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Part 1 Introducing the Strategy Questionnaire 3

Part 2 The Strategy Questionnaire: 7

Section A The Business and its Stakeholders


Section B Small Business in Practice
Section C Small Business and Resources
Section D Small Business, Clients and Customers
Section E Small Businesses and their Competitors
Section F Small Businesses and their Services
Section G Small Businesses and their Employees

Part 3 Arriving at a Strategy 22

Part 3 Summary of the main issues 26

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1 Introducing the Strategy Questionnaire

1.1 Introduction

Strategy is not a word that fits easily in the pragmatic and problematic
arena of small business, particularly where political and economic
unpredictability may encourage you, as an owner manager, to take a
very short-term perspective of your business. The problem is that
without developing a longer term perspective even of a rudimentary
nature, your business is unlikely to grow. Adopting a longer-term view
is particularly important within the context of increasing economic
liberalisation and intensifying foreign competition.

1.2 Setting the scene: Management in Small Businesses

Challenges in small business management. Strategic management


for small businesses presents particular problems. For example:

The range of stakeholders in the business (often extended family)


means that strategic management does not lend itself to the quick-
decision making that is sometimes necessary in responding to rapid
change in markets and economies.

One of the most common threats to better management is lack of time.


The demand of customers, and your time spent “fire-fighting”, may
make it difficult for you to take a longer-term, more strategic
perspective.

Often stakeholders are - quite reasonably - more interested in the


pursuit of their own interests, rather than those of the business,
creating conflict.

The need for you to market through networks and on a one-to-one


basis to small business customers often makes obvious business
solutions - such as advertising and public relations - extremely difficult
to apply.

Part two of this guide addresses some of these problems by offering a


framework for clarifying the long-term future of your business, and by
formulating a strategy that will help you to take advantage of
opportunities as they arise, whilst avoiding unpleasant surprises.

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The strategic questionnaire, which is central to this part, should
provoke thought and discussion, thus helping to raise the level of
debate in your business. The questionnaire is designed so that the
questions themselves are straightforward, and answered by yourself,
and other key staff who run the business. Simply posing them to
members of staff (and possibly to your customers) will be thought-
provoking.

Gathering information is only the first step in the process of arriving at


a strategy for your business. We strongly suggest that you organise a
group of key managers (the “Strategy group”) to be convened to
debate the responses and draw overall conclusions (the task of asking
the questions might also be usefully shared among the group). The
function of the Strategy Group is covered in more depth in the section
headed “Arriving at a Strategy”, in Part 3.

1.3 Strategy and strategic management The words “strategy” and


“strategic” are often used very loosely in business circles to imply that
a particular decision, plan or action is considered to be important. But
to be useful, the concept needs to be defined precisely.

Strategy is about the ways and means of achieving the main


objectives of your business, the process of moving it from where it is
now to where it needs to be, if it is to (more) successful. Strategy is not
concerned with the details of day-to-day management, but rather with
broad intentions and the general direction in which your business is
travelling.

As such, strategy is a key to business discipline: developing a strategy


involves questioning the fundamental premises upon which your
whole business is built - its economics, the source of its competitive
advantage, its resources, and how these are allocated, the flexibility of
the organisation and the quality of its people. Thinking strategically
may eventually lead to a major shift in the emphasis of your business.

Because of its potential to bring about major change, strategy was until
quite recently seen as the preserve of corporate planning, an exercise
carried out at fixed intervals and then for the most part ignored. Today
it is accepted that managers in all sizes of businesses should be
encouraged to think strategically if their organisations are to prosper.
The strategy developed is seen as providing a broad framework that
allows for adaptation and innovation in response to what is often a
volatile and unpredictable business environment.

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Strategic management is not just about strategy development, it is also about
communicating the chosen strategy to your business stakeholders and seeing
that it is put into practice in your business. The whole process looks something
like this:

1 - Establishing the current situation of the business,


and asking the key question:

Where are we now?

2 - Establishing the direction of travel and longer-term objectives,


and asking the key question:

Where to we want to be in x years time?

3 - Looking at the option for getting from point 1, to point 2


and choosing the most appropriate one. Ask the key question:

How can we best use our resources to create (or maintain)


an advantage over our competitors?

4 - Put the chosen strategy into action!

In this guide, we concentrate upon strategy development, that is stages 1-3 of


this process, using a questionnaire to gather the information necessary for
arriving at an appropriate strategy for your business.

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1.4 The Benefits of Thinking Strategically. Most businesses have the
informal elements of a business strategy, although this is often not
explicit. You are likely to have long-term objectives, often not written
down, but carried in your mind. In the absence of a formal approach, a
strategy will emerge by default, being the product of the stream of
decisions made at various times. If these decisions are made in the
absence of a recognised framework, the various activities of the
business will be apt to pull in different directions according to your own
personal concerns and preferences. When this happens, the
messages received by staff, customers and suppliers will be different
and often conflicting.

The benefits of formalising a strategy for your business are numerous.


They include:

gaining a better insight into how your business works and where it is
going (thus avoiding - often nasty - surprises)

being able to set clear targets for you staff, and evaluate progress

saving time, energy and/or expense through a reduction in your “fire-


fighting” activities

being able to offer a better service to your existing customers

having the potential to identify new customers and services

establishing a better basis for negotiating finance

enjoying greater peace of mind about the future of the business

understanding more clearly your own concerns and goals and the
likelihood of their attainment

raising the level and quality of debate within the business.

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The questionnaire is split into seven sections, which taken together
provide a framework for self-analysis in the business. The questions
themselves are 'triggers' that allow you to consider the relevant
underlying business issues.

Remember that strategy is about means and ends, which involves


gaining a tighter grip on your own business objectives, your available
resources and the constraints facing your business. This requires
concentrated effort, but will pay dividends.

Some questions require input from other key members of staff. This
approach helps to ensure that all of the key decision-makers, whether
yourself, or other managers or key members of staff, contribute their
views. Gathering information in this way will take effort and initiative
and you may find it helpful to share the task among members of the
Strategy Group. You may also find it useful to employ a small business
counsellor to assist you in the process of working through the
questionnaire. It can often be helpful to have a more 'neutral' view of
the business in undertaking this process.

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Section A: The Business and its Stakeholders

Question A1

Who are the stakeholders in the business?

Question A2

Who are the key managers, that is those making a fundamental contribution to
business?

Question A3

Consider the individuals listed in response to Questions A1 and A2. Which of


their concerns and/or needs have a marked influence on the way in which the
business is managed? For example, how would each person rate the following
needs/concerns on a scale of 0 (of no importance) to 5 (of the highest
importance):

to be recognised as a leader and opinion-former (“achievement”)

to create capital value within the business for future realisation (“wealth”)

to promote/protect standards in the community (“altruism”)

to plan for management succession (“the future”)

to generate short-term/medium-term income for the business (“survival”)

to see that decisions are implemented successfully (“control”)

to ensure a pleasant working environment for employees (“caring”)

to balance domestic/social and business needs (“personal”)

Question A4

Review the response to Question A3. What are the implications for the business
and its future direction? (This question does, of course, require sensitive
handling, but don’t let that steer you away from completing this valuable part of
the overall exercise).

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Section B: The Business in Context

Question B1

How did the business arrive at its present form? Briefly document the main steps
in its evolution.

Question B2

What are the main activities of the business?

Question B3

Which are the businesses core activities and which are peripheral ones? Use a
rough diagram, to show relationships between the various parts of the business.

Question B4

Consider why the diagram you drew in response to Question B3 is shaped as it


is. What forces lead to the development of the peripheral services?

Question B5

Again, considering the diagram, what distinct customer groups are at present
being served by the business?

Question B6

From the perspective of each different group of customers, what is the business
really supplying in each of its activities?

It will be useful to debate this question within the Strategy Group, remembering
that “end-uses” can be intangible, and that many businesses, particularly those
in services, are often really selling such things as peace-of-mind, confidence,
and reassurance.

Question B7

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What is the “image” of the business? How do key managers believe the business
is perceived by:

existing customers?

potential customers?

suppliers?

competitors?

staff?

Ask each person to list his or her responses.

Question B8

What mistakes has the business made in the past, in terms of


identifying/meeting the needs and expectations of its customers? What can be
learned from these mistakes?

Ask each key manager in turn, and debate the responses within the Strategy
Group.

Question B9

Who are the main suppliers, and what is the relationship of the business with
each one of them?

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Section C: The Business and its Resources

Question C1

The most important resource in any business is its people. What skills exist
among key managers within the business? Compile a “skills inventory”, using the
following headings as a guide, and adding other skills appropriate to your
particular business:

professional and technical expertise


business experience
qualifications
languages
interpersonal skills, especially listening and communicating
administrative/organisational skills
networking skills

Question C2

How is the business organised? Who reports to whom about what? Do written
job descriptions exist? Are responsibilities both clearly defined and understood?
Use the following questions to help you draw up an organisational chart.

Who has primary responsibility for finances?


Who looks after personnel matters?
Who is responsible for information technology?
Who looks after general administration?
Who is responsible for technical matters?
Who is responsible for marketing the business and its services?
Who reviews the quality of the advice and services provided by the
business?
Who is responsible for long-term planning?

Question C3

Consider the responses to Questions C1 and C2. What overlaps and/or gaps
have become visible in the skills and responsibilities of managers? Debate the
effects of these in the Strategy Group. Do they result in a poor service to
customers or poor internal communications?

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Question C4

Does the business face constraints due to a lack of appropriately skilled staff? If
so, what skills are lacking?

Question C5

Who are the key members of non-managerial staff? Ask each one what single
change would make the business:

more efficient?
more competitive?
more successful?
more rewarding?

Question C6

How is information organised within the business? What are the


positive/negative effects of the present information system(s) on the way the
business run? Which information systems are computerised? What other kinds
of computer application would be useful in the business? What plans exist for the
introduction of such systems?

Question C7

Do key managers feel confident about their understanding of the state of the
finances of the business?

Question C8

Is accessible financial information summarised to give key decision-makers


timely and succinct information about the financial health of the business? How
is financial information organised and presented?

Question C9

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What are the resource constraints that confront the business? Summarise the
situation under the following headings:

missing management skills


missing professional and technical skills
missing marketing constraints
financial constraints
technological constraints
other limitations, including:

lack of suitable premises,


power supply
water supply
access roads
security
training institutions
telephone and internet access

Question C10

What procedures does the company need to introduce to encourage the most
efficient use of the resources of the business? (Examples in the human resource
field may include rewarding individual initiative and linking pay to performance).

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Section D: The Business and its Clients/Customers

Question D1

How can the market for the business products and services be described? Draw
a diagram using lines and boxes to show the relationship between the business
and its main customers, suppliers and competitors. You may find it useful to vary
the size of the boxes to indicate relative size and strength.

Question D2

What is the total size of the market for the business? What is your share of this
market? (You can define market size in terms of numbers of customers or
financial value or in any other way you find applicable).

Question D3

Does this market divide into distinct ‘market segments’? For example, can
customers be grouped easily according to:

age?
geography?
type?
background?

If so, list the market segments for the business.

Question D4

For each market segment you have identified, what are the social and economic
factors that have led to its growth or decline over the past few years? Has a
particular group or individual been responsible for the growth experienced in the
business? What factors influence demand in each market segment at present?

Question D5

Which customers individually contributed more than 5% of the businesses total


turnover in the past financial year? Produce a list and debate any implications of
this, within the Strategy Group.

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Question D6

Identify any cyclical patterns in the workload of the business. What are the
causes of these cycles, for example:

seasonality of work?
fashion trends?
business/trade cycles?
dependence upon the performance of other sectors?

Question D7

During the past 12 months, which major new customers has the business won
and which existing customers has the business lost? List each new customer
and identify the source of the introduction. Then list any customers who departed
and seek out the reasons for this.

Debate the results of your investigation within the Strategy Group.

Question D8

How does the business go about marketing its services to potential customers?
List all existing market activities/efforts and note who is responsible for them.
What else could be done? Canvas opinion among key managers and consider
the responses within the Strategy Group.

Question D9

In what direction is the market likely to move over the next 5 years? Ask each
key manager to write down his/her view of possible future trends and how these
might effect the services currently offered by the business. What new services
will be needed? Summarise your findings and debate them within the Strategy
Group.

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Section E: The Business and its Competitors

Question E1

Who are the business’s main competitors in each of the market segments in
which it currently operates? In compiling your list, keep in mind the identified
end-uses of the services provided and what customers are really purchasing
(see Question B6).

Question E2

How do key managers perceive the competition? Ask each person to summarise
his/her impressions of two or three major competitors under the following
headings:

image
the size and geographical sphere of influence of the competitors, and the
implications of these factors in terms of their cost structures and flexibility
in meeting customer needs
range of services offered
apparent strengths, including any identifiable financial advantage
apparent weaknesses
likely future prospects

Summarise the responses to Question E1 and E2, and then discuss them within
the Strategy Group. In particular, try to identify your most successful current
competitors and the reasons for their success.

Questions E3

Which new competitors are likely to enter each market sector? Are there are any
significant barriers to entering a market sector (e.g. capital requirements,
availability of labour) that may discourage new competitors? Are businesses that
do not currently offer the services the company provides likely to become future
competitors through adopting a multidisciplinary approach?

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Question E4

Why do customers use your business’s products and services, rather than those
of its competitors? Ask each key manager to list their reasons taking the
following into account:

reputation
price
individuals in your firm
service levels
marketing efforts
location
role of personal recommendations

(NB. In certain businesses, it may be both practical and beneficial to ask


customers this question).

Question E5

Why is the business successful? Discuss the responses so far in this section
within the Strategy Group. What conclusions can you draw about your
competitive advantage? How can you build upon this advantage?

Question E6

Where do the threats to future success lie?

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Section F: The Business and its Products

Question F1

What services does the business currently provide? List them (see Question B2).
Do these services differ from those offered by business competitors?

Question F2

Is there any scope for increasing product or service differentiation, thereby


‘adding value’ in the eyes of your customers? How might you go about doing
this?

Question F3

For services that could be further differentiated, would this allow the business to
charge a higher price than charged by your competitors?

Question F4

What is the present pricing policy? How are rates calculated? When were they
last reviewed? What features of the company’s services are customers
particularly happy to pay for? What do they particularly resent paying for?

Question F5

What is the relative profitability of the different product or services provided by


the business?

Question F6

Does the business have a good spread of services or are there ‘too many eggs
in one basket’?

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Questions F7

Bearing in mind any cyclical patterns identified in Question D6, does the overall
portfolio of services offered by the business allow for even workload patterns and
a steady cash flow?

Question F8

Do key managers see the business as a ‘market leader’ or a ‘follower’ in terms of


offering new services? If so, what evidence is used?

Question F9

How are potential opportunities for new services identified and thought through?

Question F10

Can you define your business’s ‘unique selling point’ (USP), that is those things
that makes it particularly attractive to the market place?

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Section G: The Business and its Employees

Question G1

What training and/or development programmes do staff receive? Make separate


lists for:

chargeable staff (identify groups of staff and separate professional


development and update programmes from general management skills
courses)
non-chargeable staff

How frequently do key managers attend courses or arrange an ‘away day’?

Questions G2

What are the staff turnover figures for the business? How do these figures
compare with those of competitors? Is the situation in the business improving or
slipping? What are the costs of staff turnover to the business? Consider each
group of staff separately and try to identify some of the least obvious costs.

Question G3

What path for career advancement and personal development do staff see within
the business? Again look at each group of staff separately.

Question G4

What employee appraisal schemes does the business operate for different
groups of staff? How is above-average performance identified and rewarded?

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Question G5

In the business, is two-way communication encouraged between:

different departments/disciplines
staff and line management

In precisely what ways is such communication encouraged?

Question G6

Are employees encouraged to make suggestions for improvements to the


services that the business provides? Or for cost saving?

Question G7

How would you rate staff ‘morale’ on a scale of 0 to 5 (where 0 is a complete


absence of team spirit/motivation/belongingness/identification with the business
and 5 is total commitment) among different types groups of staff/departments?
Where appropriate, perform this analysis for individual staff members as well.

Question G8

Is there a clearly defined policy on quality assurance? Do staff understand how


this works in practice and what standards and systems are applied?

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!

3.1 Reviewing the main objectives. You will now have a mass of
information about the current position of your business and where you
aim to be in the future. Before you begin to analyse the responses to
the Questionnaire, you will need to review the main objectives of the
business.

We suggest you set aside a full day away from the office for the
Strategy Group to begin the process of strategy formulation. During
this Strategy Day, you should aim at producing a set of agreed
business objectives, plus a single summarised set of responses to the
Questionnaire.

3.2 Analysing the Responses to the Questionnaire. When this


summary is complete, review it and mark relevant points as internal
strengths or weaknesses, or external opportunities or threats (i.e.
conduct a SWOT analysis).

Internal

S W

O T

External

It may be helpful to subdivide the overall SWOT analysis into distinct


functional areas. This will allow you to focus more precisely on the
implications for the business. Appropriate headings for this exercise
would generally include:

People - structure; skills; motivation; rewards; appraisal


Technology - hardware; software; communications
Marketing - advertising; PR; seminars; customer contact
Management Information - accounts; key statistical information
Infrastructure – Power, telephone, water, roads

The complete SWOT analysis will clearly identify the resources


available and the threats faced which are external to the business.
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Circulate the results of the SWOT analysis and the agreed business
objectives as widely as possible within the business, and ask for
comments and reactions. Then, perhaps two weeks later, reconvene
your business Strategy Group to consider the implications of each item
contained in the SWOT analysis in the context of the agreed business
objectives and begin to draw out appropriate strategy options.

3.3 Identifying Constraints. At this point it is as well to remind yourself of


any other constraints upon the future direction and strategy that the
business can take. These fall into two main groups:

Internal constraints, including factors such as the personal


preferences of your managers, ethical considerations and so on.
Internal constraints are things you have to live with; they are not the
same as weaknesses, which can be addressed.

E xternal constraints, such as the laws and regulations mentioned


earlier. External constraints should not be confused with threats
from competitors which, like internal weaknesses, can be
addressed.

3.4 Considering the Options. Your business objectives may include


many factors, for example: turnover, capital value, profitability, survival,
quality of service, working conditions, employee participation and
environmental issues. When you come to formulate a strategy, you
should be aware at the outset that it is just not possible to meet
everyone's’ expectations in full. Strategy is above all the art of the
possible and the practicable. What constitutes an appropriate strategy
will vary for each business and will almost certainly change over time.

However, the following options open to you are likely to fall broadly into
one of the following categories:

Doing nothing. This is a possibility only if everything you have learned


about the business and the environment convinces you that you will
continue to be successful doing exactly as you are now.

Improving what the business does now. For example, by cutting


costs or responding more promptly to customers’ needs.

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Expanding the business. For example, by taking existing services to
new customers or developing new services for existing customers.

Diversifying/Innovating. Broadly, this means offering new services to


new customers.

Whatever option you choose, it will be appropriate if it allows you to


gain ground on your competitors, whilst taking into account the
environment in which the business operates and the resources that are
available.

3.5 Strategy into Action. When there is a clear view of what the business
strategy should be, it is essential that this is communicated to everyone
in the business. This is the first step in putting your strategy into action.
Much more is required. But, as we suggested earlier, that is another
chapter in the strategic management story.

However, to make immediate use of the strategy that you have devised,
it should be encapsulated in a formal business plan for the coming year.
This can be used to seek any outside finance you may need and also to
provide an internal yardstick for measuring progress towards achieving
objectives.

One suggestion for the contents of a suitable plan is set out below.

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3.6 Suggested Format for a Business Plan

1 Introduction to the business


1.1 Business Details
1.2 Principal activities of the business
1.3 Organisation of the business

2 Marketing the business.


2.1 The overall market for the business
2.2 Target market segments
2.3 The competition
2.4 How marketing will be effected
2.5 The business USP (Unique Selling Point)

3 Finance
3.1 Analysis of costs
3.2 Cash flow forecast
3.3 Projected profit and loss account for current/
next year’s trading
3.4 Break-even calculations
3.5 Summary of finance

If you see the plan as a route map for the immediate future, and as a working
document which provides a reminder of core objectives and actions, it will
become the stepping stone to the next stage of growth.

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" # $

1 Focus Stand back and take time out. Avoid the pitfalls of
addressing short-term administrative and operating
issues at the expense of ignoring the big questions in
your business
Strategic issues will remain hidden behind operational
problems, unless you and your key staff make a real
effort to air and debate them

2 Objectives Make business objectives explicit and communicate


them to all of your staff

3 Markets Identify your core business activities and key markets

4 Clients Focus on market needs first, then organise the


resources available to deliver improved services which
the customers want, when they want them
Nurture the customer base. $50 invested on maintaining
links with an existing customer can be just as beneficial
as $1,000 spent on winning a new one
5 Financial Health Determine and monitor the six or so key financial
statistics for your business

6 Quality Start at the top with your own personal commitment and
that of your managers. Lead by example. Avoid
conflicting signals

7 People If you have no idea where the business is going, neither


will the staff!
Be aware of personal development and training needs
of your staff, and the benefits of using a simple staff
appraisal system
Do not overlook the significant ‘hidden costs' caused by
low morale and high staff turnover levels

8 Communication Build a co-ordinated approach. Break down barriers


within the firm. Use anecdotes and heroes to really drive
messages home. Celebrate your successes!

9 Flexibility Search for new opportunities. Give recognition to your


employees who suggest useful ideas

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