SME Chapter 2

Chapter 2: Strategic Mgt 1Copyright 2003 Prentice Hall Publishing Company

Strategic Managementand the Entrepreneur

Strategic Managementand the Entrepreneur


A Major Shift . . .A Major Shift . . .

. . . From financial capital to . . . From financial capital to intellectual capital.intellectual capital.HumanHumanStructuralStructuralCustomerCustomer


Strategic ManagementStrategic Management

Is crucial to building a successful business. Is crucial to building a successful business. Involves developing a game plan to guide a Involves developing a game plan to guide a

company as it strives to accomplish its mission, company as it strives to accomplish its mission, goals , and objectives, and to keep it on its goals , and objectives, and to keep it on its desired course.desired course.


Is Strategic Planning Really That Is Strategic Planning Really That Important?Important?

Study of 500 small companies:Study of 500 small companies: One of the most significant factors in One of the most significant factors in

distinguishing growing companies from distinguishing growing companies from those in decline: use of a written business those in decline: use of a written business plan.plan.

Another study:Another study: Only 12% of small companies had a long-Only 12% of small companies had a long-

range plan in writing. range plan in writing.


Strategic Management and Strategic Management and Competitive EdgeCompetitive Edge

Developing a strategic plan is Developing a strategic plan is crucial to creating a crucial to creating a competitive competitive advantageadvantage, the aggregation of , the aggregation of factors that sets a company factors that sets a company apart from its competitors and apart from its competitors and gives it a unique position in the gives it a unique position in the market.market.


Key: Core CompetenciesKey: Core Competencies

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

to a company’s smallness).to a company’s smallness).


Strategic Management ProcessStrategic Management Process

Step 1Step 1: Develop a vision and translate it : Develop a vision and translate it into a mission statement.into a mission statement.

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

Step 3Step 3: Scan environment for : Scan environment for opportunities and threats.opportunities and threats.

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


Strategic Management Process ...Strategic Management Process ...

Step 5Step 5: Analyze competition: Analyze competition..

Step 6Step 6: Create goals & objectives.: Create goals & objectives.

Step 7Step 7: Formulate strategies: Formulate strategies..

Step 8Step 8: Translate plans into actions: Translate plans into actions..

Step 9Step 9: Establish accurate controls: Establish accurate controls..

(continued)(continued)


Step 1: Step 1: Develop a VisionDevelop a Vision and and Create a Mission Statement Create a Mission Statement

Vision – an expression of what an Vision – an expression of what an entrepreneur stands for and believes in. entrepreneur stands for and believes in.

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


Step 1: Develop a Vision andStep 1: Develop a Vision and Create a Mission StatementCreate a Mission Statement

Mission - addresses question:"What Mission - addresses question:"What business are we in?”business are we in?”

A written expression of how the 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.

Sets the tone for the entire company Sets the tone for the entire company and guides the decisions people make. and guides the decisions people make.

Example: Fetzer Vineyards Example: Fetzer Vineyards http://www.fetzer.com/http://www.fetzer.com/

http://www.fetzer.com/letsfetzer/stor_miss.html


Step 2: Assess Company Strengths Step 2: Assess Company Strengths

and Weaknessesand Weaknesses StrengthsStrengths

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

WeaknessesWeaknesses Negative internal factors that inhibit Negative internal factors that inhibit

the accomplishment of the mission, the accomplishment of the mission, goals, and objectives.goals, and objectives.


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

OpportunitiesOpportunities Positive external factors the company can Positive external factors the company can

employ to accomplish its mission, goals, and employ to accomplish its mission, goals, and objectives.objectives.

ThreatsThreats Negative external factors that inhibit the firm's Negative external factors that inhibit the firm's

ability to accomplish its mission, goals, and ability to accomplish its mission, goals, and objectives.objectives.

External Market ForcesExternal Market Forces

CompetitiveCompetitive EconomicEconomic

Political and Regulatory

Political and Regulatory

TechnologicalTechnological

Social and DemographicSocial and

Demographic


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

Key success factors: Key success factors: relationships between a relationships between a controllable variable and a controllable variable and a critical factor that influence a critical factor that influence a company’s ability to compete company’s ability to compete in the market.in the market.

The keys to unlocking the The keys to unlocking the secrets of competing secrets of competing successfully in a particular successfully in a particular market segment.market segment.


Step 5: Analyze CompetitorsStep 5: Analyze Competitors

Analyzing key competitors allows an entrepreneur Analyzing key competitors allows an entrepreneur to:to: avoid surprises from existing competitors’ new avoid surprises from existing competitors’ new

strategies and tactics.strategies and tactics. identify potential new competitors and the identify potential new competitors and the

threats they pose.threats they pose. improve reaction time to competitors’ actions.improve reaction time to competitors’ actions. anticipating rivals’ next strategic moves. anticipating rivals’ next strategic moves.



Techniques do Techniques do notnot require unethical require unethical behavior:behavior: Monitor industry and trade publications.Monitor industry and trade publications. Talk to customers and suppliers.Talk to customers and suppliers. Listen to employees, especially sales Listen to employees, especially sales

representatives and purchasing agents.representatives and purchasing agents. Attend trade shows and conferences.Attend trade shows and conferences.



Techniques do Techniques do notnot require unethical require unethical behavior:behavior: Study competitors' literature and Study competitors' literature and

"benchmark" their products and services."benchmark" their products and services. Get competitors' credit reports.Get competitors' credit reports. Check out the local library.Check out the local library. Use the World Wide Web to learn more about Use the World Wide Web to learn more about

competitors.competitors. Visit competing businesses to observe their Visit competing businesses to observe their

operations.operations.


Knowledge ManagementKnowledge Management

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

Knowledge management involves:Knowledge management involves: Taking inventory of the special knowledge the people Taking inventory of the special knowledge the people

in the company possess. in the company possess. Organizing that knowledge and disseminating it to Organizing that knowledge and disseminating it to

those who need it. those who need it.


Step 6: Create Company GoalsStep 6: Create Company Goalsand Objectivesand Objectives

Goals - broad, long-range attributes to be Goals - broad, long-range attributes to be accomplished.accomplished.

Objectives - more detailed, specific targets of Objectives - more detailed, specific targets of performance that are S.M.A.R.T.performance that are S.M.A.R.T. SSpecificpecific MMeasurableeasurable AAssignablessignable RRealistic (yet challenging)ealistic (yet challenging) TTimelyimely

Step 7: Formulate StrategiesStep 7: Formulate Strategies

StrategyStrategy A “road map” that guides a company through a A “road map” that guides a company through a

turbulent environment as it seeks to fulfill its mission, turbulent environment as it seeks to fulfill its mission, goals, and objectives. goals, and objectives.

A game plan for winning.A game plan for winning.

Three basic strategies:Three basic strategies:

Strategy?

Cost leadershipCost leadership

DifferentiationDifferentiation

FocusFocus


Cost LeadershipCost Leadership Goal: to be Goal: to be thethe low-cost producer in the low-cost producer in the

industry or market segment.industry or market segment. Advantages: Advantages:

reaching buyers who buy on the basis of price.reaching buyers who buy on the basis of price. power to set the industry’s price floor.power to set the industry’s price floor.

Works well when:Works well when: buyers are sensitive to price changes.buyers are sensitive to price changes. when competing firms sell the same commodity when competing firms sell the same commodity

products.products. when a company can benefit from economies of scale. when a company can benefit from economies of scale.


DifferentiationDifferentiation Company seeks to build customer loyalty by Company seeks to build customer loyalty by

positioning its goods or services in a unique or positioning its goods or services in a unique or different fashion.different fashion.

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

Key: Build basis for differentiation on a core Key: Build basis for differentiation on a core competency, those things that the small competency, those things that the small company is uniquely good at doing in company is uniquely good at doing in comparison to its competitors. comparison to its competitors.

Example: East Bank ClubExample: East Bank Club


FocusFocus

Company selects one or more customer segments Company selects one or more customer segments in a market, identifies customers’ special needs, in a market, identifies customers’ special needs, wants, or interests, and then targets them with a wants, or interests, and then targets them with a product or service designed specifically for them.product or service designed specifically for them.

Strategy builds on Strategy builds on differencesdifferences among market among market segments.segments.

Rather than try to serve the total market, the Rather than try to serve the total market, the company focuses on serving a niche (or several company focuses on serving a niche (or several niches) within that market. niches) within that market.

Example: Clown Shoes and Props Example: Clown Shoes and Props


Step 9: Translate StrategiesStep 9: Translate Strategies into Action Plans into Action Plans

Create projects by defining:Create projects by defining: PurposePurpose ScopeScope ContributionContribution Resource requirementsResource requirements TimingTiming


Step 10: Establish Accurate ControlsStep 10: Establish Accurate Controls

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

Entrepreneur must:Entrepreneur must: identify and track key performance identify and track key performance

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

Business

SME Chapter 2