As a small business owner, the things you want to achieve with your business are not always written down. Advisors will say "you need a business plan", bank managers will insist on one before approving that vital loan you need to fund your expansion.
Whether or not you codify what you want for your business, you should have an understanding of what strategic management is all about so you can drive your business forward, ensuring you can achieve/maintain sustainable competitive advantage.
Strategic management in business boils down to 3 simple questions:
- Where are we now?
- Where do we want to be?
- How are we going to get there?
Where are we now?
The first question looks at the situation the business is in, this situational analysis can take many forms but as a general guide think about doing SWOT and PEST analyses of your current position.
Don't be frightened by these acronyms, they are really easy to grasp and can provide surprising insights into your business and develop your thinking. You could brainstorm these with other members of your team, or your family/friends if you are a lone wolf.
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses are internal aspects of your business: What are you good at? What makes you better than your competitors? What don't you do so well? Where could you improve? Opportunities and threats are generally external, so what opportunities are there in the marketplace? Threats could be from new competitors entering your market.
Next, it is vital that you look to the wider external environment, there are many acronyms for this type of analysis (STEP, PEST, STEEPLE, STEEPLED to name a few) but they all amount to pretty much the same thing: Political/Legal, Economic, Social and Technological factors.
I won't go into great detail about these as they are self-explanatory, for example, the advent of the internet (Technological) has and continues to impact massively on how businesses operate. Analysis of the wider environment can help you to spot opportunities for growth or highlight the need for change.
Where do we want to be?
So you've analysed where you are now, the process in itself will usually throw up some interesting suggestions, next you need to think about where you would like to be.
The answer to this question forms the basis of your strategic business objectives, they can be wide ranging and don't necessarily just have to be turnover focused. In a large organisation there will be corporate objectives that underpin the overall direction of the business, these then cascade down throughout the different departments who will each have there own set of objectives, ensuring a coordinated and synchronous approach to getting the business where it wants to be.
In a small business you may just have a handful of goals but try to think outside the box here, as the saying goes, "turnover is vanity, profit is sanity, cash is reality". Don't chase turnover increases just for the sake of it, your underlying profitability is what really matters, and your objectives need to be realistic and achievable (more about that next).
When setting your objectives it is not enough to simply state: 'To increase sales' or some other vague statement, your objectives need to be SMART, another acronym, sorry, but a useful one nonetheless. Check that your objectives meet this criteria, they should be: Specific, Measurable, Achievable, Relevant and Time-related. An example of the above vague objective made SMART could be: 'To increase sales of X by 10% within the next 6 months'. These SMART objectives ensure you can measure the effectiveness of your strategy and tactics.
How do we get there?
You now know where you are now and where you want your business to be, but how are you going to get there? How will you achieve your objectives?
This is where strategy and tactics come in, your strategy is the broad overall plan, whilst the tactics are the nuts and bolts of what you will actually do to achieve your objectives.
So there you have it, ask yourself: Where are we now? Where do we want to be? How do we get there? These questions are the fundamentals of strategic management.
Finally, don't forget the feedforward loop too, this is the whole point of creating SMART objectives so you can measure if they have been achieved. Once you have carried out your plan you need to check how effective your chosen strategy and tactics have been by asking: Have we arrived? Have we achieved our objectives? If not why not? These answers then feedforward into your next cycle of planning and the process starts over again, rinse and repeat...