Chapter 2

Strategic Planning

In deep despair, and headed anywhere, I plunged, I dangled, I fell, and landed: nowhere

—© 2013 Sage Sayings™

Introduction to Planning for Your Firm’s Long-Term Future

There is an old adage that says, “If you do not know where you are going, any road you take will get you there.” With the heavy investment you will have to make to have your business become the successful firm that you want it to be, you can ill-afford such a haphazard and lackadaisical approach to managing it. Strategic planning is the way for you to plan for your business’s future.

Strategic planning is the process your business should use to make specific decisions and take specific actions that can affect your business’s future outcomes and determine whether you reach your goals and objectives.1 The results of the strategic planning effort, the strategic plan, serves as a basis for action, a road map that provides directions for the future actions of your business, such as resource allocation and specific steps toward goal accomplishment. In addition, strategic plans define both the markets in which your business will compete and the ways in which it competes in those markets.

Strategic planning is essential for organizations of all sizes and types. Small businesses, in particular, can benefit greatly from engaging in the strategic planning process. Strategic planning goes beyond just identifying effective strategies; it also includes developing plans to ensure that those strategies are put into action. The process, therefore, involves strategy formulation, strategy implementation and execution, and the evaluation of organizational accomplishments through strategic controls.2

Results of Effective Strategies

The development of effective strategies can be crucial for the survival and success of a small business in today’s business world. Strategic planning can serve as a major tool for meeting the challenges of the 21st century. For small businesses, effective strategic planning can:

1. Provide a clear sense of direction. Small businesses can use the strategic planning process to set strategic goals and objectives and choose the means (strategies) to achieve those goals and objectives. Strategic goals are major targets or end results that relate to the long-term survival and success of your business. Typical strategic goals include growing, increasing market share, improving profitability, boosting return on investment, fostering and enhancing quality of outputs, increasing productivity, improving customer service, and contributing to society.3

2. Focus efforts. As you certainly know, a small business has limited resources and a wide range of possible ways to use those resources. In selecting strategic goals and strategies for your small business, you can establish specific priorities and make commitments about the ways that you will use your scarce resources. If your business begins to stray off course or encounter unforeseen contingencies, you can develop strategies to refocus your business and take timely corrective actions.

3. Help in the evaluation of progress. Clearly stated, measurable strategic goals and strategies, with specific deadlines, can become standards of performance that can help you, as a small business owner or manager, evaluate your progress and success. Thus, strategic planning serves as an essential precursor to and link with the control function of management, the function responsible for making sure that business actions are in keeping with strategic goals and the strategies created to achieve those goals.

It should be clear that strategic planning is not a single event. It should be an ongoing process that reflects and adapts to changes in the environment(s) surrounding your business. Unlike linear planning, strategic planning assumes that a business situation may change; therefore, change must be accepted and even embraced, where possible. Whether positive or negative change occurs, strategic planning encourages flexibility in dealing with it.

In addition, central to the concept of strategic planning is the notion of competitive advantage—the aggregation of factors that sets a small business apart from its competitors and gives it a unique position in the market superior to that of its competitors.4 Developing a strategic plan is critical to the creation of a small company’s competitive advantage.

Today’s business environment places a great premium on competitive advantage and how it is achieved, or not, through strategy and strategic management.5 Through strategic planning, small business owners or managers like you can develop strategies for achieving and maintaining a sustainable competitive advantage over other businesses in your industry.

Benefits of Strategic Planning

Strategic planning requires a great deal of managerial time, energy, and commitment. To justify these efforts, strategic planning should produce tangible benefits.

Research suggests that the benefits of the process are both economic and behavioral.6 From an economic perspective, a number of studies suggest that organizations that plan strategically outperform those that do not. Research findings on a variety of financial measures, such as return on investment, return on equity, and profit margin, suggest that there are financial benefits associated with strategic planning.

Research findings also suggest that strategic planning can produce behavioral benefits. These benefits include7

• an increase in the likelihood of identifying organizational and environmental conditions that might create problems;

• better decisions as a result of the group decision-making process; and,

• more successful implementation of strategies because ­organizational members who participate in the planning ­process understand the plan and are more willing to contribute to implementation.

The overall goal of strategic planning is to take a business from where it is to where it wants to be. Given the potential benefits of strategic planning and the potential costs of the failure to engage in such planning, as a small business owner striving for optimal success, you must recognize that strategic planning is essential.

Each step of the strategic planning process can make a contribution to the overall success of a business. This chapter examines the strategic planning process and the product of that process: the strategic plan. So that you can complete this chapter with a sense of understanding and ability to implement the process in your business, special attention will be given to each step in the strategic planning process.

The Strategic Planning Process

Businesses use a strategy-making process to create strategies that produce a sustainable competitive advantage.8 The strategic planning process model presented and discussed in this chapter consists of seven steps (Figure 2.1).

This model is simple, straightforward, and applicable to a wide variety of small businesses. The process itself, however, does not have to be truly linear. Steps may overlap or occur in a different order, depending on the needs of your business. In addition, some activities, such as analyzing the environment, can be continuous throughout the strategic planning process. Nonetheless, each step should be completed because each makes a valuable contribution to the overall purpose of getting the small business to where it would like to be.9

You should make an attempt to free your mind to work in a focused way to complete the strategic planning process, particularly the first time that you engage in the process. With that in mind, it is now time to examine each of the steps in the process in some detail.

Step 1. Identifying and Analyzing Your Business’s Mission and Vision

Your business might have a mission statement but no vision statement, or vice versa. Also, both could actually be present or absent. However, both can add considerable value by clarifying the focus of your business.

The Mission

The most common initial act in the strategic planning process is the identification of the mission of the business. The mission is the purpose for which and the reason that a business exists. A clear, formal, and publicized mission statement is the cornerstone of any planning system that will effectively give a business a sense of direction.10

Every business should have a written mission statement that defines its purpose and answers the following key questions (which have been deliberately personalized for you to encourage your being introspective about each question):

• What is my business, really? Why does it exist?

• Who are my customers and key stakeholders?

• What are the basic products and services provided by my business?

• In which market(s), or market segments, will my business compete?

• What are my business’s values and beliefs?11

By answering such basic questions as these, you can help to guide your company to a much clearer picture of what your business is, what it stands for, and what it wants to be. You should be aware that a mission statement need not be lengthy to be effective. A short paragraph or a couple of sentences is the norm.

The mission is usually expressed in writing to ensure that all organizational members have easy access to it and thoroughly understand exactly what the business is trying to accomplish. The mission statement will be a relatively permanent part of your business’s identity and can contribute significantly to unifying and motivating members of your business organization.12

For small businesses in early phases of operation, it is likely that the small business owner will make the decisions about the strategic direction of the business, including its mission, using input from only a select group of advisors. As the business grows, however, small business owners must create a clear mission statement through consensus. While formulating and reaching consensus on a mission statement can and probably will be time-consuming, every unit, department, and employee within the business will take direction from it.13

A good mission statement provides a focal point for the entire strategic planning process. An accurate description of the purpose of the business, provided in the mission statement, drives the strategic plan. It embodies, in a few words or sentences, a concise profile of the business (purpose, values, etc.). Effective strategic planning cannot occur without a clear understanding of what the business does. The mission statement is, therefore, the beginning of effective strategic planning.

Strategy consultants believe that a mission should represent what the strategy or underlying business model is trying to accomplish.14 For example, Starbuck’s mission is to be “the premier purveyor of the finest coffee in the world, while maintaining our uncompromising principles as we grow.” At Mary Kay, Inc., the mission is “to enrich women’s lives.”15 Another example is Patagonia, a California-based company that sells top-quality and highly priced outdoor clothing and gear, which has the mission to “build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”16 This mission provides not only a business direction, but also a distinctive value commitment—one that gives Patagonia a unique identity as it competes with much larger rivals in the industry, such as North Face and Sierra Trading Post.

The mission statement is also the foundation for all the strategies and plans in which the business will invest its resources. A properly developed mission statement will give members of your organization general, but useful, guidelines about how resources should be used to best accomplish your business’s goals and objectives. In addition, the existence of a mission statement can help you to pinpoint broad, but important, job areas within your business. A well-developed mission statement generally can help define critical jobs that must be accomplished.17

For most business owners, defining the mission might seem to be an exercise in the obvious; but, exactly the opposite is true. Some small businesses drift along without a clear mission, while others lose sight of the original mission. Also, sometimes a business might find that its original mission is no longer acceptable to key stakeholders. Therefore, periodically redefining the mission of a business can prove to be necessary in a business environment of rapid change.18

Finally, the mission statement has meaning only if it serves as a driving and unifying force for guiding the strategic planning process and for helping the business achieve its short- and long-term goals. “The mission statement should stimulate those in the organization to think and act strategically, not just once a year, but every day.”19

The Vision

Some business owners develop a vision statement that is different from their mission statement. The vision, quite simply, is a realistic picture of where you want your business to be in the future. A vision expresses an organization’s fundamental aspirations and values, usually by appealing to its members’s hearts and souls. A vision statement adds soul to the mission statement, if it lacks one.20 It needs to be a “stretch,” but achievable, within the current context of your organization’s resources. The vision statement, when used properly, can motivate and inspire your employees and lead to successful goal accomplishment.

A vision statement can accomplish all of the following:

• Create an inspiring vision of what the business can be and can do

• Outline how the vision is to be accomplished

• Establish key priorities

• State a common goal and foster a sense of togetherness

• Create a philosophical anchor for all organizational activities

• Generate enthusiasm and a “can do” attitude

• Empower present and future employees to believe that every individual is key to the success of the business21

The purpose of the vision statement is to focus everyone’s attention on the same target. The vision touches everyone associated with your ­business—employees, investors, lenders, customers, and the community. It is an expression of what you stand for and believe in, most fundamentally. Highly successful entrepreneurs are able to communicate to others what the business vision is, as well as enthusiasm about that vision. Following are two examples of a vision statement:

1. Underlying the mission of Ben and Jerry’s is the determination to seek new and create ways to make, distribute, and sell the finest quality of all natural ice cream and euphoric concoctions, while holding a deep respect for individuals inside and outside of the company and for the communities of which they are a part.22

2. The vision of Under Armour, which started as an athletic-wear company by producing undershirts in the basement of the owner’s grandmother’s house is: “To empower athletes everywhere through passion, design and the relentless pursuit of innovation.”23

Finally, your vision statement must be consistent with your mission statement. Taking the time to seriously contemplate and shape a vision for your business is an important step in strategic planning, for it is a formative step in establishing goals and strategies and a blueprint for the future. The more widely the vision is shared, the greater the chance of success.24

Step 2. Analyzing Your Business Environment

One of the most important steps in the strategic planning process is an analysis of the environment. A successful business strategy will be one that aligns well with the environment because your business’s ­environment, to a large degree, defines your options.25 Likewise, a small business like yours can be successful to the extent that it is appropriately matched with its environment.

Business owners commonly perform environmental analyses to facilitate understanding of what is happening both outside and inside the businesses. You must understand what is taking place in the external and internal environments in order to make sound decisions as to how to run your business and how to position your products and services for success.26

Environmental analysis, or environmental scanning, as it is popularly called today, involves searching the environment for important events or issues that might affect your business. You should continuously scan your environment to stay up-to-date on important factors that affect your industry. You should pay particularly close attention to the trends and events that are directly related to your company’s ability to compete in the marketplace.27

There is no magic formula for conducting an environmental analysis. It is important, however, for you to assess each of the relevant environmental forces that could affect the direction of your business.

For purposes of environmental analysis, the business environment is typically divided into two distinct levels: the general environment and the task or specific environment, also called the operating environment. The importance of formulating your business strategies in response to your informed understanding of your business environment cannot be overstated.28 Each type of environmental analysis will now be discussed.

The General Environment

The general environment, sometimes called the macro-environment or indirect action environment, includes external factors that usually affect all or most businesses. The general environment includes the conditions that exist outside the organization, such as the nature and state of the economy, the social milieu (sociocultural environment), legal-political, technological, and natural conditions.29 International considerations (foreign markets and competition, exchange rates, etc.) are also included in the general environment.30

For example, the general environment includes the following:

• The type of economic system (i.e., free enterprise, socialist, or planned demand)

• Economic conditions (expansionary or recessionary cycles, and the general standard of living)

• Type of political system (e.g., democracy, dictatorship, or monarchy)

• Conditions of the ecosystem (extent of land, water, and air pollution)

• Demographics (age, gender, race, ethnic origin, and educational level of the population)

• Cultural background (values, beliefs, language, and religious influences)

These aspects of the general environment spawn the cultural, competitive, technological, and political-legal forces that can impinge on small business activities.31 Although each force is considered separately in the following, these forces are largely interrelated (e.g., political actions in the United States can influence both the international and domestic economies, which, in turn, can impact on demographics, such as levels of education of the relevant populations, etc.).

The Economic Environment. The economic component is the part of the general environment that indicates how resources are being distributed and used within the environment. This component is based on economics, the science that focuses on understanding how people of a particular community or nation produce, distribute, and use various goods and services. Important issues considered in an economic analysis of the business environment generally include the wages paid to labor, inflation, the taxes paid by labor and businesses, the cost of materials used during the production process, and the prices at which produced goods and services are sold to consumers.32

The United States has an economic system in which privately controlled markets based on supply and demand prevail over governmental control of production and prices. Free market competition, private ­contracts, profit incentives, technological advancement (which will be discussed later), and labor with collective bargaining rights (where desired) are essential elements in this system.

Economic issues, such as those listed earlier, can significantly influence the environment in which a small business operates and the ease or difficulty that business experiences in attempting to reach its goals and objectives. Clearly, your business strategy should reflect the economic conditions in your business environment.

As a small business owner, you should be concerned about economic conditions in the general environment, particularly those that influence customer spending, resources or supplies, and investment capital. It is always important that you maintain awareness of the overall health of both the domestic and global economies (e.g., financial markets, inflation, income levels, and job outlook). Economic conditions are key factors to be assessed, forecasted, and considered when you make decisions about your business strategies and operations.

The Sociocultural Environment. The sociocultural component is that part of the general environment that describes the characteristics of the society in which a business exists. Sociocultural conditions are exemplified by the norms, customs, and demographics of a society or region, as well as social values on such matters as ethics, human rights, gender roles, and lifestyles. Patterns and trends in these sociocultural factors can have major consequences for your small businesses and how your business needs to be managed.33

Two important features of a society that are commonly studied during environmental analysis are demographics and social values. With respect to demographics, you should stay abreast of educational, racial, or ethnic, gender, and generational trends and changes. Changes in demographics play an important role in marketing, human resource management, finance, and other aspects of business. These demographic changes can influence the responsiveness to goods and services within your business environment and thus should be reflected in your business strategy.

For example, due to the rise in the number of Americans who speak English as a second language, a growing number of ads for familiar products are in Spanish as well as English, and all safety instructions are in both English and Spanish. Salsa is a staple in many households and now outsells ketchup. Burritos are popular substitutes for sandwiches in many college and university student centers. A small business wishing to capitalize on these demographic realities should keep these trends in mind.

Social values are the relative degrees of worth that society places on the ways in which it exists and functions. However, over time, social ­values can change dramatically, causing obvious changes in the way people live. For example, for years, most married women stayed home; but, now, most adult females work. In addition, women have dramatically increased in representation in occupations and industries from which women were once excluded (or at least not encouraged to enter)—­including, for instance, business, engineering, medicine, and law. Due to the rise in women who have degrees from business schools, the number and percentage of women in middle and top management positions has risen significantly. These changes have increased the amount of business for a variety of small businesses, such as daycare centers, fast-food and conventional restaurants (two-income families eat out more frequently), home security systems, grocery stores, hospitality and travel companies, and the number of computers in the home, to name a few. Changes in social ­values alter the business environment and, as a result, should have an impact on your business strategy.34

Another example is that populations in developed countries are aging, while those in less-developed countries are increasingly dominated by young people. Such trends present many challenges and opportunities for businesses across the globe. Specifically, in the United States, nearly half of the labor force now comes under the protection of the Age Discrimination in Employment Act. This Act, which provides protection against age discrimination in employment for workers aged 40 and older, has affected major human resource management decisions made by American businesses concerning older workers.35 In addition, the aging population in the United States has caused the demand for retirement housing to rise. Effective business strategy would include a mechanism for dealing with this demographic shift within the construction industry, as well as other industries such as household equipment and furniture.36

Likewise, underlying a society and surrounding an organization are various sociocultural forces, which often are not as visible as other general environmental forces. Culture can be defined as the shared characteristics (e.g., language, religion, and heritage) and values that distinguish one group of people from another. A value is a basic belief about a condition that has considerable importance and meaning to individuals and is relatively stable over time. A value system comprises multiple beliefs that are compatible and supportive of one another. For example, beliefs in private enterprise and individual rights are mutually supportive. These cultural and value systems have specific implications for small businesses.

The Legal-Political Environment. In order to protect the future of your small business, you must also stay abreast of developments in legal-political conditions in the general environment. These conditions are a result of existing and proposed laws and regulations, government policies, and the objectives of political parties. For example, in the aftermath of the recent economic recession, U.S. lawmakers examined many issues such as the regulation of banks and the financial services industry, foreign trade agreements, and protection of U.S. jobs and industries. As a small business owner, you must also follow such debates to monitor trends that can affect the regulation and oversight of your business.37

Some examples of legislation specifically aimed at the operation of businesses include the Fair Labor Standards Act, the Equal Pay Act, Title VII of the Civil Rights Act, and the Family and Medical Leave Act. Federal, state, and local governments all influence what small businesses can and cannot do. Business owners should be aware of these laws and the changes that take place from time to time.38

The political component is the part of the general environment that contains the elements related to government affairs. Examples include the government’s attitude toward various industries, lobbying efforts by interest groups, progress on the passage of laws, and political party platforms and candidates. Some examples of trends and forces that small business owners should assess in the political environment include the following:

• What will be the blend of services offered by the government, nonprofit, and corporate worlds? How will this blend change over time?

• Will there be more or less privatization of government services? What will be the role of nonprofits?

• What will be the trend in your industry with respect to cooperation and competition with allied agencies or organizations, governmental, or nongovernmental service providers?

• Will political trends affect your suppliers in the same way that your business is affected? Are there other trends that affect suppliers?39

In addition, legal-political conditions in the global business environment vary from one country to the next. Just as foreign companies like Toyota have to learn to deal with U.S. laws and political conditions, so too must U.S. companies have to adjust to the legal-political environments of foreign countries.40

It is obvious that the political-legal environment can be highly complex and very time-consuming to monitor, to say nothing about trying to influence it on behalf of your business. For this reason, some small businesses, such as construction companies, join industry trade associations for the express purpose of monitoring and influencing legislation that can impact the industry (and individual businesses, as a result). This is an option that you might want to consider.

The Technological Environment. Perhaps nothing gets as much attention these days as developments in the technological conditions in the general environment. Technological forces include the use of and changes in technology that affect the way businesses operate or the products and services provided by these organizations. Technological forces can include new procedures, as well as new equipment. To keep up to date on technological trends, many businesses engage in technology forecasting. Such forecasts identify trends in technology that require adaptation on the part of the business. The success of many organizations is dependent upon their ability to identify and respond to technological changes.

For example, one of the most significant technological trends in the past several decades has been the increasing availability and affordability of management information systems. Through these systems, owners have access to information that can improve the operation and management of small businesses. The retail industry, for example, has been transformed by the introduction of scanner technology. Not only have scanners improved the efficiency of the checkout process, but these scanners also provide important inventory management information to support procurement and warehousing efforts. Small retail operations that do not take advantage of such technology are at a competitive disadvantage.41

The role of technology in businesses is advancing as quickly as the use of YouTube, Facebook, Google Maps, and apps on smartphones. For example, customers of USAA, a financial services company for military families, can take photos of checks, use an iPhone app to send the checks to the bank, and then spend the deposited money within minutes.42

Social media are now all the rage, but for business owners like you, it can be both an opportunity and a problem. Americans now spend more time in the world of social media than with e-mail. One of the growing concerns of employers is just how much time tech-savvy employees spend browsing the Web and engaging in online diversionary pastimes while on the job.43

A survey of 1,400 chief information officers found that only one in 10 said that company employees were allowed full access to networking sites while on the job. One concern is the potential for too much social networking, while another is that of protecting the privacy of privileged information and communications. The term Enterprise 2.0 describes how businesses use social networking and blog technologies to open up communications, while keeping the focus on work and protecting the privacy of information exchanges. An example is Yammer, a business communication tool centered around the question: “What are you working on?”44

On the small business employee side of the technology equation are the issues of know-how and work–life balance. The concern is whether or not employees know, understand, and use the technology required for their jobs as well as how easily technology drives the penetration of work responsibilities into life outside the job. Employees often complain about “never being free from the job,” and that work follows every step taken—whether at home, on vacation, or just about everywhere, in the form of a notebook or network computer and smartphone device. On the flipside, these technological devices also allow employees to work from home, when possible, to avoid commuting or leaving the children alone on snow days, for example.45

Therefore, when engaging in the environmental scanning of technology, you should assess the following trends and forces, at a minimum:

• What changes in computer and communications technology are likely to affect business operations?

• What impact will energy-saving devices have on the business?

• How will transportation technology affect business operations and employees?

• What other technological trends could be expected to affect the business in the future?46

The Natural Environment. Small business owners and entrepreneurs must also take into consideration the conditions of the natural environment. Debates about being carbon neutral, green, and sustainable are big issues on college campuses, in local, national, and international communities, in everyday lives, and in large businesses. Small businesses are not exempt. Initiatives to reduce paper usage, recycle, use local produce, and adopt energy-saving practices abound.47

Businesses are increasingly expected to supply environmentally friendly products and to operate in ways that preserve and respect the natural environment. When businesses fail to do this, public criticism is likely to be vocal and harsh. For example, outrage quickly surfaced over the disastrous BP oil spill in the Gulf of Mexico, with calls for stronger governmental oversight and control over business practices that put the natural environment at risk.48

There is now growing interest in the notion of sustainable business, where businesses are expected to operate in ways that both meet the needs of customers and protect or advance the well-being of the natural environment. What makes a business sustainable is how it operates and whether what it produces has minimum negative impact on the environment and helps preserve it for future generations. A truly sustainable business operates in harmony with nature rather than by exploiting it. Hallmarks of sustainable business practices include but are not limited to less waste, fewer toxic materials, resource efficiency, energy efficiency, and renewable energy.49

Other political and economic conditions in the United States have led to a renewed environmentalism. It is recommended that businesses take the following steps in heeding the call for renewed environmentalism:

• Cut back on environmentally unsafe operations.

• Compensate for environmentally risky endeavors.

• Avoid confrontation with state and federal pollution control agencies.

• Comply early with government regulations.

• Promote new manufacturing technologies.

• Recycle wastes.50

The Task Environment

In addition to the general environmental issues listed earlier, you, like all small business owners and entrepreneurs, must deal with the task or ­specific environment on a daily basis. Often called the operating environment, these forces are within a company’s operational arena and can directly influence or be influenced by the business itself. By contrast, the general environment exhibits indirect influence on the business, as it influences the entities in the task environment of the business.

The task environment consists of the critical components and constituencies that can positively or negatively influence the company’s effectiveness. The task environment is also unique to each business and changes with different conditions. It includes those external groups or entities that directly influence the growth, success, and survival of a business; thus, the task environment includes suppliers of inputs, customers or clients, competitors, labor, government agencies or regulators, and public interest pressure groups.

Suppliers. The supplier component of the task environment involves other companies, agencies, or individuals that provide a business with the resources needed to produce its goods and services, such as raw materials and equipment, office supplies, hardware, bricks, or concrete. Suppliers also include stockholders, banks, insurance companies, pension funds, and other similar institutions needed to ensure continuous access to capital and other resources and services.

As you know, you are ever-striving to ensure a steady flow of needed inputs at the lowest price possible. You go to great lengths to maintain a predictable flow of these inputs, because each input can represent a critical uncertainty, such as lack of availability or delay that can reduce the effectiveness of your business. As you are no doubt aware, issues such as how many suppliers offer specified resources for sale, the relative quality of the materials offered by various suppliers, the reliability of supplier deliveries, and the credit terms offered by suppliers, all become important in managing a business effectively and efficiently in today’s business environment.51

Customers. Customers are always key stakeholders, for these are the buyers of the goods or services provided by a business. Individuals, groups, government agencies, and even other businesses can be major customers of a given business. Businesses exist to meet the needs of customers or clients. However, customers and clients obviously represent potential uncertainty for a business. Customer tastes can change. Customers can also become dissatisfied with the product or service of a business. Customers can be very demanding in desires for low prices, high quality, on-time delivery, and great service.52

You can conclude that, if every customer or client contact with your business proved to be a positive experience, those customers would return again and again, and would also tell friends and associates, thus expanding the customer base of your business. Many organizations now use the principles of customer relationship management (CRM) to establish and maintain high standards of customer service. Businesses also use consumer profiles or consumer studies (detailed descriptions of customers who buy organizational products). Developing such profiles helps a business generate ideas for improving customer acceptance of organizational goods and services.53

Competitors. All organizations have competitors, those companies that battle with your business for customers. Macy’s has Bloomingdale’s and General Motors has Ford, Chrysler, and several foreign competitors. A local hair salon competes with others in the neighborhood, and a local computer repair company competes with others like it in the same city.

Competitors are generally of considerable concern for small businesses. No small business can afford to ignore its competition, including international competition. When a small business does ignore its competition, it is likely to pay a very serious price because a small business usually has fewer prospects available to compensate for its mistakes.

Understanding the competitive environment is a fundamental challenge that all nonmonopolistic business owners must face. In terms of pricing, products, and services offered, new products developed, and the like, competitors represent an important environmental element that you must monitor and be prepared to respond to effectively.54 Furthermore, understanding competitors is a key factor in developing effective strategy. Overall, your strategy should be to search for a plan of action that will give your business a competitive advantage over your competitors.

Labor. The labor component of the task environment comprises factors influencing the availability and accessibility of qualified workers to perform the necessary tasks of your small business. While not all small businesses have employees, the growth of a business is very closely tied to its ability to attract and hold onto qualified workers. Therefore, as your company grows, issues such as skill levels, trainability, desired wage rates, and the average age of potential workers will become increasingly important to the operation of your small business.55

Government or Regulators. Federal, state, and local governments influence what small businesses can and cannot do. Some federal legislation has tremendous impact on small businesses. For example, federal and ­local laws require that businesses pay all hourly workers time and a half for each hour worked over 40 hours per week. Likewise, for the same types of businesses, the Civil Rights Act of 1964, as amended, makes it unlawful for an employer to discriminate against employees because of race, color, religion, sex, or national origin. Focusing on a totally different domain, another federal law, the Occupational Safety and Health Act of 1970, established an extensive list of safety and health standards that businesses are required to maintain.

Several legal statutes, executive orders, and court decisions are mandated measures designed to protect the rights of employees. Given that associated regulations exist across a very wide span of business operations (e.g., taxes, banking and financial services, environmental issues, etc.), the preceding examples of employee-oriented regulations simply demonstrate the constraints that government regulations can place on small businesses.56

Pressure Groups. Small business owners cannot fail to recognize the special interest groups that attempt to influence the actions of businesses, such as Ralph Nader’s Center for Responsible Law and other lobby groups. As social and political causes change, so too does the power of pressure groups. You should be aware of the power that these groups can have with respect to decisions that impact your business.57

Stakeholders. Members of the specific or task environment are often described as stakeholders (e.g., other companies, institutions, groups, or persons who affect a business).58 Stakeholders are key constituencies that have: (1) a “stake” in how a business operates; and, (2) a relationship of mutual influence with the business. Members of the task environment of your business are major stakeholders. “Society-at-large” and “future generations” are also stakeholders. Among other things, stakeholders ­introduce concerns regarding such issues as sustainability and the natural environment. Business decisions are often made with an analysis of the extent to which a business is creating value for and satisfying the needs of its multiple stakeholders.59 Keep this in mind.

Completing Step 2 of the strategic planning process will allow you to evaluate environmental conditions (both general and specific) faced by small businesses like yours. The information gathered in this step (Step 2) and in Step 3 (which will be discussed shortly) can serve as a foundation for the formulation of business strategy that will operate as your guide to the future direction of your business.

Step 3. Conducting a Situational (SWOT) Analysis

A situational analysis can also help you develop strategies that will facilitate accomplishment of your business’s mission and goals. You should systematically analyze specific factors and forces that affect your business’s ability to meet its goals in both the short term and in the future. Such factors and forces exist both inside your business and outside in the environment.

A popular planning technique used to analyze a business situation is known as a SWOT analysis. A SWOT analysis is a planning exercise through which you can identify internal business strengths (S) and weaknesses (W), and external (environmental) opportunities (O) and threats (T).60 See Figure 2.2.

Ideally, a SWOT analysis can help your company determine how to increase internal strengths and minimize internal weaknesses, while maximizing external opportunities and minimizing external threats.61 The SWOT analysis will cause you to look very critically at your business, perhaps in ways that you might not have ever considered. Moreover, recall that, in Step 2, forces in both the general and task environments were discussed from the perspective of potential effects on a business. The SWOT analysis will help you to identify those forces that can produce opportunities that your business can take advantage of and threats that can harm your business’s current or future situation.

Identifying Strengths and Weaknesses

The first step in a SWOT analysis is to identify your business’s strengths and weaknesses. Strengths are skills and capabilities that enable your business to conceive and implement its strategies and to accomplish its mission, goals, and objectives. Among other possibilities, business strengths can include the following:

• Well-trained, competent employees

• Supportive customer base or constituency

• A customer-oriented organizational culture

• Professional expertise

• Strong financing

• Superior reputation

• Ownership of intellectual property (patents, trade secrets, etc.)

In the early 1990s, three approaches to analyzing and building internal strengths became prominent. The first approach was developed by two noted researchers and consultants, C. K. Prahalad and Gary Hamel, who proposed that an organization’s key strengths are its core ­competencies—the organization’s collective learning, especially as related to the technology and management processes that make a firm competitive. For example, by reputation, Honda knows how to make engines better than anyone else. This has allowed Honda to make automobiles and motorcycles that have given Honda a dominant position in both markets.62 A small business like a small law firm or medical practice should develop core competencies such as specific knowledge or specific expertise in a particular area of law or medicine.

Next, McKinsey and Company consultants, George Stalk, Philip Evans, and Lawrence E. Shulman, developed a broader concept than core competencies. This team put forth the term, capabilities, which refers to collective, cross-functional, value-adding organizational processes that create competitive advantages. Capabilities require investment in support activities beyond what might seem necessary on the surface. For example, Wal-Mart has developed a superior logistics system that has enabled it to beat K-Mart’s prices.63 A similar example would be a small business that develops a superior logistics system that will enable it to reliably beat its competition in getting its product to customers because the company’s suppliers are able to deliver ready-to-ship goods more quickly.

Broader still is the concept of competing through resource bases. A number of management experts have suggested the need to build substantial resources, including those consisting of intangible assets such as employee skills and organizational knowledge. These resources then serve as a basis for competition; hence, the term “resource-based strategies,” which allow companies to seize opportunities and ward off threats. Many experts consider this approach critical to strategizing in complex, dynamic environments.64

Thus, examining the strengths of a business has become an exercise in identifying an organization’s core competencies and analyzing its capacity to achieve its goals and objectives. Strengths can be capabilities that, by virtue of being rare, costly to imitate, and nonsubstitutable, can become potential sources of competitive advantage. Core competencies can also be found in special knowledge or expertise, superior technologies, or unique distribution systems, among many other possibilities.65

Business weaknesses are the other side of the coin. The goal of the analysis of weaknesses is to identify those things that inhibit performance and hold your business back from fully accomplishing its goals and objectives. Some examples of business weaknesses include the following:

• Outdated products

• Outmoded technology

• Lack of capital

• Lack of properly trained employees

• Loss of market share

In practice, small businesses have a difficult time focusing on weaknesses, in part because the owners of such businesses are often reluctant to admit deficiencies in skills and capabilities. Evaluating weaknesses can also call into question the judgment of the business owner who chose the organization’s mission in the first place, and who might have failed to invest sufficiently in the skills and capabilities needed to accomplish it. From the perspective of an effective SWOT analysis, identification of weaknesses should never be viewed as a finger-pointing exercise, but rather as an opportunity to step back, take a fresh look, and get right what might have been missed or inadequately accounted for earlier.

Businesses that fail to either recognize or overcome weaknesses are likely to suffer from competitive disadvantages. A business has a disadvantage when it is not implementing valuable strategies that are being implemented by competing businesses. Not unexpectedly, businesses with competitive disadvantages can expect to attain below-average levels of performance.

Strategies can be developed to eliminate or reduce identified weaknesses, or to possibly convert the weaknesses into strengths. Even if some weaknesses cannot be corrected, you need to understand what those weaknesses are.

As a result of completing this first step in the SWOT analysis, strategies can be developed to build upon business strengths and to eliminate or at least attempt to minimize some of the negative impacts of weaknesses that have been identified.

Identifying Opportunities and Threats

Evaluating opportunities and threats requires an analysis of an organization’s external environment. Business opportunities are areas that might generate higher performance for your business; whereas, business threats are forces that can compromise the survival prospects or hinder the growth of your business. Consider that the emergence of the Internet as a viable marketplace has provided both opportunities and threats for small businesses like yours. Businesses that have approached the Internet strategically and have used it effectively have succeeded, while many businesses that have ignored it or used it ineffectively are likely to have achieved much less success.66

Based on the strengths and weaknesses of the business and analysis of the environment, among other considerations, opportunities might include, for example:

• Lower interest rates, which can make infrastructure investments less costly

• New markets to explore

• A stronger economy with increased consumer purchasing power

• Competitor weaknesses

• Emerging technologies

Business threats are areas that make it difficult for a business to perform at a survival or even higher level. Threats can include a wide range of possibilities (e.g., a poor economy, declining resources, new government regulations, and changing consumer tastes, etc.).

A well-known model, developed by noted Harvard professor, Michael Porter, identifies five competitive forces, or potential threats, in the external environment that have the potential to affect how much profit businesses competing in the same industry can expect to make.67 Those threats are as follows:

1. Rivalry among competitors

2. New entrants into the industry

3. Emergence of substitute products or services

4. Bargaining power of suppliers

5. Bargaining power of customers

Porter argues that business owners should pay particular attention to these five forces. Once pertinent threats have been identified, strategies can be developed and enacted to nullify, as much as possible, the threats that might actually emerge.

With the SWOT analysis completed, and strengths, weaknesses, opportunities, and threats identified, you can continue the strategic planning process by identifying specific strategies for achieving the mission and goals of your business. The resulting strategies should enable your business to attain its goals by building upon its strengths and correcting its weaknesses (where possible), while taking advantage of opportunities and avoiding or countering threats.

Step 4. Analyzing Resources

After completing Steps 1 through 3 of the strategic planning process, you should then examine your resources and ask the following questions:

• What skills and abilities do my employees have?

• What is my cash position?

• Can my business raise additional capital?

• Can my business develop new and innovative products?

• How modern and efficient is my physical plant?

• What is my business reputation in terms of quality, efficiency, and customer service?

• Are we keeping up with important trends in our industry?

• Where should my time and attention be focused?

This step forces CEO’s and presidents like you to recognize that every business, no matter how large or small, is constrained in some way by the resources and skills it has available. For example, a maker of office furniture cannot, at the drop of a hat, decide that the business is going to make airplanes. The furniture maker most likely does not have the talent, capital, physical plant, and so forth, to accomplish the goal of making airplanes that fly. Therefore, as a small business owner, you should take a look at the resources available to you and then develop strategies for success in the near future. Available resources that are valuable, rare, hard to imitate, and organized can be viewed as your core competencies.68

Step 5. Formulating Strategies: Choosing Among Alternatives

In strategy formulation, business owners work to develop a set of strategies that will allow the business to accomplish its mission and achieve its goals. Strategies are major courses of action that a business takes to meet its goals and objectives. Strategy formulation involves the development of concrete and measurable action plans, policies, and budget allocations.69 Organizational resources such as time, money, and people can sometimes be wasted on things that do not really contribute much value. A strategy helps to ensure that resources are used with consistent strategic intent, with all energies directed toward accomplishing the mission and goals of the business.70

Your reason for formulating strategies (courses of action) is to move your business from where it is to where you want it to be. In this step, you will encounter several general and business-specific strategies that small business owners like you can develop to steer your business toward goal accomplishment and success. Although larger organizations tend to be more precise in the development of organizational strategy than smaller businesses, every organization should have a strategy of some sort. For strategy to be worthwhile, however, you should develop clear business goals and objectives, which, in turn, must be consistent with the mission of your business.

Accordingly, while many people assume that strategy is the exclusive domain of top management, this simply is not true. Its relevance for those lower in the organization might not be as apparent, but it is relevant for everyone in your business. Managers and staff employees at all levels need a general understanding of your company’s strategy.71

Understanding Levels of Strategy

Three levels of strategy can be found in most organizations. These are corporate-level (grand) strategy, business-level strategy, and functional-level strategy. Following is a discussion of each of these levels of strategy.

Corporate-Level Strategy. Corporate strategy (often referred to as “grand strategy”) provides guidance for your business as a whole and describes the scope of business operations by answering the strategic question: “In what industry(ies) and market(s) should my business compete?”72 The purpose of corporate strategy is to set direction and guide resource allocations for the entire enterprise.

Business-Level Strategy. Business strategy is the strategy for a single business, strategic business unit (SBU), or product line. It involves answering the strategic question: “How will my business compete for customers in this industry and market?”73 Most small businesses fall into this category, because, for small businesses with a single product or service, the business strategy is the corporate strategy. By comparison, a large enterprise or conglomerate will have a corporate strategy covering the entire organization, and each of its business units (SBU’s) will have its own business (or business-level) strategy.

Typical business strategy decisions include choices about product or service mix, facilities, location(s), new technologies, and the like. Resource allocation within the business is also a major concern.

Functional-Level Strategy. Functional strategy guides the use of organizational resources to implement a business strategy. This level of strategy focuses on activities within functional areas such as manufacturing, marketing, finance, and human resources. As a business owner, you must decide how to best utilize resources within each functional area to implement your business strategy. This generally involves choosing among management practices to improve such things as operating efficiency, product quality, customer service, and innovativeness.

Examples of issues addressed by functional-level strategies include the following:

• How should suppliers be selected?

• Should the focus be on production runs for inventory or production primarily in response to customer orders?

• What production operations should be changed?

• How should products or services be marketed and distributed?

• What features and image should be emphasized in marketing?

• What should be the criteria for issuing credit to customers?

• How should the performance of employees be reviewed?74

Formulating Your Grand Strategy

While the previous discussion addressed levels of business strategy, focus will now shift to examining the different types of strategies (alternatives) that you can select from to best accomplish the mission and goals of your business. A grand strategy is a comprehensive, general approach for achieving the strategic goals of a business. Sometimes called a master strategy, the grand strategy provides the basic strategic direction for the business. Fundamentally, an overall grand strategy for your business can be designed to help your business: (1) maintain its current position in the industry (stability strategy); or to, (2) expand (growth strategy); or to, finally, (3) subject it to planned reductions in size or scope, or both (retrenchment strategy).75

Stability Strategies. Stability strategies are intended to ensure continuity in the operations and performance of a business. A grand stability strategy for a small business generally means that the business will remain in the same line(s) of business as it has in the past. No new product lines will be added, and no product lines will be eliminated. The business will generally maintain a stable and unchanged corporate portfolio. For example, a small law firm specializing in personal injury cases will continue doing so and will not take on criminal cases in the near future. Similarly, a regional beauty supply business will continue to sell beauty products and will not introduce a clothing line.

At the business level, stability strategies require very little, if any, change in the organization’s product, service, or market focus. Businesses that pursue stability continue to offer the same products and services to the same target markets. This strategy could include maintaining the status quo or growing in a methodical, but slow manner. This does not mean that a business will not make more money with this strategy. The business might attempt to capture a larger share of the existing market through market penetration, better marketing, or by raising prices.

A stability strategy can also mean continuing to do what the company has been doing, but in a better way. In using this strategy, you might decide to try to improve products, increase quantity, or improve the way that you sell the same products.

When should a company pursue stability? A stability strategy is appropriate when a business owner views the company’s performance as satisfactory and the environment appears stable and unchanging. If your company is doing reasonably well, or if you might not want the risks or hassles associated with aggressive growth, or if your business is now ­stable after having struggled through periods of explosive growth, stability might provide a welcome respite for you. Small, privately owned businesses constitute the largest segment of businesses that are most likely to adopt a strategy of stability.76

Growth Strategies. Growth strategies are designed to increase profits, revenues, market share, or the number of places (stores, offices, locations) in which the company does business. A growth strategy usually begins with increasing the level of an organization’s operations. This usually involves such measures as more revenues, more employees, and more of the market share. For small businesses, growth can be achieved through direct expansion, a merger with similar firms, or diversification, which will be discussed later. Growth strategies can also involve the development of new products or services for new or existing markets, or the entry into new markets for existing products or services. The purpose of growth strategies is to increase the sales and profits for your small business in the long term and to enhance the positioning of your business in its market(s).

At the corporate level, growth strategies imply the addition of one or more new business(es) to the corporate portfolio. This may be accomplished by adding a business that has synergistic (mutually beneficial) potential when joined with the existing business, or by adding a business that is unrelated to the existing business(es). A small business example would be a daycare center or an ice cream parlor that adds a new center or parlor or buys out a competitor in a nearby neighborhood.

In many cases, however, growth strategies focus on being innovative, seeking out new products or services or opportunities, or taking new risks. Such strategies are suitable for businesses that operate in dynamic, growing environments, where creativity and organizational responsiveness are key factors, as is the case with electronics, wireless devices, or custom construction.77

Growth can also be achieved through diversification, where expansion takes place in new or different business areas, or both. A strategy of related diversification (also called horizontal integration) pursues growth by acquiring new businesses or entering business areas that are related to the business that already exists. A strategy of unrelated diversification (a conglomerate) pursues growth by acquiring businesses or entering business areas that are different from the one that already exists.

Diversification can also take the form of vertical integration, where a business acquires suppliers (backward integration) or distributors (forward integration). A small business example of backward integration would be a regional construction firm purchasing a local small supplier of building materials. An example of forward integration would be that same construction company purchasing a small real estate company to sell the condos that it builds. On a larger scale, an example of forward integration occurred in the beverage industry when both Coca-Cola and PepsiCo purchased some major bottlers.78 Also, PepsiCo’s purchase of KFC, Taco Bell, and Pizza Hut is another example of forward integration (which, in this instance, allows PepsiCo to sell Pepsi soft drinks in these restaurants without competition).

Retrenchment and Restructuring Strategies. When businesses are in trouble, perhaps experiencing problems brought about by a bad economy or too much growth and diversification, often the solution employed is a strategy of retrenchment and restructuring. The purpose of a retrenchment strategy is to turn around poor business performance by shrinking the size and scope of the business.

Sometimes called a defensive strategy, retrenchment is designed to reduce business losses, usually through cost reductions, such as cutting back on nonessential expenditures, instituting hiring freezes, closing poorly performing businesses or subsidiaries, or selling entire lines of products or services. Cost-cutting can also take the form of asset(s) reduction, such as selling off land, equipment, plants, and so forth. An example of this is a small radio station that decided to sell a parcel of land adjacent to the station to raise capital for new equipment that it needed to expand its range. See Chapter 6 for a more thorough exploration of cost-cutting strategies, as well as a better understanding of various cost-cutting approaches.

Retrenchment and restructuring can also include downsizing, divestiture, turnaround, bankruptcy, and liquidation. Restructuring by downsizing decreases the size of operations, often by reducing the workforce. Such cutbacks are most successful when done in targeted ways that advance specific performance objectives, rather than being simple “across-the-board cuts.” The term, rightsizing, is sometimes used to describe downsizing with a clear strategic focus.

Restructuring by divestiture means that a business will sell off part(s) of the company to refocus on core competencies, cut costs, or improve operating efficiency. For example, a real estate company might sell off its rental business to concentrate on housing sales that are on the rise. Restructuring by turnaround focuses on fixing specific performance problems, such as improving customer service through proper training to increase sales.79

There is no shortage of companies that have used retrenchment strategies—General Motors, Sears, and Pillsbury, to name a few. Many small businesses are included in the number of retrenchments, due to the downturn in the economy, foreign competition, government regulations, mergers and acquisitions, and changes in technology. Thus, the need for retrenchment is not a reason to be ashamed.

After cutting costs and reducing the size and scope of a business, a second step in a retrenchment or restructuring strategy is recovery. Recovery encompasses the strategic actions that a business takes to return to a growth strategy. The purpose of the retrenchment-and-recovery process is to restore a business to “good health.”80 Of course, if a business cannot recover, the worst-case scenario is total liquidation of the company, where a business ceases operation and its assets are sold to pay creditors.

Generic Business-Level Strategies

Business-level strategies define the major actions that a business takes to build and strengthen its competitive position in the marketplace. While there are no two businesses or strategies that are exactly alike, some strategy characteristics are common to many businesses. Michael Porter, the well-known Harvard professor of industrial economics who developed the five forces model that was described earlier, has also identified three generic strategies that characterize the ways that many businesses can compete in pertinent markets. These strategies are referred to as: (1) cost leadership; (2) differentiation; and, (3) focus.81

Cost Leadership Strategy. Most businesses try to hold down costs; however, a cost leadership competitive strategy goes further. A business that pursues this strategy aims to be the low-cost leader in its market. Using a cost leadership strategy, a business competes on the basis of price. The low-cost structure allows the business to make profits even when selling at lower prices than competitors. To do so, a business must be highly efficient so that it can achieve a low-cost position. It usually does this by minimizing costs across the board.82

With a low-cost strategy, businesses try to gain a competitive advantage by focusing the energy of all business functions and units on driving costs down below the costs of industry rivals. Costs can be minimized by maximizing capacity utilization, achieving size advantages (economies of scale), capitalizing on technology improvements, or employing a more experienced workforce, among other possibilities. For example, this strategy could require that manufacturing managers search for new ways to reduce production costs; or research and development (R&D) managers to focus on developing new products more cheaply, or marketing managers to find ways to lower the costs of attracting customers.

As previously mentioned, companies pursuing a low-cost strategy enjoy a competitive advantage based on low prices. Illustrations of this are that BIC sells razor blades that are cheaper than Gillette’s and ballpoint pens that are cheaper than Cross or Waterman pens, due to low manufacturing costs. In the financial services industry, the Vanguard Group is an example of cost leadership. By keeping costs low, the company attracts customers by being able to offer mutual funds with low expense ratios.83 Similarly, a small business that bids on a government contract and can provide quality service at a lower price (perhaps, due to lower overhead expenses) will often get that government contract, beating out its competitors.

Differentiation Strategy. Businesses that pursue a differentiation strategy compete by offering products or services that are, or are perceived to be, different from those of competitors along some dimension(s) that customers perceive as important. Distinctive characteristics can include such things as better quality, product design, reliability, availability, ­exceptional customer service, after-sales service, innovativeness, or image. This strategy can require more spending on design or R&D to differentiate the product or service; and, costs might rise as a result. However, the business will often charge a higher price for the differentiated product or service feature than the price(s) charged for similar products sold by low-cost competitors. The premium price, as it is called, allows the business to recoup higher production or design costs. An example would be a small architecture firm that sells its specialized “green” products to ­environmentally-conscious clients who are willing to pay higher prices for the products.

Many companies use a differentiation strategy; for example, ­Revlon (product image), Apple Computers (usability), Volvo (safety), and ­Mercedes (quality). Significant attention and money are devoted to marketing to differentiate products and create unique product images. However, this strategy can benefit your business by allowing for premium pricing that can result in high profits.84

Focus Strategy. A focus strategy occurs when a business targets a specific, narrow segment of the market and thereby avoids competing with other, often larger, competitors that target a broader segment of the market. Businesses that choose this strategy attempt to serve the needs of a niche customer group, geographic area, or product or service line in ways that are better or cheaper than competitors.

Companies that pursue a focus strategy can compete in the chosen niche market with either a cost leadership or differentiation strategy. Company examples of the focus strategy include: Rolls Royce, Ferrari, and Maserati, which use a differentiation strategy to cater to buyers who can afford the sticker prices; Jet Blue and Easy Jet, which focus on no frills flying using a focused cost leadership strategy; and, Fiesta Mart, which caters specifically to Hispanic customers.85

Smaller businesses with limited resources often choose one of the two versions of the focus strategy (i.e., cost leadership or differentiation) and apply it within a specific niche market. An example is a small business that concentrates on marketing its services to the local community or the federal government.

Step 6. Implementing Strategy

After identifying appropriate business and corporate strategies to accomplish your business’s mission, goals, and objectives, you are confronted with the challenge of putting those strategies into action. The importance of strategy implementation should never be underestimated, for the best-formulated strategy is worthless if it cannot be implemented effectively.86 This means that, if your business is to achieve the best results from its strategic planning efforts, you must make sure that the chosen strategy is put into action.

Strategy implementation can be described as a five-step process:87

1. Assign responsibility for implementation to the appropriate individuals or groups, or both.

2. Draft detailed action plans that specify how a strategy is to be implemented.

3. Establish a timetable for implementation that includes precise, measurable goals linked to the attainment of the action plans.

4. Allocate appropriate resources to the individuals or groups responsible for implementation.

5. Hold specific individuals or groups, or both responsible for the attainment of corporate, business, and functional goals.

Unfortunately, some business owners simply underestimate and under-manage the strategy implementation process. Businesses that achieve strategic success commit a tremendous amount of time, energy, and effort to making sure that the strategy is implemented effectively.88

Strategy implementation answers the question, “How can I get my business to where I want it to be?” Answering that question requires that functional strategies be developed and implemented, and your business systems must be designed to ensure that selected strategies can be implemented. In addition, strategic control mechanisms should be put in place, as will be discussed shortly.

Step 7. Evaluating Results

The last step of the strategic planning process is evaluating and monitoring the strategic plan, as a whole, to make sure that it is being implemented properly. Strategic control (a popular term for this step) involves ensuring that all steps of the process are executed appropriately and compatibly, and are functioning properly. Most importantly, strategic control requires reviewing results to measure progress, identify and resolve problems, and make changes if progress toward mission accomplishment is not being made. Without strategic controls, you would never know whether or not your strategic plan is working.

Instituting strategic control includes using information systems that provide feedback on the way strategic plans are being carried out, as well as on the apparent effects. Such systems enable managers to make adjustments in the implementation of strategic plans, as necessary. An effective control system identifies problems and signals you and pertinent entities within your business when a change might be needed.89

Strategic goals and strategies should be the basis of the review process. Company presidents or CEO’s, managers, teams, and individuals should review results at the relevant levels and actively participate in evaluating those results. In general, control mechanisms can be either feed-forward or feedback controls. Feed-forward controls are designed to identify conditions or changes in the external environment or in internal operations of the organization that can affect its ability to fulfill its mission and meet its strategic goals. Feedback controls compare the actual performance of your business to its planned performance.90

Small businesses, in particular, should maintain both feed-forward and feedback controls. For example, screening controls (another name for feed-forward controls) are important as a means of protecting your business from ill-effects that could be avoided by taking front­end action. In other words, screening controls are designed to serve as an organizational filter to prevent undesirable inputs into your business. As an illustration, if you owned a daycare center, you would certainly have background checks done on any prospective employee. Why? You would do so to prevent (or greatly reduce the likelihood of) employing a pedophile. This would be viewed by the public as a basic action that should be taken by any responsible organization aspiring to be paid for caring for children. Therefore, any such action that you might take to enhance your chances of employing the right people (background checks, requiring and checking references, etc.) would be considered screening (or feed-forward) ­controls. Similarly, you would likely find it well worth your while to ask for an exit interview with any valued employee who voluntarily decides to leave your business. Doing so should give you the benefit of honest feedback about departing employees’s perceptions of your business’s major strengths and weaknesses, and possibly opportunities and threats that you might not know about—in other words, how you might be able to improve your business.

Finally, corrective action based on evaluation and feedback should take place throughout the strategic planning process to keep things moving in the right direction.91 The control systems that are put in place should be carefully thought through and not merely tacked on as an afterthought. The ultimate goal of a strategic control system is to, in a timely manner, detect and correct problems that can and sometimes do occur. Ultimately, your purpose is to keep strategies updated and on target, without sacrificing innovation and creativity.

A Final Note

Strategic planning is a critical business activity that can affect the short-term and long-term performance of a small business. It is a comprehensive and ongoing process aimed at formulating and implementing effective strategies for business success. Effective strategies help a business to identify its distinctive competencies through its mission and vision statements, carve out its scope, and deploy its resources to achieve targeted goals and objectives. Seriously embracing and investing in the process should yield considerable benefits for you and your small business. Good luck as you strategically plan for business success!

Chapter Summary Checklist