STRATEGIC PLANNING FOR SMALL BUSINESS The resources at the disposal of the entrepreneur are always thought to be lim- ited. Inspite of the limitations, however, entrepreneurs are not discouraged from pur- suing their objectives. They can make use of some techniques that have been proven valuable in business operations. In the quest for attainment of business objectives, one technique has slowly been adopted by businesspersons. The concept, called strategic planning, is borrowed from the military and has found useful applications in large corporate enterprises. Its rele- vance to small business, however, has also been recognized. It is not unusual for a new business venture to spend more than what it earns during the first few years of operation. If this is expected by the entrepreneur, he will not be surprised. Expectations, however, can be more meaningful if the entrepreneur is engaged in strategic planning. What is Strategic Planning Strategic planning refers to the process of determining the primary objectives of the entrepreneurship and then adopting courses of action and allocating resources to achieve those objectives. The definition involves three distinct steps: (1) determination of objectives, (2) adoption of course of action, and (3) allocation of resources. Strategic planning provides the entrepreneur with a systematic approach to the achievement of the firm’s objectives. Figure 13 shows that the determination of objectives is a pre- requisite step before a strategy is adopted. In turn, strategy is a requirement before resources are allocated. Determination of Primary Objectives Adoption of Courses of Action Allocation of Resources Figure 13, What Is Strategic Planning ‘Seanne wth CamScanet—_ = The Determination of Objectives The objectives of the firm are important components of the firm’s strat ing activities but before these are determined, the firm’s mission statement ning be developed. ; he Mission Statement. This term refers to the basic description of the rae aes tionale, and direction of the firm. It consists of three concerns tegic plan. t must first funda. mental nature, : 1. how the entrepreneur intends to use his resources; 2, howtheentrepreneur expects torelate to the ever-changing environment; ang ei the kinds of values the entrepreneur intends to offer to his customers, ‘An example of a mission statement is indicated below. “The mission of Birdie Poultry Products is to provide the various poult requirements of consumers, The services of retailers located in the various malls and public markets in Nueva Ecija are tapped as means of distributing our prod- ucts. In addition to the assortment of products, we stress quality and efficient service. We intend to cover all towns of Nueva Ecija within five years through effective pricing and promotion.” Strategic Objectives. This term refers to specific performance targets that the en- trepreneurship hopes to accomplish. The objectives define, in specific terms, how the firm’s mission will be realized. Examples of strategic objectives are the following: 1. expand production capacity by 50% within two years; 2, _ increase sales by 50% by the year 2012; 3. “increase market share by 10% every two years; and 4. increase the number of outlets by three within three years. Adoption of Course of Action After the primary ( develop a strategy whic] designed plan for achie preneur will attempt to or strategic) objectives are established, the entrepreneur must his alternately called course of action, Astrategy is a carefully ving the firm’s objectives. A strategy indicates how the entre- accomplish the goals with the resources available. Examples of strategies are the following: 1. _ establish branches in strategic locations; . desi te i Sh hi F thecompanyy ‘hat will attract persons with high potentials to work with engage in the recruitment of retailers from nearby provinces; 4. engage in building up the com poultry products. and Pany’s image as a reliable supplier of quality ‘Scanned wih CamScanetIn developing realistic strategies, the entrepreneur can make use of the most popular tools. These are the following: 7 1. SWOT analysis; and 2. forecasts of future sales performance. ‘A swoT Analysis. The firm which is fully aware of its internal environment (spe- cifically its strengths and weaknesses) as well as its external environment (specifically threats and opportunities) is most likely to develop a strategy that considers the firm’s SWOT analysis is an organized method of assessing a firm's strengths and weak- nesses and the opportunities and threats in the external environment that confront or will confront the firm, The purpose of SWOT analysis is to match the firm’s strengths and weaknesses with external opportunities and threats to determine what strategy to adopt (Figure 14). The Entrepreneurship MIADOZMAAN Omnnomzaxrms Opportunities ‘Swot Analysis Forecasts of Future Performance Figure 14. Strategy and SWOT Analysis Scanned with ComSeannara skill, a competence, a valuable organizationay th refers to i s streng or an achievement that gives the firm a marjey The firms ste capability, resource or competiti advantage. s are as follows: Examples of strength: ; 1. arecording firm’s unique line-up of contract singers; 3 acompany’s ownership ofthe land that is the source of high grade materia * aquired for producing its products; 3, the strategic location of the firm’s sales offices; and 4, the firm’s exclusive supply contract with a reliable manufacturer. The firm’s weakness rel ared with others) or a condi at puts it at Fver that depending on the competitive situation, a weal y vulnerable to competition. fers to something a company lacks or does poorly (com. tion that puts it at a disadvantage. It must be noted, how- kness may or may not make a compan Examples of weaknesses are as follows: 1, lack of qualified managers; 2. poor design of the firm’s products; 3. low employee morale; and 4. poor location of the firm’s sales offices. Opportunity refers to the chance offered by the external environment to improve the firm’s situation significantly. Examples of opportunities are the following: 1. Fora motorcycle trading firm - the escalating cost of fuel; 2. Fora small restaurant — the withdrawal from business of a major competitor; 3. Be 4 tailor residing in a provincial city — the absence of a reliable tailoring shop; an For a newspaper dealer ~ an exclusive supply contract for the entire province offered by a major national publisher. Threats eo eee a challenge posed by an unfavorable trend or development in the oat he cement that would lead to, in the absence of purposeful entrepreneurial yi ‘sion of the entrepreneurship’s position. Examples of threats are the following: 1. To the grocery store — the Proposed oj 2. To the restaurant located al diversion road bypassing pening of a mall in the vicinity; long the highway — the proposed construction of a the highway and the restaurant; 3. To the local dealer of skin-whiteni of the company supplyin, a eee aa ~ the proposed dissolution 4. To the local operator of 20 units of public utility tri ete Public utility tricycles — the ity or- dinance banning tricycles from plying the major streets of eo city or. ‘Scanned wth CamScanetForecasts of Future Sales Performance. Forecasts are supplementary tools for SWOT analysis. It is an estimate or prediction of the future sales or income of the firm. Forecasts may be short-term (one year or less), medium-term (one to five years), long- term (over five years). ____ Sales forecasts are often determined through a combination of statistical and intuitive forecasts tempered by the experience of the entrepreneur. Implementing Strategic Plans Strategies are useless unless they are implemented. To put strategies into action, the following activities are required: 1. _ identifying the specific methods to be used; and 2. deploying the resources needed to implement the intended plans. Identifying Specific Methods Strategies determine the best way to use resources. There is a need, however, to develop tactics which will be used to implement the strategies. Tactics are more detailed and they are used to determine how the specific task can best be accomplished on time with available resources. If “establish branches in strategic locations” is a stated strategy, the tactical plan to implement it may appear as follows: 1. _ identify strategic locations; 2. determine the potentials of the identified strategic locations; and 3. _ set a timetable for installing the branches. Deploying the Resources The specific aim of planning is to be able to deploy the right quality and quantity of resources in the various activities required to achieve the objectives. The resources would be indicated in terms of human and nonhuman elements. Fundamental Strategies for Small Business There are certain basic strategies that are necessary for the survival of small business. These are the following: 1. flexibility strategy; 2, _ strategy of effectiveness as a higher priority; and 3, _ strategy of starting simple. Flexibility Strategy mall business ventures are not usually afforded the advantages enjoyed by large ae It is very difficult for small business to effect changes in its environment business ytees are usually limited. For instance, a small business cannot match pea g budget of a large business if they are in competition with one another. eal ‘Scanned wth CamScanetsuch as those prevent the small business from pursuing its objec. i it must consider other means. This is possible if the small business is flexible tives, Tor instance, when the small appliance dealer does not have the facility tg enough. ods directly to the customer, the entrepreneur can hire the services of a small aan operator. Another option could be the granting of a discount to offset the Galivery expense that will be shouldered by the customer. Such remedies, however, will require a certain degree of flexi the small business. When hindrances ity on the part of Strategy of Effectiveness as a Higher Priority Effectiveness is sometimes sacrificed for the sake of efficiency. Although efficiency isa desirable goal, itis oftentimes disastrous for smalll business to neglect effectiveness, A firm that concentrates on efficiency may be able to reduce its expenses but it may not be able to generate sufficient income to keep it afloat. At the early stages in the life of the small firm, when the venture is still trying to gain a foothold in the market, turning out the first products and closing the first sale are of a more basic concern than making a profit. As concerns for organization and structure are aimed at increasing efficiency, such activities must in the beginning give way to effectiveness. Strategy of Starting Simple In starting a new business vénture, the entrepreneur often encounters problems related to financing. The temptation is great for the entrepreneur to finance all the ac- tivities required in operating the venture. As expected, however, funds are not always sufficient. It may be wise for the entrepreneur to let his subordinates perform the more simple tasks and subcontract those that will need more elaborate employee skills and/ or special equipment. An example is the manufacturer of salted peanuts who cannot Produce packaging for his products at costs lower than what a package manufacturer Produces. As a result, he accepted the package manufacturer’s offer of a subcontract. ____Inchoosing the subcontract option, the entrepreneur is afforded with the follow- ing advantages: 1. he has more time to attend to more important tasks like searching for new markets; and 2. _ heis relieved of the burden of financing the subcontracted task. The general idea is for the small business venture to start simple and absorb slowly the more complicated tasks as it grows. Strategy Concerns of Small Business In determining what strategy to adapt, the entrepreneur is confronted with two general situations (Figure 15): 1. _ is he organizing a new business? or 2. is he currently running an old business? ‘Scanned wth CamScanetNew Business. This term refers to one that will be operated for the first time by the small business operator. If so, his options consist of the following: 1, acquiring an existing business; 2. — organizing a new business; and 3. buying a franchise, SITUATION NEW BUSINESS OLD BUSINESS | — = rr —) { acquire compete an existing with small business business start compete [-—] anew with large business business buy a franchise Ld Figure 15. Strategy Situations Confronting the Entrepreneur When making, a choice between the three options, the entrepreneur or the small business operator must consider the advantages and disadvantages of each. The resources of the prospective entrepreneur are also an important factor. Strategies for a Going Concern The strategic problems of small business are not as intense as those of large busi- ness, Even if small business cannot compete head-on with big business, its size has a builtin maneuverability which is a very important competitive weapon. 1 of the following strategies are applicable to small business: ent markets ~ The small business operator will have to identify the mar- 13 Seg ,gment with which it has an expertise, then compete. Any or all ‘Searne wth CamScanet2 Efficient use of research and development — Since the small business cannot § ight the research and development efforts of big companies, it must concentrate its R and D efforts to lowering process costs or to bring new products to the market. Think small — The small business can still be strong with being small. The em- phasis must be on profits rather than sales growth, and specialization rather than diversification. Why Small Business Operators Ignore Strategic Planning Important as it is, strategic planning in small business management is often ignored. This situation is true in many parts of the world including the Philippines, The reasons could be any of the following: 1. Lack of expertise - Few small business operators are trained in strategic plan- ning. Inability to get started — Even if small business operators are convinced ‘about the importance of planning, they fail to get started for lack of sufficient ex- posure to planning activities. Uncontrollable, often intangible variables — The uncontrollable and often intan- gible variables complicate planning which later on discourages the small business operator from repeating the exercise. Resource poverty — Planning requires time, but the small business operator oftentimes does not have it. This is so because he must attend to the problems related to lack of adequate capital, managerial experience, outside advice, management specialist, and other key assets. Focus on daily operations — The daily requirements of small business usually keep the small business operator so busy that he is left with no time for plan- ning. . Failure to realize the importance of strategic planning — The small business oper- ator is exposed to the environment of successful Filipino businessmen who do not engage in strategic planning. This gives sufficient reason to disregard the benefits of strategic planning. It is ironic that even if studies show the usefulness of strategic planning, this activity is not fully appreciated. ‘Seanne wth CamScanet: Alice Blue Gown Care 6 om ee Ms. Remedios Olay operated her clothing shop locateg in ao ne ae Oss commercial district. Fer merchandise consists of apparel fy roan oan Cider her employ are six salesladies. Hler shop opens at 9:00 4x4 ard cleces at :00 PM. Among the clothing stores in the city, her shops the mort a ar jening of two giant malls did not affect the viability of her firm, se Te topos ot hy hr Rem Apparel. Ms. Olay’s success can be attributed to her skill in defining what the customer really want to buy from her. The products she displays in her shop are Se ele. gant and stylish by her customers, most of whom are professionals and middle leve} business and government executives, She continued enjoying the patronage of her customers until one of her major suppliers ceased operating due to the failing health of its owner. Ms. Olay got worried and she began to consider manufacturing her own requirements. She started to make Preliminary moves to operate an apparel manufacturing business. Her first step was to hire an assistant who will initially help her Prepare the necessary documents to purchase a suitable lot where the factory will be located. Her next move was to send her brightest employee to enroll in an apparel designing course ina reputable vocational school in Manila. In addition to her other experiences, the chosen employee had worked as a seamstress for three years in a tailoring shop. Ms. Olay is so enthusiastic and she plans to start operating within two years. Guide Questions 1. Ifyou were asked to offer suggestions to Ms, Olay, what would it be? 2. Do you think Ms. Olay is on the right track? ‘Scanned wth CamScanet