Strategic Planning for New and Emerging Businesses: A Consulting Approachby Fred L. Fry, Charles R. Stoner, Laurence G. Weinzimmer, Charles R. Stoner, Laurence G. Weinzimmer
Business is competitive in any arena, but for new companies and those undertaking high growth, stakes are exceptionally high. In an all-new edition of Strategic Planning, authors Fry, Stoner and Weinzimmer provide an entrepreneurial edge to the strategic planning process, offering a wealth of practical advice for emerging companies. Learn how growing/i>
Business is competitive in any arena, but for new companies and those undertaking high growth, stakes are exceptionally high. In an all-new edition of Strategic Planning, authors Fry, Stoner and Weinzimmer provide an entrepreneurial edge to the strategic planning process, offering a wealth of practical advice for emerging companies. Learn how growing organizations can use their small size as an advantage to reach customers more quickly and outperform the competition. The key to reducing risk and expanding opportunity, advise the authors, is creating a strategy for implementing change and setting an action plan for growth. Their latest work does just that - in a language anyone can understand.
The authors' expertise in strategic planning - and consulting to companies on the strategic planning process - comes shining through in this new edition. The result is a useful tool for small company executives and consultants alike. The practical tips and key insights provide a framework for managing change, and developing a mission that focuses on what really matters - customers.
About the Author:
Fred L. Fry, Charles R. Stoner, and Laurence G. Weinzimmer all teach strategy and management at Bradley University in Peoria, Illinois. They are acknowledged experts in their fields, consulting regularly on strategy and organizational management issues to companies ranging from the Fortune 500 to small and medium sized enterprises and family-owned businesses.
Fred L. Fry is Professor of Management in the Business Management and Administration Department. He has taught a variety of courses including Small Business Management, Entrepreneurship, and Strategic Management. Charles R. Stoner is the Robert A. McCord Professor of Executive Management Development. He has taught Organizational Behavior, Leadership, Management Theory and Strategic Management. Fry and Stoner are authors of Mu
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Read an Excerpt
THE NATURE OF STRATEGIC PLANNING
This chapter sets the stage for strategic planning in new and emerging businesses. You will learn how small businesses are different from larger ones and why emerging businesses are particularly significant. You will read why planning is important for all small businesses, and you will understand why the planning process is especially critical in new and emerging businesses. You will be introduced to the planning model that forms the basis for our entire book. In particular, when you have finished reading this chapter, you should
- be aware of the need for planning;
- be able to differentiate emerging businesses from other small businesses;
- be able to identify barriers to planning;
- understand what strategic planning is and why it is important for new and emerging businesses;
- realize the benefits of planning, especially for emerging businesses; and
- understand how the strategic planning model works.
Perhaps no activity more fully symbolizes the American dream than owning a small business. Taking charge, exercising personal creativity and independence, risking substantial personal funds, working long hours, and planning competitive business strategies are all part of the challenge and excitement that lure one into the world of small business. But the dream of owning and operating a business can quickly turn into a nightmare of devastating frustrations if the firm 's performance lags behind original projections and expectations. Although there are millions of small businesses in America today, successful growth-oriented small business ventures are the exception rather than the rule. Of the new small businesses started each year, most will struggle and many will fail within the first five years. These crushed hopes and ravaged fortunes reflect the effort of strong-willed persons who fought to build their fledgling operation into viable competitive entitiesand lost.
Just as we read the horror stories of those who failed, however, we also read of the major successes of others. Names like Bill Gates, Sam Walton, J. A. Marriott, Michael Dell, and Walt Disney are examples of entrepreneurs who began businesses and grew them into mammoth organizations whose influence is felt across the country and around the globe. Thus, the failure of many is offset by the wildly successful ventures of others.
In between these two extremes are millions of businesses in America that have provided a comfortable living for their owners. Many of these businesses have remained small. At times, the decision to stay small is dictated by the competitive marketplace. There may be so many similar firms or so many with dominant market strength that opportunities for meaningful growth are limited. At other times, the decision to stay small is simply the entrepreneur 's preference; the entrepreneur doesn 't want to invest the time or resources to grow the business. This decision, however, doesn 't minimize the need for planning. The volatile nature of current markets makes planning critical.
Some businesses have seen substantial growth over time. In fact, thousands of businesses have made millionaires of their owners. These businesses grew because the owners purposefully decided to invest the time and effort to help their business emerge from the quiet complacency of a small business into the dynamic world of a growing concern. Growth means constant change, and change demands planning. It is for those entrepreneurs who start new businesses and those owners who decide to grow their businesses that this book is written. Anyone who reads the book will certainly benefit from it, but it is the owners of new and emerging businesses that are especially the focus of this book.
The Need for Planning
Although small businesses encounter difficulties for numerous reasons, certain consistent themes persist. Some companies are victims of unfortunate and largely unpredictable environmental and competitive occurrences. Some simply miss their market completely. However, the vast majority of small firms fall prey to their managers ' own lack of foresight. These managers don 't properly analyze and evaluate their relative competitive strengths. They fail because they are out of touch with their market and don 't perceive shifting consumer tastes and preferences. They fail because they lack a clear blueprint of necessary goals and support activities and therefore encounter costly duplications, overlaps, and internal inefficiencies. In short, these managers fail because they are unable or unwilling to focus on one of the prime determinants of business successstrategic planning.
Consider the following example. Bill Stern was an intelligent and industrious 28-year-old high school physics teacher. Bill felt particularly restricted and unfulfilled as a teacher and yearned for greater freedom and independence. The logical choice: start his own business. Bill was committed to working hard to make this career change a success. In exploring his entrepreneurial options, he was driven by a strong desire to do hands-on work and not be confined to the rigors and frustrations of a teaching job. Because Bill loved and appreciated motorcycles and motorcycle racing and was an accomplished motorcycle mechanic, he decided to open a motorcycle repair shop. Eighteen months later, after exhausting the family 's savings and enduring a regular regimen of 60-hour work weeks, Bill recognized that the business was doomed and filed for bankruptcy.
Essentially, Bill 's business decisions were spontaneous and unplanned. In the beginning, he reacted to a strong internal need for independent activity without undertaking a meaningful analysis or evaluation of his business prospects. He failed to address important questions about the actual demand for the proposed service. Bill relied on personal opinion and feeling and consequently was overly optimistic about the market potential for his business. Further, no competitive analysis was performed. Although Bill knew the names of his major competitors, he had no feel for the size of their business, the market niches they attempted to reach, or the degree of success they experienced. His repair shop was geared to the hard-core, serious motorcyclist. Unfortunately, this was the same segment of the market that his two major competitorsin terms of size and reputationhad also targeted.
Careful planning and analysis would have revealed that another large segment of the marketthe weekend rider who didn 't know much about motorcyclesmight have been a more viable target for his business. Here, his major competition would have been dealers who generally had reputations for poor service and high prices. Recognizing this niche and exploiting it through a well-planned advertising program might have attracted numerous customers, although a careful analysis of the number of motorcycle riders in Bill 's geographic area in relation to the number of competing repair shops would likely have dissuaded him from moving into this high-risk, low-potential business in the first place.
Bill 's story is only one of the many unfortunate examples of good intentions and hard work undermined by a lack of solid, systematic planning. A number of research studies have demonstrated positive associations between planning and organizational performance; and inadequate planning is regularly reported as one of the key causes or predictors of small business failure.1 Stated simply, thorough and systematic planning can significantly discriminate between successful and unsuccessful small businesses. Accordingly, the purpose of this book is to help owners and managers of new and emerging businesses, students, and consultants develop a solid, logical, strategic approach to small business planning.
The New Business
Just as Bill Stern failed to plan adequately for his new business venture, many entrepreneurs fail to do the necessary homework before starting a business. The new venture owner should at least consider the following items before launching a business.
First, potential entrepreneurs should perform a self-analysis to determine if they have "the right stuff" to run a business. Many entrepreneurs, like Bill Stern, start a business for the wrong reasons. Just because someone likes to cook doesn 't mean they can run a restaurant. A person who is quite adept at building Web sites, writing code, or designing networks may make a lousy owner of a computer consulting business. Thus, potential entrepreneurs must assure themselves that they have the analytical ability, the organization skills, and the financial resources to make a business go.
Second, the new business owner must consider the nature of the competition and the environment the business will face. A market that is too small, like Bill 's, will probably not succeed even if the competition is not fierce. If the business environment is riskier than usual or is dominated by larger firms, the new business will have an even tougher time succeeding. Accordingly, both the size of the market and its dynamics must be studied carefully.
Third, the availability of resources is critical for new ventures. The potential entrepreneur must carefully consider whether sufficient financial resources exist for both the start-up and later growth stages of the business. Most businesses that fail do so because of insufficient capitalization. Similarly, the new owner must consider whether an adequate, skilled workforce is available, whether the right technology is in use, and whether sufficient marketing skills exist to communicate with customers.
The Emerging Business
An emerging business is one that is growing or is poised for growth. The tasks facing owners and managers* of an emerging business who are attempting to grow the business to new levels of performance are far different from the tasks necessary to simply operate a small business at existing levels. Indeed, the culture in emerging businesses is different from that in traditional small businesses.
First, managers of emerging businesses must be proactive as they direct their thinking to the futureanticipating changes and making decisions about what is likely to occur. They must think in terms of anticipated changes in the competitive environment. They must think in terms of the financing necessary to reach new heights. They must think in terms of human and physical resources necessary to compete in the future. They must consider product and service development that will meet customer needs in the future.
Second, the climate or ambience in an emerging business is different from that of traditional small businesses. In emerging businesses, growth is the focus; it is the topic of conversation in meetings and the discussion at coffee breaks. Managers and other employees discuss competition, the industry, and the economy as a matter of course.
Consider the following example of a company that moved from being a small business to being an emerging business. Gary Erickson and Lisa Thomas owned a small business in Berkeley, California, called Kali 's Sweets and Savories. It was a Greek-style bakery selling calzones and cookies to coffee shops and groceries. On a cross-country bike ride, Erickson relied on PowerBars for nourishment. After overdosing on the PowerBars, Erickson realized that they had the capacity at Kali 's to produce similar bars from all-natural ingredients. Introducing its Clif Bar, Kali 's sells the cookielike bars as all-natural energy bars. Though Kali 's is still small compared with the firm that makes PowerBars, it did project 1997 sales of $22 million.2
The difference between Kali 's Sweets and Savories, the local Greek-style bakery, and Kali 's Sport-Naturals Inc., the maker of Clif Bars, is one of focus. Kali 's had to change its focus from a local market to a broader geographical market. It had to concentrate on the competition, on how to market the bar, and generally on how to grow. In sum, it moved from being a small business to becoming an emerging business and is on the Inc. 500 list of the fastest growing small businesses.
Barriers to Planning
Even though the planning process is generally considered to be valuable, many small business owners resist planning and don 't feel the need to involve themselves in the process. Although this resistance has numerous sources, a few are most prevalent. Four of the six such sources of resistance discussed in the following sections are endemic to small businesses, while the fifth is unique to new businesses and the sixth is more relevant for emerging businesses.
Barriers to Planning in Small Businesses
First, many small business owners contend that while planning may be important for large businesses, it is unnecessary for small businesses. They insist, "I don 't need to plan. That 's something the big boys do." This notion is an extremely dangerous form of denial. In fact, planning may be more critical for small businesses than for large ones. For example, the small business is likely to be seriously damaged by even minor market or competitive misreadings. Large firms, on the other hand, can more readily absorb the costs of such mistakes. The small business is therefore significantly more vulnerable to the consequences of poor planning.
Second, some entrepreneurs suggest that because the small business is so short-term oriented, planning for the future is only a philosophical exercise. But planning is necessary to take advantage of opportunities and defend against adverse changes and demands that exist whether the firm 's planning horizon is lengthy or compressed. The small business is no better able to isolate itself from these forces than is a large firm.
Third, many small business owners feel that formalized planning confines, constrains, and limits their firm 's flexibility. Indeed, flexibility, or the capacity to respond quickly and adapt to changing environmental conditions, may be the key competitive edge small businesses have over large firms. However, the assertion that planning restricts this flexibility is based on a misunderstanding of the nature and dynamics of strategic planning philosophy. Strategic plans are not unyielding parameters cast in stone, never to be adjusted, modified, or reviewed until the expiration of the operating period to which they apply. Rather, the planning process is a means of gathering information, analyzing the impact of this information on the firm, and refocusing efforts to meet new demands and conditions. As such, strategic planning offers the means to enhance rather than limit the small firm 's flexibility.
A fourth frequently held view is that intuitive, unwritten plans are sufficient. A typical small firm owner may say, "I have a plan all worked out in my head, and that 's good enough." Unfortunately, it usually isn 't. A meaningful plan must analyze the complex interaction of numerous forces and propose a guide for how the firm will deal with these forces. Given the pressures and demands of day-to-day operations, it 's unreasonable to believe that even the most insightful owner/manager can track, monitor, analyze, and develop strategies for dealing with these forces on a timely basis without relying on some formal, written, systematic process. In short, it is extremely difficult for entrepreneurs to transfer what 's in their mind into sets of objective realities that guide their respective firms.
Barriers to Planning in New Businesses
Those starting new businesses are even more vulnerable than owners of existing businesses. A new venture suffers from a lack of history. Existing businesses, of course, can rely on historical data as the prelude for forecasts and planning; the previous year 's data becomes the baseline for current or future years ' forecasts. Unfortunately, the new business can 't rely on history for help. In some cases, such as with the introduction of a totally new product or service, even industry data are not available. Without question, one of the most difficult tasks in planning for new businesses is making an accurate forecast, and, ironically, there is probably no situation in which planning is more important than in the case of a totally new venture selling a totally new product.
Barriers to Planning in Emerging Businesses
Although emerging businesses experience many of the barriers to planning noted above, they also encounter an additional barrier: lack of time. As businesses start to grow, their owners and managers become increasingly stretched for time as they are forced to spend more and more of it dealing with operational issues needed to keep up with growing demand. Thus, they don 't have time for strategic planning. Frequently, they are understaffed, and their employees work long hours just to keep up with the day-to-day demands. Accordingly, planning often goes by the wayside. The planning issue for emerging businesses is so severe that one consultant attributed an estimated 95 percent of all failures in high-growth businesses to internal problems.3
The Benefits of Strategic Planning
It may be intuitively clear that increases in the level and quality of planning are associated with better overall business performance, but let 's examine in more detail some of the benefits of strategic planning.
The overriding benefit of strategic planning is best understood by realizing that it is a change-oriented process. New and small business owners operate in a dynamic, volatile, and ever-changing environment. Their owners must sift through, understand, and appropriately respond to the complex maze of rapid-fire changes they confront daily. Unless the owner senses the pace and direction of change, environmental shifts can overwhelm a small business operation. Strategic planning encourages a careful and systematic reading of shifts in technology, competitor position, and customer tastes. Further, the strategic planning process involves formulating actions to respond to these critical readings. As a result, change becomes a driving force of evolving strength rather than a jarring threat to stability. Consider the following example.
In an industry where similar-sized competitors have recently struggled or gone out of business at an alarming rate, Ross Marketing Services, Inc., has grown and prospered. To a large extent, that success stemmed from the company 's recognition that its survival depended on strategically addressing the change within its industry.
In business for 42 years, Ross has resisted the tendency of many small advertising agencies to maintain the traditional focus on the creative side of advertising. Ross reasoned that because graphic arts were rapidly becoming computer driven, a limited creative focus would be increasingly difficult to maintain competitively. Ross paid particular attention to changing customer needs and made the strategic commitment to transform its business to be able to meet those needs more fully. As a result, Ross launched three new business units: Ross Training and Motivation (with services such as events marketing and sales promotion and training); Ross Lead Management (with services such as database management and lead generation programs); and Ross Custom Publishing (with services such as production art and technical writing).
These three new business areas, along with the core Ross Advertising, have enabled Ross to meet an array of customer demands and provide services it previously subcontracted. The focus on change continues, and Ross Marketing Services, Inc., was recently named Small Business of the Year by its local chamber of commerce. Demonstrating true strategic thinking, Ross 's leaders reason that looking at new technology and blending that technology to meet evolving customer needs will continue to be the formula for success.
Beyond the broad issue of change, strategic planning offers five specific benefits. First, strategic planning helps focus on the competitive nature of the firm. Externally, the plan encourages the managers to look at the competition, the economy, the community, and other key environmental factors to determine where the firm fits. Internally, the plan forces the managers to assess the firm 's strengths and weaknesses. Indeed, this analysis may reveal hidden vulnerabilities or unique strengths. As a result, necessary changes in strategy can be made. It is hoped that initial planning efforts will foster the habit of periodically reassessing the firm 's competitive position. In fact, the process of carefully assessing the business and becoming aware of its potential and capacity may be even more significant than the plan that is eventually derived from this analysis.
An example illustrates this point. A local businesswoman had been regularly counseled by a business consultant to develop a plan for her growing operation. She was, of course, quite busy and never got around to it. One day the woman rather excitedly reported, "Guess what, I 've started on my plan, even though I haven 't finished. But one night while working on it, I suddenly discovered a problem in the business that I corrected the very next day." Because this businesswoman had begun to prepare a plan objectively, she uncovered a correctable weakness she had not seen before.
A second benefit is that a strategic plan sets a formal direction for the business. It helps determine where the business is going. In addition, and perhaps as important, it helps determine where the firm is not going. Thus, a plan helps owners focus on specific objectives and stay there. This planning orientation allows small business managers to work proactively, looking to the future and anticipating and planning for change. Managers of proactive firms anticipate opportunities and position themselves to benefit from them. Similarly, these managers recognize impending threats and take decisive action to deal with them before disaster strikes. Crisis management is replaced by a more fluid, logical, and systematic approach. The firm 's management understands and treats change as a competitive weapon rather than as an uncontrollable nuisance to be ignored as long as economically and competitively possible.
The following example highlights the importance of competitive awareness and focus. An extremely enterprising young man possessed classic entrepreneurial flair. He was involved in three different business ventures and personally headed a firm that operated in such diverse areas as insurance, real estate, and managerial consulting. Not surprisingly, he was experiencing problems in nearly all phases of his businesses. One might logically assume that the underlying cause of his difficulties was his attempt to do too muchspreading himself too thin. Although he was spreading himself thin, his difficulties stemmed from a total disregard for formal planning. He failed to provide a clear view and direction for each business. No attempt was made to prescribe what needed to be accomplished, when, and by whom. He simply reacted and allocated his time and his firm 's resources toward the most pressing problem of the day. Consequently, most efforts were temporary fixes that added little to the development of his firm. In addition, he regularly missed important and potentially rewarding bids and contracts because his focus was on putting out yesterday 's fires rather than looking for tomorrow 's opportunities. Strategic planning helped the man understand his total business better and develop some concrete moves to enhance his competitive position. Because what needed to be done was now clear, meaningful delegation was possible. The young businessman was free to concentrate on making contacts, meeting potential customers, and engaging in the necessary public relations work he was uniquely qualified to perform. Important opportunities were realized and acted on, and internal operations ran more smoothly.
The above example suggests a third benefit of strategic planning. As the firm 's direction became clearer, employees were allowed to make decisions. They were allowed to use their skills more fully. They became surer of themselves and more comfortable in their roles, and their jobs were enriched. Most workers have a strong desire to know what 's going on and how their efforts contribute to the overall business objectives. Without a clear notion of these objectives, employees are often frustrated and dissatisfied. Planning helps employees become part of the organizational team. As employees know more of what the owner has in mind, they become more motivated, more willing to suggest ideas, and more willing to exert the extra effort needed to give the business an edge over the competition. Because a small firm in particular is competitively vulnerable, its employee efforts and suggestions often make the difference between success and failure. Indeed, as business leaders clearly communicate direction, philosophy, and objectives to their workers, the returns are likely to be dramatic.
Fourth, a business plan is useful to the board of directors or the advisory board. These members are not involved with the day-to-day operations of the firm even though their job is to offer guidance and advice. The plan gives them a basis for analyzing, evaluating, and making suggestions for the firm 's overall operations.
Finally, the existence of a formal, overall strategic plan makes the creation of special-purpose plans, such as those for financing, much easier. In fact, the strategic plan contains most of the information used in developing specialized plans. Although a manager may feel that planning is difficult and time-consuming, the impact of the planning process is overwhelmingly positive.
The Strategic Planning Process
Dwight D. Eisenhower once said, "Plans are nothing; planning is everything." While we would question whether the strategic plan itself is nothing, it certainly is true that planning is everything. Although it is important for all businesses to have a written plan, the strategic planning processthe focus of this section and the basis for the rest of the bookis critically important for new and emerging businesses.
Defining Strategic Planning
Strategic planning is a powerful management tool designed to help new and emerging businesses adapt to anticipated environmental changes. More specifically, the strategic planning process provides an overview and analysis of a business and its relevant environment. It describes the firm 's current condition and recognizes the key external factors affecting its success. The process then prescribes an outline, or action plan, of how the business will proceed to capitalize on its strengths and minimize its weaknesses and threats.
Although business managers are occasionally asked to write business plans in order to secure financing, these should not be confused with strategic planning or strategic plans. Investment-oriented business plans are single-purpose documents. As such, they tend to be very specific, reasonably brief, and somewhat optimistic overviews of the business, its product line, its management, and the proposed use of funds. By contrast, strategic plans require more depth and breadth of coverage. Their focus is the future. They consider internal strengths and weaknesses, for both may affect the strategy selected. They are regularly used and frequently revised to reflect new trends and developments. The strategic plan is both an analytical tool and a working document that guides management action over a specified period of time.
Determining the Planning Horizon
The noted economist John Maynard Keynes once said, "In the long run, we are all dead." We need to be more specific than that in determining the short-term, medium-term, and long-term goals for a firm! In general (but not always), long-term planning refers to anything beyond the next five years. A three-year period is often the target for medium-term plans. Short-term plans are generally for one year or less. Accountants, on the other hand, often refer to anything over one year as long range.
Actually, the determination of long-range versus short-range goals is a function of the industry and the type of product or service. A utility company necessarily looks 15 to 20 years ahead because of how long it takes to build a power plant; a small janitorial service may have no reason to look beyond a year; and a small manufacturer looks somewhere in between.
The above examples introduce a key factor in planningthe firm 's planning horizon. The planning horizon is the time required to implement a major strategic change. Beyond that time period, a manager need only do some casual monitoring because the business can react to any change that might develop.
Suppose, for example, I own a restaurant. I could spend a considerable part of my time studying new housing developments and specific projected growth areas of the city. On the other hand, the total time required to build a new restaurant is probably between six months and one year. Because migration is a relatively slow process, I 'll have ample time to study site locations once I determine that I do, in fact, need to expand.
Remember that strategic reaction time is the concern here. The environment must always be monitored to determine developing trends. But serious study need only be done when either a strategic change is desired or when significant changes in the environment dictate study. Attempts to react to each minute change will lead to overreaction and/or unnecessary concern with the long run when it cannot be adequately assessed, as shown in the following example.
An Italian restaurant had an excellent reputation for good, moderately priced food, but its location and size eliminated a major portion of the city 's population as potential customers. The owner adroitly decided to add a new location in a growing section of the city, close to a major shopping mall. The move was handled well, and profits flourished because there were few similar restaurants in the area. Less than three years later, the competitive environment had changed drastically. Two national restaurant chains featuring Italian cuisine opened in the same area of the city. Two other restaurants opened at sites within two blocks of the restaurant. At first glance, this would appear to be a classic case of bad planning.
Shouldn 't the owner have been able to predict three to five years in advance? The answer is no. Even though the restaurant is now in a highly competitive market, no way could the increased competition have been projected. The changes were outside the manager 's strategic reaction time. The planning horizon was not that distant and should not have been expected to be. The move was a wise move at the time.
If managers extend the horizon too far, they may lock themselves into a strategy that later becomes inappropriate. If the horizon is too short, opportunities may be missed. Underestimating the planning horizon is the more frequent error. Most firms tend to concentrate on the short term, and we often encourage managers to look farther out into the future. Many managers are so busy fighting fires that they don 't take time to consider needed changes within their planning horizon. Managers must consider how long it will take to react to a change in the environment and plan accordingly.
Planning and forecasting are especially difficult for both new and emerging businesses. In both cases, the firm is being taken into uncharted territory. However, it is critically important for managers to attempt to assess the dynamics of the environment being faced. Only when an accurate analysis of the competitive environment is made can the owner or manager of a new or emerging firm make decisions that are logical and defendable.
The Strategic Planning Model
Figure 1.1 highlights a strategic planning process for new and emerging businesses. The process is comprised of three phases. The premise phase occurs as the manager looks toward the future and formulates a vision for the business. This phase also includes the development of a mission that provides a broad direction and philosophy for the business.
During the analysis phase, managers go through a number of steps to assess the business 's environment and determine its strengths and weaknesses. They must develop a list of the key threats and opportunities in the firm 's relevant external environment by studying present environmental forces, by projecting trends, and by anticipating changes. Managers must not only identify and track changes in key environmental factors, they must carefully assess the impact these forces and changes will have on the firm and its operations. Environmental analysis is therefore future oriented, seeking to recognize the problems and potential created for the firm by changes in its environment.
Whereas environmental analysis concentrates on forces external to the organization, internal firm analysis evaluates the firm 's internal strengths and weaknesses. An astute manager will study a number of important issues as part of determining the strengths and weaknesses of the business. These will include assessing the financial status of the firm, analyzing human resource needs, studying marketing capabilities, and determining the ability of the company to produce a quality product or service.
Environmental and internal analyses enable the firm to portray carefully and objectively both its special competencies and its relative competitive weaknesses. A distinctive competence is any area in which the firm possesses a meaningful edge over its competitors. Similarly, competitive weaknesses represent areas in which the competitors ' relative strengths are significant or overwhelming. Armed with this information, the manager can realize and capitalize on evolving competitive opportunities (distinctive competencies) and develop protective measures to minimize the harmful impact of materializing threats and obstacles (competitive weaknesses).
After environmental and firm data have been analyzed and evaluated and the firm 's distinctive competencies and competitive weaknesses delineated, the manager is ready to embark on the strategy development phase of strategic planning. Here, the manager uses the results of the environmental and firm analyses, contemplates the implications, and structures a working plan to guide the firm 's activities.
The first step in the strategy development phase is to determine the overall growth strategy for the business. How much growth is desired? How will the firm compete? What will be the primary strategic thrust in the near future? This first step is a logical, functional, and integral process that can guide the firm along the path of success.
Once the firm 's overall growth strategy is established, the manager of the emerging business will then focus on specific goals. Setting achievable and measurable goals for the company as a whole and for operating units or divisions is an important process.
Unit strategies breathe life into goals. Essentially, a goal statement declares what a business wants to do or wants to be, while unit strategies declare how the business is going to do it. Decisions to segment the market, change pricing, alter sales methods, acquire additional funds, and change production methods are examples of unit strategies undertaken to move the firm toward the realization of its goals.
The best strategies in the world are of limited value if they are not written down. Our final chapter presents and discusses a format for the written plan. Appendix A contains an example of a completed strategic plan based on a real business that can be used as a guideline for developing a plan for any business.
Figure 1.2 is a sneak preview of the strategic plan format. As you move through the book, you may want to refer back to Figure 1.2 to see how the actions discussed fit into the final strategic planning document.
The Consultant 's Viewpoint
Each chapter concludes with ideas, guides, and a few caveats for those who are consulting with business owners in addition to the Focus in Chapter 2 on managing the consulting process. Even though some readers may be students in a small business consulting class, some may be consultants, and some may be owners or managers of emerging businesses, we hope that "The Consultant 's Viewpoint" section in each chapter provides food for thought to all readers.
Enabling the Planning Process
Two partners of an emerging business once approached one of us with an offer to pay (presumably big bucks) for writing a business plan. Consultants should never take that on as an assignment, and business owners should never ask. It is wise, however, to ask consultants to facilitate the planning process.
Note the difference between consultants writing a plan and facilitating the planning process. Consultants should enable planning, but they should resist writing a plan for a business owner for one key reason. For planning to be effective, the business owner must be actively involved. It is useful to draw upon a consultant 's expertise, but the plan has to have the imprint of the owner. The owner is the one with intimate knowledge of the company 's strengths and weaknesses and most likely knows the industry better than the consultant. The consultant 's role is to draw out all this information in an interactive manner and assume an objective role during deliberations.
Plans versus Planning
The Eisenhower quote a few pages earlier is the key to the issue of plans versus planning. If the planning process does not result in a document that can be referred to and used for future reference, the process is of minimal value. However, if the focus is on the document instead of the process, the task will be shortsighted and incomplete. It is the planning process that uncovers new information. The process ensures that an objective analysis of the firm is done. The planning process results in alternative strategies for the business that can then be considered before implementation. Only once the planning process has been done carefully can the written plan become a guide for action.
Communicating the Plan
If the planning process has been done well, key managers in the emerging business should be aware of the strategies being developed. Indeed, they will have been involved in that process. But others in the company also need to know what the firm 's strategy is. Employees in a production facility can better understand their role in the company if they can understand where the company is headed. The sales force can sell the firm 's products better if they know how those products are positioned compared with competitors ' products. Even the morale of staff workers should be better if employees fully comprehend the mission and vision set by the owners, especially true in the emerging business because all members will likely be under stress. A strategic plan is primarily used to guide the direction of the firm. But don 't underestimate the power of a well-written, well-communicated strategic plan as a motivating tool.
1. Why is strategic planning perhaps even more important for a small business than it is for a large business? Why is it critical for emerging businesses?
2. If planning has so many benefits, why don 't small business owners do it?
3. Choose a firm with which you are familiar. What specific benefits could arise from doing formal planning in that particular firm?
4. Estimate the appropriate planning horizon for the following:
a. a software development company
b. a bowling alley
c. an auto repair shop
d. a manufacturer of circuit boards for high-tech diagnostic equipment
5. Explain how the major parts of the planning model could be used in the following:
a. national planning for a country
b. individual career planning
1. For example, see LuAnn R. Gaskill, Howard E. Van Auken, and Hye-Shin Kim, H. "Impact of Operational Planning on Small Business Retail Performance," Journal of Small Business Strategy, 5(1), 1994: 2136; LuAnn R. Gaskill, Howard E. Van Auken, and Ronald A. Manning, "A Factor Analytic Study of the Perceived Causes of Small Business Failure," Journal of Small Business Management, 31(4), 1993: 1831; and Charles R. Schwenk, and Charles B. Shrader, "Effect of Formal Strategic Planning on Financial Performance in Small Firms: A Meta-Analysis," Entrepreneurship: Theory and Practice, 17(3), 1993: 5364.
2. Joseph Rosenbloom, "Follow the Leader," Inc., October 21, 1997, p. 83.
3. Stephanie Gruner, "Death By Unnatural Causes," Inc., October 21, 1997, p. 62.
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