- informal
- unstructured
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Arguments in favour of adopting a formal planning for SE
- plannint is crucial for survival of SE
- owner is central in planning process
- owner must have sufficient time for planning
- planning only possible if good info is available
2 functions of a formal plan
- communicating device: communication plan to others (banks/investors)
- control device: guideline for owner, measuring actual vs. expected performance
Benefits of formal planning
- allocate scarce resources in a better way
- make decisions in a more conscious way
- varify planned goals
- efficient use of time
- better financial management
- statement of goals and objectives
Reasons for absence of formal planning in SE
- clear sense of strategic direction (stick to startup plan)
- centrality of owner
- environmental context (in turbulence environment, planning is counterproductive)
- rigidity of formal systems (flexible is better)
- lack of time
Porter suggests that SE should pursue a focus strategy, this means
- selecting segment in its industry
- tailor strategy to serve the segment
- differentiate product and offer high-quality
- danger: incorrectly identify a niche, or niche is too small to survive
Strategic weaknesses that characterise SE is consequence of managerial desefficiencies of owner and resource desefficiencies of SE
- lack of financial resources
- marketing problems & customer concentration (depend on small number of customers, and spent little time on marketing)
- human resources (problems attract good staff)
- over reliance on entrepreneur (centralisation can be result)
- technological skills (lack capacity to invest in new technique)
2 types of plans in business planning
- Start-up plan: written document of who what why when and how a new business
- Business plan for existing org: written document containing goals & strong/weak points of org. that directs the present and future activities of the org
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