Learn how a small business can adopt a strategic management process and make the business sustainable. The strategic management process can help small business owners solve the challenges they face in business and drive growth.
Strategic management process in simple words
People engaged in business without formal business management education often get confused about the strategic management process when it is about a small business. If you have never been to business school go through this article to learn the strategic management process in simple words and by using small business examples.
Please remember you do not have to be a business school graduate to master this subject when comes to implementation.
Have you ever questioned yourself about what we learn in the strategic management process chapter in business school? Let me simplify the answer, in the strategic management process chapter in business school, students typically learn about the various components involved in developing and executing a strategic plan for a business. These broadly include,
- Analysis of business ecosystem: This involves analyzing the external and internal environment of a business to identify opportunities, threats, strengths, and weaknesses. To make life easy there are common tools used in the strategic analysis that include SWOT analysis, PESTEL analysis, and Porter’s Five Forces.
- Strategy Formulation: This is actually developing a clear mission and vision for the organization, setting business objectives, and developing processes to achieve those objectives. Common processes include differentiation, cost leadership, and focus.
- Strategy Implementation: This is putting the plan into action, including allocating resources, designing the organizational structure, and establishing policies and procedures.
- Evaluation and Control: Unless you monitor you will never be able to gauge what you are doing, hence monitoring progress toward objectives, identifying deviations from the plan, and making adjustments as needed is crucial… these are called efficient evaluation and control, hope you could understand how different is strategic evaluation and control from normal monitoring and control we practice in our day to day life. However, please remember our day-to-day subconscious practice is no less than the “scientific strategic monitoring” we learn in business school, they call it business science, and we call it social science.
In addition to these components, students from tier “A” category business schools learn about the role of leadership in strategic management, the importance of corporate social responsibility, and the challenges of implementing strategic change in organizations, believe me, these are basically value addition to the curriculum to remain competitive in the management education business. (Always good for the aspirants)
As a small business owner, you may doubt its usefulness, believe me, if you are a successful small business owner high chance you are subconsciously applying the basics of strategic management in your business, you may be calling it business sense.
The strategic management process is when you apply a growth/development/change plan consciously in business, and for your information, it is always highly useful for small-scale businesses too, so do not doubt it. While the specific tactics and tools may vary based on the size and nature of the business, the fundamental principles of strategic management remain the same.
Here are some ways small-scale businesses can practice strategic management, please do not get scared… I am not intending to take you through a management class, continue reading it and you will find that you are already into practicing it. The below narratives are the same as what I have written at beginning of the article, the difference is it is made simpler and easy to understand here.
- Conduct a SWOT analysis: Even small-scale businesses can benefit from conducting a SWOT analysis (strengths, weaknesses, opportunities, and threats) to identify their unique advantages and challenges. We will see a case study later to get a full sense of it, please continue reading.
- Establish clear goals and objectives: Needless to mention that anything we do in life will benefit most from setting clear goals and objectives, same principle applies to small businesses that align action with mission and vision.
- Develop a plan: Small businesses can develop a plan that outlines their goals, objectives, and action… believe me the management gurus called this endeavor strategy.
- Allocate resources effectively: We always tend to do this by default, In similar fashion small businesses should allocate their resources effectively, including financial resources, human resources, and time. Are you now able to connect life to business? Continue reading, you will get much more.
- Monitor progress and adjust as needed: In practical life 5 out of 10 fails in this endeavor, in fact, we do not know what is it. To be strategic small businesses should regularly monitor their progress toward their goals and make adjustments as needed based on changes in the internal or external environment.
By applying strategic management principles (Principles of common social science), small businesses can better position themselves for long-term success and growth.
We will understand the above narratives a better way through a case study of a small business that applied strategic management principles
Case Study: A Small Coffee Shop
Background: A small coffee shop had been in business for several years and had developed a loyal customer base. One fine morning someone pointed out to the owner (Nothing goes unnoticed if you keep your heart open) that the business is being driven by repeat customers, and this trend must be leveraged to grow the business. The owner had no formal business management education background, hence got confused about how come these particular attributes of business can bring further growth, the inquisitiveness turned into some research and landed in a chapter on strategic management.
The owner could understand that before the project starts, needs to analyze the business, find out what is best, execute that, and monitor in case there are any changes required in action/execution to reach the desired destination. So, here is the project report for you.
Analysis: The owner conducted a SWOT analysis and identified that the coffee shop’s strengths were its quality coffee, convenient location, and repeat customer base. The weaknesses were its limited menu and low volume. The owner identified opportunities to expand the menu, offer outdoor seating, and increase marketing efforts. The threats were increased competition from new coffee shops and changing consumer preferences. We will know more about SWOT analysis through a specific case study, continue reading.
Formulation: The owner developed a clear mission to provide high-quality coffee and a welcoming ambiance and gesture for customers. The owner set objectives to increase revenue by 20% within the next year [It has to be common sense and attainable], expand the menu, and add outdoor seating.
The owner developed strategies to achieve these objectives, including introducing new menu items, offering outdoor seating, increasing social media presence, and partnering with local businesses to host events. [Calculate the current business, and apply common sense to gauge the number of repeat customers who walk in regularly, their choice, and demands, etc… this knowledge will help you decide what to do and what not]… you must be doing the same without calling it strategy formulation! [Believe me, you are no less than an IIM/STANFORD graduate]
Implementation: The owner allocated resources to hire additional staff, purchase new equipment, and renovate the space to add outdoor seating. The owner trained staff on new menu items and customer service and began hosting events with local businesses.
Evaluation and Control: The owner regularly monitored revenue and customer feedback to evaluate the success of the strategies. The owner made adjustments to the menu based on customer preferences and shifted marketing efforts based on what was most effective.
Results: The coffee shop was able to achieve its revenue objective, increasing revenue by 25% within the next year. The coffee shop also saw increased customer satisfaction and new customers due to the expanded menu and outdoor seating. The owner continued to evaluate and adjust the strategies based on changes in the internal and external environment.
**Self-professed management gurus may dismiss this as the narrative has no complicated statement or flowchart.
Step:1
Analysis of internal and external environment of the business
Analysis of the internal and external environment of the business is the first part of the strategic management process.
As discussed earlier this is done by various techniques, here are the most 3 commons.
SWOT (This is the most common approach, we will learn more about it, continue reading)
Case Study: A Small E-commerce Company
Background: A small e-commerce company that sells handmade crafts was experiencing stagnant sales and wanted to develop a plan to increase revenue, so for analysis, they opted SWOT.
Strengths:
- High-quality handmade crafts
- Unique products
- Affordable pricing
- Loyal customer base
- Strong online presence
Weaknesses:
- Limited product selection
- Small marketing budget
- Lack of physical storefront
- Limited brand recognition
Opportunities:
- Expand the product line
- Increase marketing efforts through social media and email campaigns
- Collaborate with influencers to promote products
- Attend local craft fairs and events
Threats:
- Increased competition from larger e-commerce companies
- Economic downturns
- Changes in consumer preferences
- Shipping and delivery challenges
What is SWOT analysis?
As promised, let me go deeper into SWOT as this is the most common for small businesses, and as I am writing this article for small businesses.
The best way to initiate a SWOT analysis is by setting appropriate questions to identify strengths, weaknesses, opportunities, and threats. Here is an example.
Background: A local bakery business is experiencing a sudden decline in daily sales volume, the owner wants to identify the reasons and take corrective analysis, so the owner opted for the SWOT technique and set questions related to strengths, weaknesses, opportunities, and threats of the business.
Strengths:
- What do customers like most about our bakery?
- What are our best-selling products?
- Do we have any unique selling points that differentiate us from other bakeries in the area?
- Are we known for our quality, service, or convenience?
- Do we have any loyal customers who return regularly?
Weaknesses:
- What are some of the complaints we have received from customers?
- Are there any areas where we consistently receive negative feedback?
- Are we losing customers to other bakeries in the area, and if so, why?
- Are there any product categories where we are underperforming?
- Are there any areas where we are experiencing higher costs than we should be?
Opportunities:
- Are there any gaps in the market that we could fill with our products or services?
- Are there any trends in customer preferences that we could capitalize on?
- Are there any new products or services that we could add to our offerings?
- Are there any untapped customer segments that we could target?
- Are there any marketing channels or strategies that we have not yet explored?
Threats:
- Are there any new or established competitors entering the market?
- Are there any economic or political factors that could affect our business?
- Are there any new laws or regulations that could affect our operations?
- Are there any demographic or societal trends that could impact our customer base?
- Are there any changes in technology or consumer behavior that could affect our business?
By asking these questions, the bakery owner can gain a deeper understanding of the business’s strengths, weaknesses, opportunities, and threats and use this information to develop a strategic plan to improve sales and profitability.
Another tool used in analyzing the business is PESTEL, understand it through an example.
Case Study: A Solar Energy Company
Background: A solar energy company wanted to expand its operations into a new international market and needed to conduct a strategic analysis to identify potential risks and opportunities.
PESTEL Analysis:
Political:
- Government policies and regulations on renewable energy
- Stability of government and potential changes in leadership
- Political risk and instability in the country
Economic:
- Exchange rate fluctuations and currency risks
- Availability of funding and financing options
- Economic growth and stability of the country
Social:
- Attitudes and awareness of renewable energy
- Cultural differences and consumer behavior
- Demographic changes and population growth
Technological:
- Advances in solar energy technology
- Availability of skilled labor and technology infrastructure
- Potential for intellectual property theft
Environmental:
- Climate and weather patterns
- Natural disasters and other environmental risks
- Sustainability and environmental standards in the country
Legal:
- Laws and regulations related to renewable energy
- Intellectual property laws and protection
- Labor laws and regulations in the country
Strategic analysis is also done by using PORTER’S FIVE FORCE, read the example.
Case Study: A Coffee Shop Chain
Background: A coffee shop chain was experiencing increased competition from other coffee shops and wanted to conduct a strategic analysis to identify potential threats and opportunities.
Porter’s Five Forces Analysis:
- Threat of new entrants: The threat of new entrants into the coffee shop industry was high, as there were low barriers to entry and many new coffee shops were opening in the area.
- Bargaining power of suppliers: The bargaining power of suppliers was low, as coffee beans and other supplies were readily available from multiple sources.
- Bargaining power of buyers: The bargaining power of buyers was moderate, as consumers had many options for purchasing coffee, but were loyal to the coffee shop chain due to its reputation for high-quality coffee.
- Threat of substitutes: The threat of substitutes was moderate, as consumers could choose to purchase coffee from other coffee shops or make their own coffee at home.
Competitive rivalry: The competitive rivalry in the coffee shop industry was high, as there were many other coffee shops competing for the same customers.
So far, we have discussed and know how one can conduct internal and external business environment analysis using different techniques, once you are confident about the concept and techniques go to the next step of the strategic management process, i.e. Strategy formulation.
Step:2
Strategy formulation: Techniques and example
Strategy formulation is always done basis of the outcome of the analysis, the results indicate where to work and what, and the most important thing in this stage is to be of utmost rational in approach i.e. must be attainable, measurable, and ethical.
Techniques used in the formulation
- Differentiation Strategy: This involves creating unique products or services that set your organization apart from competitors. The focus is on creating value for customers that is difficult for others to replicate. Differentiation can be achieved through product design, quality, features, customer service, and other factors that make your product or service stand out.
Example: A small bakery can differentiate itself from its competitors by offering unique and high-quality products. For example, they could offer gluten-free, vegan, or sugar-free options that are not available in the local market. They could also differentiate themselves by offering personalized cakes for special occasions such as birthdays, weddings, and anniversaries. By focusing on the quality and uniqueness of their products, they can charge premium prices and attract customers who are willing to pay for quality.
- Cost Leadership Strategy: This involves becoming the low-cost provider in the market. The focus is on producing and delivering products or services at a lower cost than competitors while maintaining acceptable levels of quality. Cost leadership can be achieved through economies of scale, efficient production processes, and supply chain management.
Example: A small online clothing store can compete on the cost by selling generic or unbranded products at lower prices than its competitors. They could source their products from low-cost manufacturers and pass on the savings to customers. They could also use a direct-to-consumer model to reduce the cost of intermediaries and increase their profit margins. By focusing on cost leadership, they can attract customers who are price-sensitive and compete with larger retailers.
- Focus Strategy: This involves targeting a specific market segment and tailoring your products or services to meet their unique needs. The focus is on being the best in a particular niche rather than trying to compete with larger, more established companies. Focus can be achieved through research and understanding of the target market, developing specialized products or services, and building relationships with customers.
Example: A small organic vegetable farm can focus on a specific niche market by offering premium organic produce to health-conscious consumers. They could use sustainable and environmentally friendly farming practices to differentiate themselves from traditional farms. By focusing on a niche market, they can charge premium prices and attract customers who are willing to pay for high-quality and sustainable produce. They could also build relationships with local restaurants and farmers’ markets to increase their visibility and brand awareness in the community.
Let us understand the topic through an example…
A Boutique Clothing Store
Background: A boutique clothing store was experiencing declining sales and wanted to formulate a strategy to increase revenue and profitability.
SWOT Analysis:
Strengths:
- Unique and high-quality clothing items
- Strong customer relationships
- Knowledgeable and friendly staff
Weaknesses:
- Limited online presence
- Limited marketing budget
- Limited product offerings
Opportunities:
- Expansion into online sales
- Collaboration with local designers and artists
- Diversification of product offerings
Threats:
- Increased competition from larger retailers
- Economic downturns
- Changing consumer preferences
A correct strategy formulation is not possible unless a proper analysis of the business ecosystem is done, for small business SWOT technique is the best.
Strategy Formulation: Based on the SWOT analysis, the company formulated the following strategies:
- Develop an online presence: The company decided to develop an online presence to increase sales and reach a wider audience.
- Collaborate with local designers and artists: The company decided to collaborate with local designers and artists to diversify its product offerings and attract new customers.
- Increase marketing efforts: The company decided to increase its marketing efforts through social media and other low-cost channels to increase brand awareness and attract new customers.
Expand product offerings: The company decided to expand its product offerings to include accessories and other items to increase revenue and attract new customers.
Hope you have understood the strategy formulation, now let us understand the implementation part of the strategic management process.
Step:3
Strategy implementation: Techniques and examples
The implementation begins with action planning followed by resource allocation and monitoring. Communication is an important part because unless the purpose or objective is clear to each stakeholder the derived results may not yield the desired result.
- Action planning: Once the strategy is developed, an action plan should be created to identify the actions needed to achieve the desired results. The action plan should include clear and measurable goals, timelines, and responsible parties for each task.
Example: A small marketing agency has developed a new digital marketing strategy to increase its clients’ online presence. To implement this strategy, they create an action plan that includes identifying target customers, creating engaging content, and using social media platforms. The plan also includes a timeline for each task, who will be responsible for each task, and how they will measure progress.
- Resource allocation: The resources required to implement the strategy, such as finances, personnel, and technology, should be identified and allocated effectively. This includes determining the budget required for the plan, identifying the necessary staff and training, and acquiring any necessary technology or equipment.
Example: A small retail store wants to increase its online presence and attract more customers through e-commerce. To implement this strategy, they allocate resources to purchase an e-commerce platform, hire a web designer to create a user-friendly website, and hire staff to manage online sales and customer service.
- Performance management: The strategy implementation process should be monitored and evaluated regularly to ensure that progress is being made and that the strategy is still relevant. This includes setting performance targets, measuring progress, and making adjustments as needed.
Example: A small manufacturing company has implemented a new quality control process to improve product quality and reduce defects. To monitor the process, they set performance targets for the number of defects and rework the performance data to identify any issues and make necessary adjustments to the process. They also provide regular feedback to their employees and offer training and development opportunities to ensure they have the necessary skills to meet the performance targets.
Communication: Effective communication is essential for strategy implementation. All stakeholders, including employees, customers, and suppliers, should be informed about the strategy and its goals. Communication should be clear, concise, and consistent.
Example: A small restaurant wants to improve customer satisfaction and increase repeat business. To achieve this, they implement a customer feedback system that allows customers to provide feedback on their dining experience. They communicate the feedback to their staff and make necessary improvements to their menu and service. They also use the feedback to promote their restaurant on social media and other marketing channels.
Leadership and motivation: Effective leadership is necessary to inspire and motivate employees to achieve the strategy’s goals. Leaders should provide support, guidance, and feedback to employees to ensure they understand the strategy and its role in its implementation.
Step:4
Evaluation and control are essential parts of the strategic management process
This involves assessing whether the strategies implemented by a small business are achieving its intended objectives. This part of the process involves measuring performance, identifying areas that need improvement, and taking corrective action where necessary.
Here are some examples of evaluation and control in small businesses:
- Sales performance: A small business selling products or services can evaluate its sales performance by tracking key metrics such as revenue, profit margin, and customer acquisition cost. If the business is not meeting its targets, it can take corrective action by adjusting its pricing, marketing strategy, or product offering.
- Customer satisfaction: A small business can evaluate its customer satisfaction by conducting surveys, tracking online reviews and ratings, and analyzing customer feedback. If the business is not meeting customer expectations, it can take corrective action by improving its product quality, customer service, or pricing strategy.
- Employee performance: A small business can evaluate its employee performance by setting goals and objectives, providing regular feedback, and conducting performance reviews. If employees are not meeting performance expectations, the business can take corrective action by providing training and development opportunities, offering incentives, or reassigning tasks.
- Financial performance: A small business can evaluate its financial performance by monitoring key financial metrics such as revenue, profit, cash flow, and return on investment. If the business is not meeting its financial targets, it can take corrective action by reducing costs, increasing prices, or seeking additional funding.
- Implementation of strategies: A small business can evaluate the implementation of its strategies by comparing the actual results with the intended results. If the business is not achieving its intended results, it can take corrective action by adjusting its strategies or implementation techniques.
The role of leadership in strategic management process
Leadership plays a crucial role in strategic management by setting the vision and direction for the organization. Leaders must analyze the external and internal environment to identify opportunities and threats, and formulate strategies to achieve the organization’s goals. Leaders must also communicate the strategy effectively to all stakeholders and ensure that the strategy is aligned with the organization’s mission and values. For example, the late Steve Jobs, co-founder of Apple, was known for his visionary leadership and his ability to drive innovation and growth through strategic decision-making.
The role of leadership in corporate social responsibility
Leadership also plays a crucial role in promoting and implementing corporate social responsibility (CSR) initiatives. Leaders must ensure that the organization operates in an ethical and sustainable manner and takes into account the impact of its operations on all stakeholders, including customers, employees, suppliers, and the environment. Leaders must also communicate the organization’s CSR initiatives and engage with stakeholders to build trust and goodwill. For example, Unilever’s former CEO, Paul Polman, was known for his commitment to sustainability and his efforts to integrate sustainable practices into Unilever’s business model.
The challenges of implementing strategic change in an organization
Implementing strategic change can be a challenging process, as it requires the organization to adapt to new ways of doing things and overcome resistance to change. Some common challenges include:
- Resistance to change: Employees and stakeholders may resist the changes required to implement the new strategy.
- Lack of resources: The organization may not have the resources, such as funding, technology, or human capital, to implement the new strategy effectively.
- Lack of alignment: The new strategy may not be aligned with the organization’s culture, values, or capabilities.
- Implementation difficulties: The organization may encounter operational difficulties, such as delays or unexpected costs, during the implementation process.
For example, when Starbucks decided to close its stores for a day to provide racial bias training to its employees, the company faced resistance from some employees and customers who felt that the training was unnecessary or ineffective. However, by communicating the importance of the initiative and involving all stakeholders in the process, Starbucks was able to successfully implement the change and strengthen its commitment to social responsibility.
Mistakes people make when formulating a strategic management process
There are several common mistakes people make when formulating a strategic management process. Here are a few of them:
- Failing to conduct a thorough analysis: One of the biggest mistakes in strategic management is failing to conduct a thorough analysis of the external and internal environment. Without a clear understanding of the organization’s strengths, weaknesses, opportunities, and threats, it is difficult to develop an effective strategy. [Need help… write to me]
- Lack of clarity in the mission and vision: A lack of clarity in the mission and vision can lead to confusion and lack of direction. It is important to clearly define the organization’s purpose and direction. [Need help… write to me]
- Developing strategies that are not aligned with objectives: Developing strategies that are not aligned with the organization’s objectives can result in wasted resources and efforts. It is important to ensure that strategies are aligned with the organization’s objectives. [Need help… write to me]
- Overestimating resources: Overestimating resources can lead to unrealistic strategies that are not achievable. It is important to have a clear understanding of the organization’s resources and limitations. [Need help… write to me]
- Failing to consider implementation and evaluation: Failing to consider the implementation and evaluation of the strategy can result in a lack of accountability and failure to achieve objectives. It is important to have a plan in place for implementing the strategy and monitoring progress toward objectives. [Need help… write to me]
- Ignoring external factors: Ignoring external factors such as changes in the market or the competitive landscape can result in a strategy that is no longer effective. It is important to monitor external factors and make adjustments to the strategy as needed. [Need help… write to me]
By avoiding these common mistakes and following best practices in strategic management, you can increase the likelihood of success and achieve objectives.
Hope you have got a clear picture of strategic management, and how you can implement it in your small business. In case you are in doubt, please write to me, I will be happy to help you.
