Strategy for small business

VUCA

Business

Volatility

Uncertainty

Complexity

Ambiguity

Most people’s view of strategy

Strengths Weaknesses

Opportunities Threats

SWOT

Strategy

What is strategy

• Likely to be involved with the long term direction of the organisation, i.e. 3-5 years

• Likely to involve all the activities of an organisation

• Usually the decisions are about trying to gain an advantage over the competition.

• They normally attempt to match the activities of an organisation to its external operating environment

• They can be affected by the values and expectations of the organisations stakeholders. (Individuals or organisations that are affected by the organisations decisions, i.e. customers)

Small Business Strategic Route Map

Internal Assessment External Assessment

Physical Financial Human Intangible Micro Macro

Porters Benchmark PESTLEVRIO

Strengths / Weaknesses Opportunities / Threats

SWOT

TOWS

Suitability Acceptability Feasibility

Strategy for Growth

PESTLE

External

• Micro environment

− Five Forces model helps identify the changes in another sources of competition within an industry

− Each force is not independent of each other. Pressures from one can cause

Competitive Rivalry

Potential

Entrants

Buyers

Substitutes

Suppliers

Threat of

Entrants

Bargaining Power

Threat of

Substitutes

Bargaining Power

• Threat of entry

− Dependent upon the ability to overcome the barriers to entry

− These factors need to be overcome to compete successfully

− They can be viewed as providing only delays and not permanent barriers to entry

− Economies of scale

− Capital requirement of entry

− Access to distribution channels

− Experience

− Expected retaliation

− Legislation or government action

− Differentiation

• Threat of substitutes

− Substitution reduces demand for a particular class of products or services, e.g. email reducing the demand for postal services

− This depends on whether the substitute provides a higher perceived benefit or value

− Substitution may take different forms

− Product for product substitution – email vs postal service

− Substitution of need – more reliable appliances require less maintenance

− Generic substitution – indirect competition

• Power of buyers and suppliers

− Buyer power high when

− Few buyers

− Alternative sources of supply

− Component or material cost is high percentage of total cost

− Switching cost is low

• Power of buyers and suppliers

− Supplier power high when:

− Few suppliers

− Switching costs are high

− The brand of the supplier is powerful

• Competitive rivalry

− Market growth rates affect rivalry

Development Growth Shakeout Maturity Decline

Few early adopters Growing adopters Growing selectivity of purchase

Saturation of users Repeat purchase alliance

Drop off in usage

Few competitors Entry of competitors Fight for share Undifferentiated product / services

Many competitors Likely price cutting for volume Shakeout of weakest competitors

Fight to maintain market share Difficulties in gaining new share Emphasis on efficiency / low cost

Exit of some competitors

Internal

Internal Resource Audit

• Tangibles

− Physical – i.e. office space, production space

− Finances – i.e. available budget / finances

− Human – i.e. the skills and experiences of the staff

• Intangibles

– i.e. brand awareness, service quality

Internal strengths

Resources, competences and competitive advantage

Same as competitors’

or easy to imitate

Better than competitors’

and difficult to imitate

Resources

Competences

ThresholdResources

ThresholdCompetences

UniqueResources

Core Competences

• Translating resources to competences

− Competences develop over time within an organisation

− Some are so difficult to imitate that they become a competitive advantage.

− These are known as “core competences”

− It is the identification of these that is important within the internal analysis.

Resources to competences

V Valuable

R Rareness

I Imitable

O Organisation

SWOT

• Derived SWOT and TOWS

− Once we have the five factors for each aspect of the SWOT

− Now investigate the relationships and implications of the factors.

−How can strengths be used to take advantage of opportunities?

−How can strengths be used to avoid or defuse threats?

−How can weaknesses be overcome to take advantage of opportunities?

−How can weaknesses be overcome to counteract or minimisethreats?

TOWS matrix investigates these relationships

Strengths (S) Weaknesses

(W)

Opportunities

(O)

Threats (T)

SO Strategies WO Strategies

ST Strategies WT Strategies

TOWS Matrix

• SO Strategies:

− Generate strategies that use strengths to take advantage of opportunities

• ST Strategies

− consider a business’ strengths as a way to avoid threats

• WO Strategies

− Attempt to take advantage of opportunities by overcoming weaknesses

• WT Strategies

− Are basically defensive and primarily act to minimise weaknesses and avoid threats

• Success Criteria

How to evaluate the strategies formed from the TOWS exercise

− Suitability

The extent to which new strategies would fit with future trends and changes in the environment and how the strategy might stretch and exploit the core competences

− Acceptability

Concerned with the expected performance outcomes. Will the strategy deliver what is expected?

− Feasibility

Can the strategy be made to work in practice?

• Suitability

Do the strategies:

− Exploit opportunities in the environment and avoid threats

− Capitalise on an organisations strengths and avoid or remedy weaknesses

− Address stakeholder expectations

• The relative suitability of strategic options can be understood by:

− Ranking

− Decision trees

− Scenarios

• Acceptability

− Some criteria for understanding acceptability of strategic options:

−Profitability

−Cost Benefit analysis

−Sensitivity analysis

−Stakeholder reactions

• Feasibility

− Financial feasibility

− Resource deployment

Summary

• Environmental influences in two ways

−Macro environment – general influences

−Micro environment – specific to the industry / sector

• Basis of all effects from the environment are dynamic, e.g. changes over time, changes to competitors

• Therefore organisations need to continually review and address these environmental changes

• Strategic capability is the ability to provide products or services with features that are valued by customers.

• Competitive advantage is therefore achieved by organisations that are able to do this better that their competitors in ways that are difficult to imitate

• Strategic capability starts with resources. Some resources may be unique to an organisation and be the basis of competitive advantage.

• Some activities or processes may be core competencies that underpin an organisations competitive advantage

• Strategic competitive advantage can be obtained by matching external factors with an organisations core competences.

• Once a series of strategies have been derived from the TOWS matrix each one should be assessed.

• The one strategy that “fits” across the suitability, acceptability and feasibility measurements can be implemented

• Implementation can be difficult but for small businesses it can be much easier than larger businesses – speed boat vs oil tanker!