Tries to deal with the question:Do SMEs need Strategy too?

1. SMEs NEED STRATEGY TOO
Strategy is all around us. We may not be able to touch or see it-but we can
certainly perceive the result of strategy and see and touch tangible objects that
have behind them strategy in one form or the other.
The notion that Strategy is meant for governments, military establishments, global
organisations and large businesses only is erroneous. Business owners and
managers have taken the generally handed-down notion that Small-Medium
Enterprises(SMEs) are “too small” to need strategy as a given, much to their own
disadvantage and peril.
That strategy is not meant for small-medium businesses is far from true. Strategy
would necessarily have to be an integral part of any business entity-irrespective
of size. And it is only with the help of strategy that business enterprises can
grow in size and impact. “Strategy without tactics is the slowest route to victory.
Tactics without strategy is the noise before defeat” say Robert S. Kaplan and
David Norton. Many SMEs face serious problems only because they have
neglected to having a strategy.
So what is strategy?
The term originates from the Greek word strategos(art of the general-as in
general in an army). The strategy, narrowly understood, is the plan used to attain
victory in battle.
Strategy is an ancient concept(Chanakya’s Arthashastra that was written in 3 BC
dealt with strategy), which seemed to have got lost in between. In recent years,
Game Theory(The popular 2002 film-“A Beautiful Mind” is based on a true story
on the life of Prof. Nash, a schizophrenic mathematician- who won the Nobel
Prize for his contribution to Game Theory ), further popularized strategy as a key
aspect of modern business.
In game theory, strategy refers to one of the various options that a player in a
game can choose from. Competitors engage in a battle or competition against one
another, or against more than one competitor in order to emerge
victorious(symbolized by a certain result- usually the accumulation of the highest
number of points, or a similar result.) So is the case with business. Company
Bright Bars competes with twenty other players with the aim of emerging as the
largest and most valuable enterprise in the steel bars industry.

2. Actions of individual players(say a decision to price a ton of steel bars-using the
above example) are influenced not only by the most apparent factors such as the
cost of raw material(iron ore, coking coal, etc.), cost of labour and cost of
transportation, but also by the price set by the principal competitor, the credit
terms offered and the facilities for free transport and shipping and other such
factors.
Hence, a strategy must specify what action will happen in each contingent state
of the game - e.g. if the opponent does A, then take action B, whereas if the
opponent does C, take action D.
And these phenomena do not spare a single business entity, no matter what its
size.
One of the key aspects of business is competition. Competition exists at various
levels for most businesses- right from the stage of being granted an operating
license(telecom, airlines, mining, etc. are some of the industries in which a prior
license is a prerequisite), to accessing cheap raw-materials-competing for supplies
from the same supplier or group of suppliers, employing manpower with the
requisite skills-competing for the same pool available in a geography, buying or
renting space for running operations-competing for the same units in the most
sought-after office building, raising capital from banks-competing for the limited
pool of funds available for disbursement, institutions and the capital markets, to
selling its products/ services in the market so as to capture the maximum share
of the market. And in all these above situations, one can observe contingent
states, that is, “What would we need to do in terms of recruitment if Competitor
X did Action A?
Strategy is necessary for an SME-not only for being a competitor to be reckoned
with, but for its mere survival even. The experience of the past century has been
that many SMEs shut-down, fail or face closure within the first two-three years
of their establishment. The primary reason for this is the absence or lack of
strategy.
At the strategic planning stage, the enterprise’s strategist or strategists, as the case
may be, make a formal consideration of the enterprise's future course. All
strategic planning usually deal with three key questions:
1. "What do we do?"
2. "Who do we do it for?"

3. 3. "How do we excel in what we’re going to do?"
In business, the third question is sometime better worded as "How do we avoid
competition or beat it?"
Strategic planning may be an effective tool for plotting the direction of a
company, however, it has its limitations. Strategic planning itself cannot foretell
exactly how the market will evolve and what issues will surface in the future in
order to plan your organizational strategy. Therefore, as important as it is to have
a strategy in place, it is equally important to have the width for strategic
innovation and tinkering with the 'strategic plan' for an organization to survive
the turbulent business climate.
Strategy provides direction to an enterprise’s collective efforts and energies. And
Strategic planning is a process used for determining where an organization is
going over the next year or more -typically 3 to 5 years, although some extend
their vision to 20 years. Strategic planning is an enterprises effort of defining
its strategy, or direction, and making decisions on allocating its resources(including
manpower and capital resources) to pursue this strategy.
In order to determine where it is going, the organization needs to know where it
stands, and then determine where it wants to go and how it will get there.
There are various approaches to strategic planning but typically a three-step
process is used:
Situation Analysis: An evaluation of the current situation or position(For the
financial ended March 31,209, for example, the business had revenues of Rs. 1
cr, operating profit of Rs. 20 lacs, Pre-tax profit of Rs. 15 lacs and profit-after-
tax of Rs. 12 lacs; it had one assembly unit, 4 sales outlets and 30 employees)
that the business finds itself in.
Target Setting: Definition of the goals and objectives(By the end of financial
year March 31,2014, say, the business targets revenues of Rs. 2 cr, operating
profit of Rs. 45 lacs, pre-tax profit of Rs. 32 lacs and profit-after-tax of Rs. 27

4. lacs; it would continue to operate with one assembly unit, with an expanded
capacity, it would have 6 sales outlets and 50 employees).
Path: Map a route by which to achieve the goals/objectives(The assembly output
would be increased with a addition to equipment and also by working additional
shifts; atleast 2 of the sales outlets would be owned and managed by dealers so
as to expand the marketing network without incurring proportionate capital
investment on real estate).
This is a simple method of strategy-formulation. Minor variants of this method is
the “Draw-See-Think”(DST) and the “See-Think-Draw”(STD) approaches.
The DST approach can be used following a 3-Step process as under:
Draw: What is the ideal image or position that the business would like to find
itself in, say, in five years?
See: Where does the business stands today and what is the distance/ gap between
where the business is today and what it wants to be in five year’s time?
Think: What are those specific actions that will result in the business covering
the gap between the present and the future desired state or condition.
Plan: What are the resources that required to back those specific actions that
would help the business reach its goals and targets.
When we look at this process a little more closely, the job of going about
strategic planning can be approached as follows:
1. Visioning - Define the vision and set a mission statement with hierarchy
of goals and objectives
2. Situation Analysis/ SWOT - Analysis conducted according to the desired
goals
3. Formulate - Formulate actions and processes to be taken to attain these
goals
4. Implement - Implementation of the agreed upon processes

5. 5. Control - Monitor and get feedback from implemented processes to fully
control the operation
The “ See” component of strategy- formulation can be considered as
“ Situation
Analysis”.
When developing a strategy, it is important to carry out an assessment/analysis of
the organization and its environment as they are(both independently, as well as, in
relation to one another), at the present moment and how it may develop in the
future. Analysis must be done both at the internal as well as external levels in
order to identify all opportunities and threats of the external environment as well
as the strengths and weaknesses of the business entity.
There factors to assess in the external situation analysis are:
1. Markets (demand/customers)
2. Competition
3. Technology
4. Supplier markets
5. Labor markets
6. The economy
7. The regulatory environment
It is normally observed that the first two are the most important factors to watch.
Analysis of the external environment normally focuses on the customer.
Management should be visionary in formulating customer strategy, and should do
so by thinking about market environment shifts, how these could impact
customers, and whether those customers are the ones the company wishes to
serve.

6. The resulting document(if the output of such thinking, discussion, debate,
deliberation and finally, enumeration-results in the drafting of a formal written
document, which, in many instances is the case) is called the "strategic plan",
“strategy note”, “strategy document”, “vision document” or a similar term. Whatever
the terminology used, if the document deals with the basic elements of “Draw-
See-Think”, it is a strategy document.
Strategy is not a one-time exercise but an ongoing process. Some of the more
common techniques currently in use(though some have been further developed and
refined since they were first introduced) are the SWOT analysis (Strengths,
Weaknesses, Opportunities, and Threats) and the PEST analysis (Political,
Economic, Social, and Technological). Whether a business employs a standard or a
non-standard technique for Strategic Planning, no business enterprise can expect to
attain any form of superlative performance, longevity or permanence unless it has
a sound strategy in place.
Strategy has several components to it. The Strategist(Thinker) being the most
important one. While the core idea around which a business is established usually
originates from the founder or the entrepreneur, the strategy may be contributed
by more than one strategist or thinker and it may evolve over a period of time.
Specialist advisors who carry our business research and study reasons for success
or failure of businesses are equipped to provide advice to businesses in strategy
formulation.
Vision, Mission and Values
Vision: Vision defines the desired or intended future state of an organization or
enterprise in terms of its primary objective and/or strategic direction. Vision is a
long term view, sometimes describing how the organization would like the world
in which it operates to be. For example an organisation working with the hungry
may have a vision statement which read "A world without hunger"

7. It is sometimes called a picture of your company in the future. Your vision
statement is your inspiration, the framework for all your strategic planning.
"Where do we want to go?"
Mission: Mission defines the fundamental purpose of an organization or an
enterprise, basically describing why it exists and what it does to achieve its
Vision. Mission may be long term as well as for short term for any organisation.
A corporate mission can last for many years, or for the life of the organization
or may change as per the demand of the organisation mission varies. It is an
objective with a timeline, but rather the overall goal that is accomplished over the
years as objectives are achieved that are aligned with the corporate mission.
Values: Beliefs that are shared among the stakeholders of an organization is
perceived as a common body or pool of thoughts and ideas collectively known as
Values. Values drive an organization's culture and priorities.
One advantage of having a statement is that it creates value for those who are
exposed to the statement, and those prospects are managers, employees and
sometimes even customers-for whom it acts as a compass. Statements create a
sense of direction and opportunity. The Vision and Mission statements are an
essential part of the strategy-making process.
In our practice, we come across entrepreneurs mistaking vision statement for
mission statement, and sometimes one is simply used as a longer term version of
the other. The Vision should describe why it is important to achieve the Mission.
And they are distinct and clearly distinguishable.
A mission statement can resemble a vision statement in some businesses, but that
can create serious problems as it can confuse people. The mission statement can
galvanize the people to achieve defined objectives, even if they are stretch
objectives. A mission statement provides a path to realize the vision in line with
its values. These statements have a direct bearing on the bottom line and success
of the organization.

8. Which comes first? The mission statement or the vision statement? That depends.
If you have a new start up business, a new program or a plan to direct your
current services to new markets or new geographies, then the vision will guide
the mission statement and the rest of the strategic plan.
However, if you have an established business where the mission is established,
then, it may so happen that, the mission guides the vision statement and the rest
of the strategic plan. Either way, you need to know your fundamental purpose -
the mission, your current situation in terms of internal resources and capabilities
(strengths and/or weaknesses) and external conditions (opportunities and/or
threats), and where you want to go - the vision for the future. It's important that
you keep the end or desired result in sight from the start.
Features of an effective vision statement include:
 Vivid and clear picture
 Realistic aspirations
 Clarity and lack of ambiguity
 Description of a bright future
 Memorable and engaging wording
 Alignment with organizational values and culture
To become truly effective, an enterprise’s vision statement must become
assimilated into the organization's culture. It is the responsibility of the leaders of
communicating the vision regularly, acting as role-models by embodying the
vision, creating short-term objectives compatible with the vision, and encouraging
all employees to make and align their own personal vision compatible with the
enterprise's vision.
It is usually advised that mission statements need to be subjected to an internal
assessment and an external assessment. The internal assessment would focus on
how members inside the organization interpret their mission statement. The
external assessment — which includes the businesses stakeholders — is valuable

9. since it offers a different perspective. These discrepancies between these two
assessments can give insight on the organization's mission statement effectiveness.
Another approach to defining Vision and Mission is to pose two questions. Firstly,
"What aspirations does the organization have for the world in which it operates
and has some influence over?", and following on from this, "What can (and /or
does) the organization do or contribute to fulfill those aspirations?"
The most obvious answer to the first question provides the basis of the Vision
Statement. The answer to the second question determines the Mission Statement.