It is not the strength and stamina but strategy and skills that win the race

Big ideas for small business managers Part 1

Small and medium scale enterprises (SMEs) make up a large part of Sri Lanka’s economy, accounting for over 80 percent of all businesses. These are found in all sectors of the economy and provide employment for people of different skills. We find SMEs in the agri-business sector engaged in growing spices, fruits and vegetables and in the manufacturing sector engaged in a large number of industrial activities. In the service sector SMEs account for more than 90 percent of business establishments. SMEs have become an essential source of employment generation and are estimated to contribute about 35 percent of employment.

The growth and expansion of SMEs are constrained by problems giving forth from a number of problems. These problems fall into broad areas of access to finance, physical infrastructure, level of technology, regulatory framework, access to information and advice, access to markets, business development services, intellectual property rights, technical and managerial skills and environmental issues.

However, in spite of all these barriers, why is it that some SMEs overcome huge obstacles and achieve spectacular successes while others are big failures? Both the winning and losing businesses will equally confront competition daily basis, feel the impact of rising costs and reduced profits and struggle to find innovative products and services. They also compete in an ongoing battle for funds to run their businesses and react to ever-increasing demand for return on capital.

To break the barriers and succeed, SME entrepreneurs should be committed to face the challenge of changing the environment of the marketplace. They need to gain the knowhow to develop a quality business plan and the acumen and skill to develop business-building strategies that determine success. Innovation and sustainability have now become the keys to any business success. Delivering better value faster than competition will determine who will win in the end.

The idea of this series of articles is to provide the entrepreneurs and managers of SMEs with the fine skills and tools to develop their businesses. The series will identify new challenges of market and environment facing SMEs and will suggest a framework to analyse the key issues to be addressed by them. And, also, it will dwell upon how they can create strategic action plans to emerge out winners and still continue challengers’onslaughts.

Why do we need a business strategy?

Without a strategy an existing business can drift away from its customers and become uncompetitive within its environment and eventually stops making profit. This is known as Strategic Drift. Therefore, having a strategy is a way to remain competitive or a way of forcing a strategic change when an organisation has drifted away from its environment and is starting to fail.

Most SMEs have a strategy in the form of a business plan; this is usually a standard document generated to convince either an advisor or a bank they have a good idea and have thought about it. Management gurus recommend at least some SWOT analysis and financial forecasting should be within a company’s business plan template. This type of strategic business plan is then used to secure additional funding from the stakeholders.

Three-types

There are three ways to create a business strategy: (1) Entrepreneurial: This method is very much the gut feeling by either the owner of the company or partners/directors, who decide on the direction of an organisation. Strategy tools are mostly used for validating this gut feeling and to communicate this to the stakeholders. (2) Emergent Orientated: The strategy becomes the obvious choice and emerges from day-to-day activities and from what has succeeded in the past. Again strategy tools, if they are used, will be to validate and communicate the strategy. As opportunities are spotted they are seized, maybe using some basic SWOT analysis or financial planning to underpin these obvious strategic moves. (3) Intended Strategy: This consists of strategies which are deliberately created through some process (for example a number of leaders within an organisation, who use their combined creativeness and strategic tools to generate new strategies for the organisation) using the tools to generate the strategy and validate and communicate it. As such this approach looks at the organisation’s capabilities, at the environment the organisation sits in and creates and validates a ‘strategic position’. This type of strategy tends to be a once yearly task that is done at a strategy conference with maybe quarterly updates.

Environment

Whatever t he t ype of strategy is prepared t he environment is the key factor to tackle. It changes the rules of the game. It may come in the form of changing the market requirements, changing technology, changes in buyer behaviour, socio-political conditions and, above all, the creeping competition. Any of these requires quick changes to the strategy to survive in the market-place. In essence, life and success of a strategy depend on its inborn capability to cope with the changing environment. And, companies not changing their strategies with the changing environment won’t stay in business for long.

When some of these environmental factors may have a direct immediate impact on the business operations and success, we call them macro environment factors. It is necessary that before deciding the strategy, businesses should carry out a full analysis of their micro environment.

Let us briefly run t hrough t he common micro environment factors.

-- As all businesses need customers, they

Customers

should be centred (orientated) around customers. The marketing plan should aim to attract and retain customers through products that meet their ‘wants and needs’ and excellent customer service.

Employees -- Employing staff with the necessary skills and experience is essential. This process begins at recruitment stage and continues throughout a person’s employment via ongoing training and promotion opportunities. Training and development play a critical role in achieving a competitive edge, especially in service sector marketing.

Suppliers -- The suppliers provide businesses with the materials they need to carry out their business activities. A supplier’s behaviour will directly impact the business it supplies. For example, an increase in raw material prices will affect an organisation’s Marketing Mix strategy and may even force price increases. Good supplier relationships are an effective way to remain competitive and secure quality products.

Shareholders -- Shareholder pressure to increase profits will affect organisational strategy. Relationships with shareholders need to be managed carefully as rapid shortterm increases in profit could detrimentally affect the longterm success of the business.

Media -- Organisations need to manage the media so that the media help promote the positive things about the organisation and reduce the impact of a negative event on their reputation. Some SMEs will even employ public relations (PR) consultants to help them manage a particular event or incident.

Competitors -- The name of the game in marketing is differentiation. Can the organisation offer benefits that are better than those offered by competitors? Does the business have a unique selling point (USP)? Competitor analysis and monitoring is crucial if an organisation is to maintain or improve its position within the market. If a business is unaware of its competitor’s activities they will find it very difficult to ‘beat’ their competitors. The market can move very quickly, for example, through a change in trading conditions, consumer behaviour or technological developments. As a business, it is important to examine competitors’ responses to these changes so that you can maximise the impact of your response. Particularly, for SMEs, it is crucial. (Next week – Basic approach to strategic

management) (Lionel Wijesiri, a corporate director with over 25 years’senior managerial experience, can be contacted

at lionwije@live.com)