4. Work Book: Planning and Strategy in the Small Firm

Small business owner-managers are not generally engaged in formal business planning. However, they can derive benefits from strategic planning. The development of a clear vision for their business is an important step in successful strategic management. Formal written business plans are often prepared by small firms to secure financing from banks or venture financiers, or at the request of suppliers and customers. However, the most valuable use for a plan is to guide the internal operations of the business. Small business owners should plan to replace themselves with a system, placing attention on the design of a business model and structure that allows them to work on rather than in the business. The process of strategy is continuous and involves setting a clear vision and mission, identifying the critical success factors needed for the firm, then setting clear objectives before developing a plan for implementation. An important element of developing a strategic plan is to undertake an analysis of the external environment and competitors, which includes understanding the ‘rules of the game’ that exist in the firm’s industry. Environmental analyses should focus on the factors driving competition within the industry, as well as the political, economic, social and technological forces likely to impact on the business in the future. Small firms should seek to adopt competitive positioning strategies focusing on securing niches in the market that allow them to make best use of their internal resources. Future growth is likely to involve a balance of matching product and market opportunities and following emergent strategies. There are at least four main planning responses that the small business owner can adopt depending on their environmental uncertainty and organisational complexity. These responses will involve varying degrees of formality and sophistication and operational or strategic levels of focus. Selecting the right planning response for the conditions under which the business is being managed can be important to the overall success of the firm.