sme strategy quest

8/9/2019 SME Strategy Quest

http://slidepdf.com/reader/full/sme-strategy-quest 1/26



2

Part 1 Introducing the Strategy Questionnaire 3

Part 2 The Strategy Questionnaire: 7

Section A The Business and its StakeholdersSection B Small Business in PracticeSection C Small Business and ResourcesSection D Small Business, Clients and CustomersSection E Small Businesses and their CompetitorsSection F Small Businesses and their ServicesSection G Small Businesses and their Employees

Part 3 Arriving at a Strategy 22

Part 3 Summary of the main issues 26



3

1 Introducing the Strategy Questionnaire

1.1 Introduction

Strategy is not a word that fits easily in the pragmatic and problematicarena of small business, particularly where political and economicunpredictability may encourage you, as an owner manager, to take avery short-term perspective of your business. The problem is thatwithout developing a longer term perspective even of a rudimentarynature, your business is unlikely to grow. Adopting a longer-term viewis particularly important within the context of increasing economicliberalisation and intensifying foreign competition.

1.2 Setting the scene: Management in Small Businesses

Challenges in small business management. Strategic managementfor small businesses presents particular problems. For example:

The range of stakeholders in the business (often extended family)means that strategic management does not lend itself to the quick-decision making that is sometimes necessary in responding to rapidchange in markets and economies.

One of the most common threats to better management is lack of time.The demand of customers, and your time spent “fire-fighting”, may

make it difficult for you to take a longer-term, more strategicperspective.

Often stakeholders are - quite reasonably - more interested in thepursuit of their own interests, rather than those of the business,creating conflict.

The need for you to market through networks and on a one-to-onebasis to small business customers often makes obvious businesssolutions - such as advertising and public relations - extremely difficultto apply.

Part two of this guide addresses some of these problems by offering aframework for clarifying the long-term future of your business, and byformulating a strategy that will help you to take advantage ofopportunities as they arise, whilst avoiding unpleasant surprises.



4

The strategic questionnaire, which is central to this part, shouldprovoke thought and discussion, thus helping to raise the level ofdebate in your business. The questionnaire is designed so that thequestions themselves are straightforward, and answered by yourself,and other key staff who run the business . Simply posing them to

members of staff (and possibly to your customers) will be thought-provoking.

Gathering information is only the first step in the process of arriving ata strategy for your business. We strongly suggest that you organise agroup of key managers (the “Strategy group”) to be convened todebate the responses and draw overall conclusions (the task of askingthe questions might also be usefully shared among the group). Thefunction of the Strategy Group is covered in more depth in the sectionheaded “Arriving at a Strategy”, in Part 3.

1.3 Strategy and strategic management The words “strategy” and“strategic” are often used very loosely in business circles to imply thata particular decision, plan or action is considered to be important. Butto be useful, the concept needs to be defined precisely.

Strategy is about the ways and means of achieving the main objectives of your business , the process of moving it from where it isnow to where it needs to be, if it is to (more) successful. Strategy is notconcerned with the details of day-to-day management, but rather withbroad intentions and the general direction in which your business is

travelling.

As such, strategy is a key to business discipline: developing a strategyinvolves questioning the fundamental premises upon which your whole business is built - its economics, the source of its competitiveadvantage, its resources, and how these are allocated, the flexibility ofthe organisation and the quality of its people. Thinking strategicallymay eventually lead to a major shift in the emphasis of your business.

Because of its potential to bring about major change, strategy was untilquite recently seen as the preserve of corporate planning, an exercise

carried out at fixed intervals and then for the most part ignored. Todayit is accepted that managers in all sizes of businesses should beencouraged to think strategically if their organisations are to prosper.The strategy developed is seen as providing a broad framework thatallows for adaptation and innovation in response to what is often avolatile and unpredictable business environment.



5

Strategic management is not just about strategy development, it is also aboutcommunicating the chosen strategy to your business stakeholders and seeingthat it is put into practice in your business. The whole process looks somethinglike this:

1 - Establishing the current situation of the business,and asking the key question:

Where are we now?

2 - Establishing the direction of travel and longer-term objectives,and asking the key question:

Where to we want to be in x years time?

3 - Looking at the option for getting from point 1, to point 2and choosing the most appropriate one. Ask the key question:

How can we best use our resources to create (or maintain)an advantage over our competitors?

4 - Put the chosen strategy into action!

In this guide, we concentrate upon strategy development, that is stages 1-3 ofthis process, using a questionnaire to gather the information necessary forarriving at an appropriate strategy for your business.



6

1.4 The Benefits of Thinking Strategically. Most businesses have theinformal elements of a business strategy, although this is often notexplicit. You are likely to have long-term objectives, often not writtendown, but carried in your mind. In the absence of a formal approach, astrategy will emerge by default, being the product of the stream of

decisions made at various times. If these decisions are made in theabsence of a recognised framework, the various activities of thebusiness will be apt to pull in different directions according to your ownpersonal concerns and preferences. When this happens, themessages received by staff, customers and suppliers will be differentand often conflicting.

The benefits of formalising a strategy for your business are numerous.They include:

gaining a better insight into how your business works and where it isgoing (thus avoiding - often nasty - surprises)

being able to set clear targets for you staff, and evaluate progress

saving time, energy and/or expense through a reduction in your “fire-fighting” activities

being able to offer a better service to your existing customers

having the potential to identify new customers and services

establishing a better basis for negotiating finance

enjoying greater peace of mind about the future of the business

understanding more clearly your own concerns and goals and thelikelihood of their attainment

raising the level and quality of debate within the business.



7

The questionnaire is split into seven sections, which taken togetherprovide a framework for self-analysis in the business. The questions

themselves are 'triggers' that allow you to consider the relevantunderlying business issues.

Remember that strategy is about means and ends, which involvesgaining a tighter grip on your own business objectives, your availableresources and the constraints facing your business. This requiresconcentrated effort, but will pay dividends.

Some questions require input from other key members of staff. Thisapproach helps to ensure that all of the key decision-makers, whetheryourself, or other managers or key members of staff, contribute their

views. Gathering information in this way will take effort and initiativeand you may find it helpful to share the task among members of theStrategy Group. You may also find it useful to employ a small businesscounsellor to assist you in the process of working through thequestionnaire. It can often be helpful to have a more 'neutral' view ofthe business in undertaking this process.



8

Section A: The Business and its Stakeholders

Question A1

Who are the stakeholders in the business?

Question A2

Who are the key managers, that is those making a fundamental contribution tobusiness?

Question A3

Consider the individuals listed in response to Questions A1 and A2. Which oftheir concerns and/or needs have a marked influence on the way in which thebusiness is managed? For example, how would each person rate the following

needs/concerns on a scale of 0 (of no importance) to 5 (of the highestimportance):

to be recognised as a leader and opinion-former (“achievement”)

to create capital value within the business for future realisation (“wealth”)

to promote/protect standards in the community (“altruism”)

to plan for management succession (“the future”)

to generate short-term/medium-term income for the business (“survival”)

to see that decisions are implemented successfully (“control”)

to ensure a pleasant working environment for employees (“caring”)

to balance domestic/social and business needs (“personal”)

Question A4

Review the response to Question A3. What are the implications for the businessand its future direction? (This question does, of course, require sensitivehandling, but don’t let that steer you away from completing this valuable part ofthe overall exercise).



9

Section B: The Business in Context

Question B1

How did the business arrive at its present form? Briefly document the main stepsin its evolution.

Question B2

What are the main activities of the business?

Question B3

Which are the businesses core activities and which are peripheral ones? Use arough diagram, to show relationships between the various parts of the business.

Question B4

Consider why the diagram you drew in response to Question B3 is shaped as itis. What forces lead to the development of the peripheral services?

Question B5

Again, considering the diagram, what distinct customer groups are at presentbeing served by the business?

Question B6

From the perspective of each different group of customers, what is the businessreally supplying in each of its activities?

It will be useful to debate this question within the Strategy Group, rememberingthat “end-uses” can be intangible, and that many businesses, particularly thosein services, are often really selling such things as peace-of-mind, confidence,and reassurance.

Question B7



10

What is the “image” of the business? How do key managers believe the businessis perceived by:

existing customers?

potential customers?

suppliers?

competitors?

staff?

Ask each person to list his or her responses.

Question B8

What mistakes has the business made in the past, in terms ofidentifying/meeting the needs and expectations of its customers? What can belearned from these mistakes?

Ask each key manager in turn, and debate the responses within the StrategyGroup.

Question B9

Who are the main suppliers, and what is the relationship of the business witheach one of them?



11

Section C: The Business and its Resources

Question C1

The most important resource in any business is its people. What skills exist

among key managers within the business? Compile a “skills inventory”, using thefollowing headings as a guide, and adding other skills appropriate to yourparticular business:

professional and technical expertise business experience qualifications languages interpersonal skills, especially listening and communicating administrative/organisational skills networking skills

Question C2

How is the business organised? Who reports to whom about what? Do written job descriptions exist? Are responsibilities both clearly defined and understood?Use the following questions to help you draw up an organisational chart.

Who has primary responsibility for finances? Who looks after personnel matters? Who is responsible for information technology?

Who looks after general administration? Who is responsible for technical matters? Who is responsible for marketing the business and its services? Who reviews the quality of the advice and services provided by the

business? Who is responsible for long-term planning?

Question C3

Consider the responses to Questions C1 and C2. What overlaps and/or gaps

have become visible in the skills and responsibilities of managers? Debate theeffects of these in the Strategy Group. Do they result in a poor service tocustomers or poor internal communications?



12

Question C4

Does the business face constraints due to a lack of appropriately skilled staff? Ifso, what skills are lacking?

Question C5

Who are the key members of non-managerial staff? Ask each one what singlechange would make the business:

more efficient? more competitive? more successful? more rewarding?

Question C6

How is information organised within the business? What are thepositive/negative effects of the present information system(s) on the way thebusiness run? Which information systems are computerised? What other kindsof computer application would be useful in the business? What plans exist for theintroduction of such systems?

Question C7

Do key managers feel confident about their understanding of the state of thefinances of the business?

Question C8

Is accessible financial information summarised to give key decision-makerstimely and succinct information about the financial health of the business? Howis financial information organised and presented?

Question C9



13

What are the resource constraints that confront the business? Summarise thesituation under the following headings:

missing management skills missing professional and technical skills

missing marketing constraints financial constraints technological constraints other limitations, including:

lack of suitable premises, power supply water supply access roads

security training institutions telephone and internet access

Question C10

What procedures does the company need to introduce to encourage the mostefficient use of the resources of the business? (Examples in the human resourcefield may include rewarding individual initiative and linking pay to performance).



14

Section D: The Business and its Clients/Customers

Question D1

How can the market for the business products and services be described? Drawa diagram using lines and boxes to show the relationship between the businessand its main customers, suppliers and competitors. You may find it useful to varythe size of the boxes to indicate relative size and strength.

Question D2

What is the total size of the market for the business? What is your share of thismarket? (You can define market size in terms of numbers of customers orfinancial value or in any other way you find applicable).

Question D3

Does this market divide into distinct ‘market segments’? For example, cancustomers be grouped easily according to:

age? geography? type? background?

If so, list the market segments for the business.

Question D4

For each market segment you have identified, what are the social and economicfactors that have led to its growth or decline over the past few years? Has aparticular group or individual been responsible for the growth experienced in thebusiness? What factors influence demand in each market segment at present?

Question D5

Which customers individually contributed more than 5% of the businesses totalturnover in the past financial year? Produce a list and debate any implications ofthis, within the Strategy Group.



15

Question D6

Identify any cyclical patterns in the workload of the business. What are thecauses of these cycles, for example:

seasonality of work?

fashion trends? business/trade cycles? dependence upon the performance of other sectors?

Question D7

During the past 12 months, which major new customers has the business wonand which existing customers has the business lost? List each new customerand identify the source of the introduction. Then list any customers who departed

and seek out the reasons for this.

Debate the results of your investigation within the Strategy Group.

Question D8

How does the business go about marketing its services to potential customers?List all existing market activities/efforts and note who is responsible for them.What else could be done? Canvas opinion among key managers and considerthe responses within the Strategy Group.

Question D9

In what direction is the market likely to move over the next 5 years? Ask eachkey manager to write down his/her view of possible future trends and how thesemight effect the services currently offered by the business. What new serviceswill be needed? Summarise your findings and debate them within the StrategyGroup.



16

Section E: The Business and its Competitors

Question E1

Who are the business’s main competitors in each of the market segments inwhich it currently operates? In compiling your list, keep in mind the identifiedend-uses of the services provided and what customers are really purchasing(see Question B6).

Question E2

How do key managers perceive the competition? Ask each person to summarise

his/her impressions of two or three major competitors under the followingheadings:

image the size and geographical sphere of influence of the competitors, and the

implications of these factors in terms of their cost structures and flexibilityin meeting customer needs

range of services offered apparent strengths, including any identifiable financial advantage apparent weaknesses likely future prospects

Summarise the responses to Question E1 and E2, and then discuss them withinthe Strategy Group. In particular, try to identify your most successful currentcompetitors and the reasons for their success.

Questions E3

Which new competitors are likely to enter each market sector? Are there are anysignificant barriers to entering a market sector (e.g. capital requirements,

availability of labour) that may discourage new competitors? Are businesses thatdo not currently offer the services the company provides likely to become futurecompetitors through adopting a multidisciplinary approach?



18

Section F: The Business and its Products

Question F1

What services does the business currently provide? List them (see Question B2).Do these services differ from those offered by business competitors?

Question F2

Is there any scope for increasing product or service differentiation, thereby‘adding value’ in the eyes of your customers? How might you go about doingthis?

Question F3

For services that could be further differentiated, would this allow the business tocharge a higher price than charged by your competitors?

Question F4

What is the present pricing policy? How are rates calculated? When were theylast reviewed? What features of the company’s services are customersparticularly happy to pay for? What do they particularly resent paying for?

Question F5

What is the relative profitability of the different product or services provided bythe business?

Question F6

Does the business have a good spread of services or are there ‘too many eggsin one basket’?



19

Questions F7

Bearing in mind any cyclical patterns identified in Question D6, does the overallportfolio of services offered by the business allow for even workload patterns anda steady cash flow?

Question F8

Do key managers see the business as a ‘market leader’ or a ‘follower’ in terms ofoffering new services? If so, what evidence is used?

Question F9

How are potential opportunities for new services identified and thought through?

Question F10

Can you define your business’s ‘unique selling point’ (USP), that is those thingsthat makes it particularly attractive to the market place?



20

Section G: The Business and its Employees

Question G1

What training and/or development programmes do staff receive? Make separatelists for:

chargeable staff (identify groups of staff and separate professionaldevelopment and update programmes from general management skillscourses)

non-chargeable staff

How frequently do key managers attend courses or arrange an ‘away day’?

Questions G2

What are the staff turnover figures for the business? How do these figurescompare with those of competitors? Is the situation in the business improving orslipping? What are the costs of staff turnover to the business? Consider eachgroup of staff separately and try to identify some of the least obvious costs.

Question G3

What path for career advancement and personal development do staff see withinthe business? Again look at each group of staff separately.

Question G4

What employee appraisal schemes does the business operate for differentgroups of staff? How is above-average performance identified and rewarded?



21

Question G5

In the business, is two-way communication encouraged between:

different departments/disciplines

staff and line management

In precisely what ways is such communication encouraged?

Question G6

Are employees encouraged to make suggestions for improvements to theservices that the business provides? Or for cost saving?

Question G7

How would you rate staff ‘morale’ on a scale of 0 to 5 (where 0 is a completeabsence of team spirit/motivation/belongingness/identification with the businessand 5 is total commitment) among different types groups of staff/departments?Where appropriate, perform this analysis for individual staff members as well.

Question G8

Is there a clearly defined policy on quality assurance? Do staff understand howthis works in practice and what standards and systems are applied?



22

!

3.1 Reviewing the main objectives. You will now have a mass ofinformation about the current position of your business and where you

aim to be in the future. Before you begin to analyse the responses tothe Questionnaire, you will need to review the main objectives of thebusiness.

We suggest you set aside a full day away from the office for theStrategy Group to begin the process of strategy formulation. Duringthis Strategy Day, you should aim at producing a set of agreedbusiness objectives, plus a single summarised set of responses to theQuestionnaire.

3.2 Analysing the Responses to the Questionnaire. When this

summary is complete, review it and mark relevant points as internalstrengths or weaknesses, or external opportunities or threats (i.e.conduct a SWOT analysis).

Internal

S W

O T

External

It may be helpful to subdivide the overall SWOT analysis into distinctfunctional areas. This will allow you to focus more precisely on theimplications for the business. Appropriate headings for this exercisewould generally include:

People - structure; skills; motivation; rewards; appraisal

Technology - hardware; software; communications Marketing - advertising; PR; seminars; customer contact Management Information - accounts; key statistical information Infrastructure – Power, telephone, water, roads

The complete SWOT analysis will clearly identify the resourcesavailable and the threats faced which are external to the business.



23

Circulate the results of the SWOT analysis and the agreed businessobjectives as widely as possible within the business, and ask forcomments and reactions. Then, perhaps two weeks later, reconvene

your business Strategy Group to consider the implications of each itemcontained in the SWOT analysis in the context of the agreed businessobjectives and begin to draw out appropriate strategy options.

3.3 Identifying Constraints. At this point it is as well to remind yourself ofany other constraints upon the future direction and strategy that thebusiness can take. These fall into two main groups:

nternal constraints, including factors such as the personal

preferences of your managers, ethical considerations and so on.Internal constraints are things you have to live with; they are not thesame as weaknesses, which can be addressed.

xternal constraints, such as the laws and regulations mentionedearlier. External constraints should not be confused with threatsfrom competitors which, like internal weaknesses, can be

addressed.

3.4 Considering the Options. Your business objectives may include

many factors, for example: turnover, capital value, profitability, survival,quality of service, working conditions, employee participation andenvironmental issues. When you come to formulate a strategy, youshould be aware at the outset that it is just not possible to meeteveryone's’ expectations in full. Strategy is above all the art of the possible and the practicable. What constitutes an appropriate strategywill vary for each business and will almost certainly change over time.

However, the following options open to you are likely to fall broadly intoone of the following categories:

Doing nothing. This is a possibility only if everything you have learnedabout the business and the environment convinces you that you willcontinue to be successful doing exactly as you are now.

Improving what the business does now. For example, by cuttingcosts or responding more promptly to customers’ needs.

I

E



24

Expanding the business. For example, by taking existing services tonew customers or developing new services for existing customers.

Diversifying/Innovating. Broadly, this means offering new services to

new customers.

Whatever option you choose, it will be appropriate if it allows you togain ground on your competitors, whilst taking into account theenvironment in which the business operates and the resources that areavailable.

3.5 Strategy into Action. When there is a clear view of what the businessstrategy should be, it is essential that this is communicated to everyone

in the business. This is the first step in putting your strategy into action.Much more is required. But, as we suggested earlier, that is anotherchapter in the strategic management story.

However, to make immediate use of the strategy that you have devised,it should be encapsulated in a formal business plan for the coming year.This can be used to seek any outside finance you may need and also toprovide an internal yardstick for measuring progress towards achievingobjectives.

One suggestion for the contents of a suitable plan is set out below.



25

3.6 Suggested Format for a Business Plan

1 Introduction to the business1.1 Business Details1.2 Principal activities of the business1.3 Organisation of the business

2 Marketing the business.2.1 The overall market for the business2.2 Target market segments2.3 The competition2.4 How marketing will be effected2.5 The business USP (Unique Selling Point)

3 Finance 3.1 Analysis of costs3.2 Cash flow forecast3.3 Projected profit and loss account for current/

next year’s trading3.4 Break-even calculations3.5 Summary of finance

If you see the plan as a route map for the immediate future, and as a workingdocument which provides a reminder of core objectives and actions, it willbecome the stepping stone to the next stage of growth.



26

" #$ 1 Focus Stand back and take time out. Avoid the pitfalls of

addressing short-term administrative and operatingissues at the expense of ignoring the big questions in

your business Strategic issues will remain hidden behind operational

problems, unless you and your key staff make a real effort to air and debate them

2 Objectives Make business objectives explicit and communicatethem to all of your staff

3 Markets Identify your core business activities and key markets

4 Clients Focus on market needs first, then organise the

resources available to deliver improved services whichthe customers want, when they want them

Nurture the customer base. $50 invested on maintaininglinks with an existing customer can be just as beneficialas $1,000 spent on winning a new one

5 Financial Health Determine and monitor the six or so key financialstatistics for your business

6 Quality Start at the top with your own personal commitment andthat of your managers. Lead by example. Avoidconflicting signals

7 People If you have no idea where the business is going, neitherwill the staff!

Be aware of personal development and training needsof your staff, and the benefits of using a simple staffappraisal system

Do not overlook the significant ‘hidden costs' caused bylow morale and high staff turnover levels

8 Communication Build a co-ordinated approach. Break down barrierswithin the firm. Use anecdotes and heroes to really drive

messages home. Celebrate your successes!

9 Flexibility Search for new opportunities. Give recognition to youremployees who suggest useful ideas

sme strategy quest

Documents