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Taking the decision actively to grow a business means embracing the risks that come with
growth. Spending time on identifying exactly where you want to take your business - and how
you will get there - should help you reduce and manage those risks.
As your business becomes larger and more complex, so strategy formulation will need to become
more sophisticated, both to sustain growth and to help you muster the leadership and resources
you need to keep your business developing.
To do this, you will also need to start collecting and analyzing a wider range of information
about your business - both about how it operates internally and about how conditions are
developing in your current and potential markets.
The process of strategic planning is about determining the direction in which you want to take
your business. It involves setting out your overall goals for your business. By contrast, the
purpose of the business plan is to provide the detailed roadmap that will take you in your desired
direction.
Your strategic planning and your business planning should be complementary, but effective
strategy development requires you to shift your focus from the day-to-day concerns of your
business and to consider your broader and longer-term options.
THE THREE KEY ELEMENTS OF STRATEGIC PLANNING
Developing a strategy for business growth requires you to deepen your understanding of the way
your business works and its position relative to other businesses in your markets. As a starting
point, you need to ask yourself the following three questions:
Where is your business now? This involves understanding as much about your business as
possible, including how it operates internally, what drives its profitability, and how it compares
with competitors. Keep your review separate from day-to-day work and be realistic, detached
and critical in distinguishing between the cause and effect of how your business operates. You
should also write it down and review it periodically.
Where do you want to take it? Here you need to set out your top-level objectives. Work out
your vision, mission, objectives, values, techniques and goals. Where do you see your business
in five or ten years? What do you want to be the focus of your business and your source of
competitive advantage over your rivals in the marketplace? This step should be the foundation
for the final plan and motivate change.
What do you need to do to get there? What changes will you need to make in order to deliver
on your strategic objectives? What is the best way of implementing those changes - what
changes to the structure and financing of your business will be required and what goals and
deadlines will you need to set for yourself and others in the business? Think about the business
as a whole, for example consider diversification, existing growth, acquisition plans, as well as
functional matters in key areas.
There is a range of strategic models that you can use to help you structure your analysis here.
These models provide a simplified and abstract picture of the business environment. SWOT
(strengths, weaknesses, opportunities and threats) analysis is probably the best-known model and
is used by both smaller and bigger businesses in the for-profit and not-for-profit sectors alike.
STEEPLE (social, technological, economic, environmental, political, legal, ethical) and Five
Forces analysis are two other widely used models.
SWOT
A SWOT analysis involves identifying an objective of a business or project and then identifying
the internal and external factors that are favourable and unfavourable to achieving that goal.
Strengths - attributes of the business that can help in achieving the objective
Weaknesses - attributes of the business that could be obstacles to achieving the objective
Opportunities - external factors that could be helpful to achieving the objective
Threats - external factors that could be obstacles to achieving the objective
STEEPLE
There are other models you can use to assess your strategic position. STEEPLE analysis, for
example breaks the business environment down into the following components:
STEEPLE analysis is often used alongside SWOT analysis to help identify opportunities and
threats.
Five Forces
The Five Forces model aims to help businesses understand the drivers of competition in their
markets. It identifies five key determinants of how operating in a given market is likely to be for
a business:
Customers' bargaining power - the higher it is (perhaps because there is a small number of
major buyers for your product or service) the more downward pressure on prices and thus
revenue they will be able to exert
Suppliers' bargaining power - the ability of suppliers to push prices up (for instance if you rely
on a single firm) can impact significantly on costs and profitability
The threat of new competitors entering your market or industry - more businesses
competing makes it more difficult to retain market share and maintain price levels
The threat of customers switching to substitute products and services - an example would be
the threat to fax machine manufacturers posed by the wide availability of email
The level of competition between businesses in the market - this depends on a wide range of
factors, including the number and relative strength of the businesses and the cost to customers of
switching between them.
2. Strategy formulation:
Refers to the process of choosing the most appropriate course of action for the realization
of organizational goals and objectives and thereby achieving the organizational
vision. The process of strategy formulation basically involves six main steps. Though
these steps do not follow a rigid chronological order, however they are very rational and
can be easily followed in this order.
After identifying its strengths and weaknesses, an organization must keep a track of
competitors’ moves and actions so as to discover probable opportunities of threats to its
market or supply sources.
• The environment is the most comprehensive component in the venture creation process.
• It includes all the factors that affect the decision to start a business, for example,
government regulation, competitiveness, and life cycle stage.
• The new venture process begins with an idea for a product, service, or business.
Key Issues about the Venture Cycle:
• There are static and dynamic forces which need a special attention of the entrepreneur
• The growth stage of the venture is more sophisticated with competition and dilemmas
• At a certain stage, you need to decide whether to do more innovation or allow decline
– Birth stage
– Breakthrough stage
– Maturity stage
Each stage poses different managerial challenges and requires different managerial
competencies.
(iv) Stabilization
• Growth is rarely as smooth as the curve of the graph suggests. It is more likely to
represent spikes of growth and contraction rather than rounded peaks. For example many
small businesses have relatively few customers, so that the addition of one new
significant client will lead to a sudden growth spurt. Conversely, the loss of one large
client can significantly shrink the size of the business.
• The transition from one stage to another does not necessarily take place in the order
predicted by the model. Economic or trade cycles outside the control of the firm may
contribute substantially to the growth or decline of an enterprise at any time irrespective
of the stage of development. The economic downturn of 2008/9 forced a large number of
businesses to decline in size, whatever stage in their development they had reached.
• The contention that the transition from one stage to the next is triggered by a particular
kind of crisis has not been tested through empirical research. The development of an
enterprise is likely to be subject to many different internal and external variables so that
isolating one primary cause for the evolution of a firm from one stage to another is an
over simplification of a very complex process.
• Many enterprises reach a stable size and never make the transition out of this phase. Once
they have developed a business to a stage of survival, life-style entrepreneurs will have
little motivation to grow it further. Some take deliberate steps to avoid growth which they
see as threatening the very independence they sought when they created the enterprise.
As every business venture grows, problems in command and control arise. Since there are four of
them at the top administration level, it is essential that they frequently ensure the existing control
system is reliable and trustable. Moreover, it is also of importance that the resource allocation
system be assessed frequently.
Responsibility
‘As the company grows, the distinction between authority and responsibility becomes more
apparent’ (Kuratko & Hodgetts, 2008). It is easy to delegate authority downwards, especially
when a firm has fewer people during early stages. But as soon as the venture reaches growth
stage, expands and starts hiring more people, management needs to as well develop its sense of
responsibility through improving flexibility, innovativeness and a supportive and adaptable
environment.
Change
Tolerance of Failure
As well as there should be appropriate punishments for failures, there is expected to still be a
certain degree of tolerance towards them, even when the business venture has successfully gone
through the difficult initial start-up stage. The typical types of failure include, but are in no way
limited to, moral failure, personal failure and uncontrollable failure (Kuratko & Hodgetts, 2008).
Moral failure often signifies failures in internal trust, while personal failure is determined by lack
of sufficient skills and applications, and uncontrollable failure that is caused by unexpected and
unpredictable external factors, which is also the most difficult type to deal with.
Decision Making
Decision making protocol, structures and tools change as business ventures grow in terms of
capacity. (Hang & Wang, 2012). During early stages, the business venture must have had very
little capacity and few resources and therefore, these factors can be handled in an organic, case
by case basis.