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STRATEGIC CONTROL WILL HELP SMALL BUSINESSES SURVIVE

Robert R. Edwards , Arkansas Tech University William C. LaFief, Southern Illinois University ABSTRACT Although it is generally believed that strategic planning will improve their chances of survival and success, many small business operators do not prepare plans. One reason for this is the fear they will lose the flexibility they need when change occurs. Strategic control is a concept that is designed to help top managers deal with change and other problems after a strategic plan has been prepared, but it has received little or no attention in the small business management literature. Strategic control's characteristics are described and a dis- cussion of the concept's application to small business is provided. INTRODUCTION While there is some evidence that the failure rate of small businesses is overstated [10,11], there is also general agreement that the rate is too high and that it could be reduced if the businesses were managed differently [1, 15]. Environmental factors, especially business cycles, contribute to many small business failures, but inadequate management is the most commonly cited cause [19]. A frequently mentioned specific shortcoming of many small business managers is their failure to prepare plans for the operation of their businesses [1]. More precisely, they are criticized for a lack of effective strategic planning to meet the overall needs of their organizations [15, 18, 20]. There are a number of reasons that small business operators don't prepare strategic plans. A major reason is lack of time. Because many simultaneously fulfill the duties of top, middle, and first-line managers, small business operators tend to be continually caught up in the "crisis of the moment." Today's problems have a way of demanding a higher priority than preparing for a relatively distant future that may not even exist for the business if the present problems aren't solved. In addition to the ever-present time crunch, many small business operators feel that a written plan will "tie them down" to one course of action, reducing their ability to cope with new situations. Many also believe that written plans really aren't necessary for organizations of their size, where a few people make most of the decisions and relatively little coordination is needed. Others are convinced that, because they have so little control over their environments, strategic planning isn't really realistic. It seems to make little sense for them to devote precious time and effort preparing for a forecasted future that may never materialize [15, 21]. In further support of these opinions, there is evidence that many very successful small businesses do not prepare strategic plans. It has been reported that 50 percent of the companies listed in a recent year's INC 500 had no formal business plan and another 33 percent had prepared only a partial plan. A major reason given for lack of planning in these businesses was the desire to avoid the rigidity that the plans might create [14]. In view of these companies' success, and the resources needed for formal planning, it is easy to understand why many small business operators do not engage in strategic planning. Despite the misgivings of many small business managers, and the examples of successful businesses that

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have not prepared formal plans, most small business management theorists continue to recommend strategic planning as a way to increase the chances of success and survival [1, 15, 18, 20, 21]. In spite of the rapid changes in the environments of most businesses, there is considerable merit in the arguments that planning at least gives a business operator some control over where the organization is headed and that the orderly process of planning increases the likelihood that problems can be identified in time to be avoided, or at least mitigated. Fortunately, there is a solution for resolving these conflicts that does not require the advantages of strategic planning to be abandoned or small business managers to surrender their flexibility. The answer lies in the use of strategic control, a fifteen-year-old strategic management concept that was devised to deal with change and to avoid unsatisfactory organizational outcomes. Although it has been generally described in strategic management texts for some time, discussion of and research in strategic control has been relatively limited, and it is virtually unmentioned in the small business management literature. STRATEGIC CONTROL'S HISTORY It became apparent to management theorists and the managers of large corporations during the 1970s that even the best possible planning processes cannot cope effectively with the dramatic internal and external changes that can occur between the time a strategic plan is prepared and the time, perhaps years later, when implementation of the plan is complete. A common observa- tion, essentially the same argument heard in the debate over the value of planning to small business operators today, was that inaccurate planning assumptions and frequent environmental changes invalidated strategic plans before they could be carried out [2, 16]. One theorist [22] observed that no plan seemed capable of surviving contact with reality. The apparent inability of strategic management, which then included strategic planning and strategy implementation, to deal with change and cope with unsatisfactory results led some 1970s theorists to suggest the application of traditional management control to strategic management. Controlling had been identified long before [5] as a fundamental management activity and defined as "verifying whether everything occurs in conformity with the plan adopted." This linkage of control to planning is an association that has endured [3, 8, 9]. A generally accepted framework of management control consists of four parts, identified as (1) setting standards, (2) measuring performance, (3) comparing the performance with the standards, and (4) taking appropriate action. Some sources contract or expand the framework slightly by combining parts 2 and 3 or by dividing one of more of the parts to provide greater detail [6, 7, 9]. After earlier attempts to link strategic planning with fundamental management control practices [12, 13], it was proposed that strategic control be added as a final stage of strategic management [17]. Since then, the concept of strategic control has been accepted by many theorists as a basic part of strategic management. HOW STRATEGIC CONTROL WORKS Strategic control, like the rest of strategic management, is focused on both external and internal factors. Even though environmental factors are largely beyond the control of top managers, the managers must deal with those factors, and strategic control provides a method for doing so. This is much different from the challenges faced in traditional management control, which is mostly internally focused and typically used in situations that are under the managers' influence.

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Strategic control is also focused primarily on the future. Because of the long time horizons used in strategic planning and strategy implementation, and the high cost of unsatisfactory outcomes, the reactive corrections often used in management control are likely to be inadequate. Strategic control is more forward-looking than traditional management control, so that un- satisfactory results can be avoided or alleviated, whenever possible, rather than waiting for them to occur and then attempting merely to prevent a recurrence. There are, unfortunately, contradictions in the strategic control literature that appear to be the result of identifying the concept's activities out of context. In one study that attempted to identify strategic control activities (4), business policy professors cited almost all the activities that are normally considered to be part of strategic planning and strategy formulation. The resulting definition of strategic control resembled generally accepted descriptions of the entire strategic management framework so closely that it was not useful. A way to identify the strategic control "forest" without getting lost in the activity "trees" is to focus on the purpose and responsibilities of the concept. The purpose is to identify the need for corrective actions at the strategic level and to direct that the actions be undertaken. A list of strategic control responsibilities is contained in Table 1. These provide an outline of the content of strategic control. The specific activities required to fulfill the responsibilities are context-dependent; they depend on the situation in which the top manager and his business are operating. The strategic control responsibilities listed in Table 1 address the needs for an external focus and proactive corrections. They are focused on the monitoring of external and internal forces that can disrupt the success of strategic plans, on measurements and forecasts of the results of previously implemented plans, and on making appropriate changes in the implementation of plans or, when appropriate, changing the plans themselves. Identifying a need for changes in the implementation of plans and/or the content of ongoing plans is part of strategic control, but the actual selection of implementation activities, new strategies, strategic objectives, or missions is not. When a need for changes in implementation methods or the modification of plans is identified by the strategic control process, the demand for corrective actions is fed back into the strategy implementation or strategic planning stages of the strategic management process for necessary action. Receipt of this strategic control feedback restarts the strategic management process at the point where the feedback is received. TABLE 1 STRATEGIC CONTROL RESPONSIBILITIES 1.Monitoring Internal & External Planning Assumptions. 2.Monitoring other Relevant Internal and External Forces. 3.Measuring Results. 4.Forecasting Results. 5.Identifying Past, Present Future Variances From Planned Results. 6.Directing corrective Implementation Activities. 7.Directing Corrective Strategic Planning Activities.

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Figure 1 is a simplified model of strategic management that illustrates the relationship of strategic control with strategic planning and strategy implementation. Identification by the strategic control stage of actual or projected shortfalls in organizational performance initiates corrective action, which may be centered on changing the way the strategic plan is being implemented or, if appropriate, on changing the plan itself. Because it is usually easier and faster to change the way in which a strategic plan is being implemented than to change the plan itself, top management first examines the strategy implementation activities to determine if they can be modified to achieve the desired results. If so, appropriate actions are ordered; if not, the need for a change in the plan is indicated and the strategic planners make the necessary choices. Corrective actions in the strategic planning stage of the model may range, depending on the nature and extent of the performance shortfall, from minor strategy modifications to, in rare cases, a change in the mission of the business. Wherever the corrective action is taken, whether in strategy implementation or strategic planning, the strategic management process begins again at that point. Since specific strategic control activities are context-dependent, they may overlap slightly with the activities of the strategy implementation stage of strategic management. This is depicted in Figure 1 by the arrowhead shape of the bound- ary between these stages. A similar relationship exists between the strategic planning and strategy implementation stages. The need for proactive strategic control is met by relying heavily on forecasted results, which in turn rely on external and internal monitoring of events. The strategic control standards are based on, but are more precise than, the objectives established during the preparation of the strategic plan. Be- cause of the forward-looking nature of strategic control, its standards will often be milestones on the path to the strategic objectives. STRATEGIC CONTROL IN SMALL BUSINESSES In large businesses, it is normal for different groups of managers to be responsible for the activities that occur in the different stages of strategic management. In addition, managers at high levels will accomplish some of the activities themselves and fulfill their responsibilities for accomplishing other activities by assigning them to managers at lower levels. Thus, strategic management in these organizations involves many people and requires a great deal of coordination and control. In small businesses, the situation is usually quite different. All stages and levels of management are likely to be the responsibility of a single manager or, at most, a few managers. Furthermore, the small business manager typically does much of the work himself/herself, rather than assigning it to other managers. This decreases the need for coordination and operational control, but requires the small business manager(s) to understand and perform a wider range of activities. When strategic management is practiced in a small business the strategic planner, strategy implementer, and strategic controller are very likely to be the same person. Thus, when the strategic control stage of the process "informs" the strategy implementation or strategic planning stage that corrective action is required, the small business operator is merely recognizing and acknowledging within his/her own mind that decisions made earlier need to be changed. Since a single individual is likely to be responsible for all the strategic management activities in an organization, it may not, at first glance, seem particularly important to identify the stage of the strategic management process to which an activity belongs. This is useful, however, because it helps ensure that

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no important activity is overlooked. If a change is made to a strategic plan, the entrepreneur must remember that the implementation activities are also likely to require changes. When strategic control is considered in terms of responsibilities, rather than specific activities, it becomes a more useful concept for small business. Even though the assump- tions and environmental concerns of small businesses in strategic planning may be quite different from those of large corporations, the monitoring of those factors is equally relevant. The measuring and forecasting of performance, when compared to the expected performance results, provide information about past, present, and future variances from the expected results that call for changes in strategy implementation activities and/or the strategic plans themselves, as appropriate. CONCLUSION It is generally agreed that the odds of small business survival are considerably improved when managers engage in strategic planning for the business. It is highly unlikely, however, that even the best-conceived strategic plan will achieve the expected results because of the difficulty in making correct assumptions during the planning process and because of the dynamic state of most organizations' external and internal situations. Many of the small business operators who do not engage in strategic planning demonstrate a knowledge of these problems when they express a fear of losing the flexibility necessary for dealing with change. The use of strategic control by small business operators provides a solution that combines the benefits of strategic planning and the flexibility to make necessary changes. In fact, strategic control helps identify the need for change in a more timely manner. Earlier identification of the need for change should make the changes more effective, and improve the chances of survival for a business. Even if survival is not at stake, the performance of the business should be enhanced. It is proposed that small business operators will improve their chances of success and survival if they practice strategic planning, implement the strategic plans effectively, and practice strategic control to identify the need for change. [1]Anderson, Robert L., and John S. Dunkelberg, Entrepreneurship, Harper & Row, New York, 1990. [2]Ansoff, H. Igor, "Management in Transition," Challenge to Leadership: Managing in a Changing World, ed. Conference Board, Free Press, New York, 1973, pp. 22-63. [3]Donnelly, James H., Jr.; James L. Gibson; and John M. Ivancevich, Fundamentals of Management, 8th ed., Irwin, Homewood, Ill., 1992. [4]Edwards, Robert R., "Strategic Control: Do We Know What It Is?" Proceedings, Southwest Academy of Management, 1989, pp. 29-33. [5]Fayol, Henri, General and Industrial Management, 1916. Trans. Constance Storrs, Sir Isaac Pittman & Sons, London, 1965. [6]Glueck, William F., Management, 2d ed., Dryden Press, Hinsdale, Ill., 1980. [7]Griffin, Ricky W., Management, 2d ed., Houghton Mifflin, Boston, 1987. [8]Hellriegel, Don, and John W. Slocum, Jr., Management, 4th ed., Addison-Wesley, Reading, Mass., 1986.

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[9]Koontz, Harold, "A Preliminary Statement of the Principles of Planning and Control," Journal of the Academy of Management, Vol. 1, No. 2 (April, 1958), pp. 45-61. [10]Kuehl, Charles R., and Peggy A. Lambing, Small Business, 2d ed., Dryden Press, Chicago, 1990. [11]Longenecker, Justin G., and Carlos W. Moore, Small Business Management, 8th ed., SouthWestern, Cincinnati, 1991. (12]Lorange, Peter, and Michael S. Scott Morton, "A Framework for Management Control Systems," Sloan Management Review, Vol. 16, No. 3 (Fall, 1974), pp. 41-56. [13]Newman, William H., Constructive Control, Prentice-Hall, Englewood Cliffs, N.J., 1975. [14]Parks, Bill; Philip D. Olson; and Donald W. Bokor, "Don't Mistake Business Plans for Planning (It May Be Dangerous to Your Financial Health," Journal of Small Business Strategy, Vol. 2, No. 1 (February, 1991), pp. 15-24. [15]Scarborough, Norman M., and Thomas W. Zimmerer, Effective Small Business Management, 3d ed., Merrill, Columbus, Ohio, 1991. [16]Schendel, Dan E., and Kenneth W. Hatten, "Business Policy or Strategic Management: A Broader View for an Emerging Discipline," Proceedings, Academy of Management, 1972, pp. 99-102. [17]Schendel, Dan E., and Charles W. Hofer, eds., Strategic Management, Little & Brown, Boston, 1979. [18]Sexton, Donald L., and Nancy B. Bowman-Upton, Entrepreneurship, Macmillan, New York, 1991. [19]Siropolis, Nicholas C., Small Business Management, 4th ed., Houghton Mifflin, Boston, 1990. [20]Steinhoff, Dan, and John F. Burgess, Small Business Management Fundamentals, 5th ed., McGrawHill, New York, 1989. [21]Stoner, Charles R., and Fred L. Fry, Strategic Planning in the Small Business, South-Western, Cincinnati, 1987. [22]Taylor, Bernard, "Introducing Strategic Management," Long Range Planning, Vol. 7, No. 4 (September, 1973), pp. 34-38.

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