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Strategic Planning and Management for SMEs

Strategic Planning and Management for SMEs

  • 1 June 2023
  • By OCBC Business Banking
  • 10 mins read

In Conference Room 1 where the most important discussions are held, corporate planners and senior management gather to formulate the future direction of the company with the support of financial forecasts, operational data and a good dose of artisanal coffee. Strategic planning and management is the process of determining goals and evaluating the necessary actions to achieve them, and it is as important for big corporations as it is for SMEs.

A study by the International Decision Sciences Institute (DSI) has shown positive association between the level of strategic planning with SME growth; and the lack of formal business planning is a top contributor to the high failure rate of SMEs, especially start-ups. In general, growth is the main goal of a business and strategic planning sets the foundation to develop capabilities that create and maintain competitive edge on a sustainable basis. Even though it does not guarantee business success, strategic planning could predict factors that contribute to business failure, and effectively address them to decrease the possibility of failure.

As SMEs are more susceptible to a dynamic and competitive environment, it is necessary to implement a more flexible planning process that adapts to the evolving environment. A real commitment to the process with strategic controls in place is also required in order for SMEs to beat the market. Here is a strategic planning framework applicable for SMEs, which is comprised of three stages: Internal Evaluation, External Evaluation, and Analysis of Strategies.

Stage 1: Internal Evaluation

The first part of the strategic SME planning process is to perform evaluation on each of the company’s functional area, such as marketing, accounting, administrative, commercial, financial, production and so forth. Identifying and evaluating the strengths and weaknesses of these functional areas provide a clearer picture of the business and its position to counter threats and take advantage of opportunities.

Some examples of aspects to be considered are the quality of products, exclusivity of products, variety of products, and price competitiveness for its commercial function; employee remuneration, employee experience, employee attitude towards learning, and education level for its human resource function. As for its financial function, aspects to be considered are such as the business borrowing capacity, cash availability, cost stability or the recovery of accounts receivable.

From here, SME owners could determine the internal factors that have the most significant impact on business growth, before proceeding to establish mechanisms to achieve their business goal. For bigger-sized companies, a special support team could be established to help consolidate inputs and enforce the application of strategies.

Stage 2: External Evaluation

The second stage of the process is to identify and evaluate the external factors relating to the macro-environment and business sector that has impact on business growth. It is important to understand the business response capacity towards environmental changes, as these external factors may affect strategies involving product development and market segmentation. Aspects that are included under macro-environment includes the economic environment, socio-cultural environment, governmental and legal environment, as well as the technological environment. SME owners could then identify the opportunities and threats that affects the business based on these aspects.

The next step of stage 2 would be to evaluate the business sector that the company operates in. The spectrum of competition where the monopoly theory and the perfect competition theory represent extreme opposite ends that could be used as a reference to understand what strategies are applicable for the business. Firstly, the monopoly theory results in a sole producer within a supply chain such that they could reap the benefits of economies of scale, and maintain the ability to mass produce quantities at lower costs per unit. At the opposite end of the scale, the perfect competition theory serves as a benchmark to compare real-life markets against, and is useful in explaining how supply and demand could affect the market as a whole. With the perfect competition theory, the market would reflect a near-perfect economy in which a large number of producers and consumers have full and symmetric information and no transaction costs, and would therefore keep prices and each other in check with the competitive environment.

As shown above, one main factor to be analysed is the competitors, and the aspects to be considered are such as the number of competitors, product differentiation, availability of substitute products, influence on competitors, and others. Another main factor is the suppliers, and the aspects to be considered are the number of suppliers, reliability of suppliers, price level and costs of switching suppliers, level of dependency upon main suppliers, and others.

Stage 3: Analysis of Strategies

The third stage of the process is to identify the strategy choices and review the application of these strategies. Based on information collected from stage 1 and 2, SME owners could identify the growth path of their businesses and apply relevant strategies to induce growth. For example, one business may need to fully utilise their existing resources more effectively to further their growth, while another business may need to offer seasonal products to counter the peaks and valleys of its business cycle.

After identifying the strategic issues that have the greatest impact on future business performance, SME owners would need to align the management team to its strategic priorities, and the special support team to consolidate the overall strategy application. SMEs could consider setting up a motivational system that rewards and promote the practice of strategic thinking within the organisation. Any employee within the organisation is an asset to the business and business owners should learn how to leverage the variety of experiences and improvements each of them can bring to the table.

Control plans should also be set in placed to eliminate and replace inadequate strategies. Setting up review systems that focuses on key threat and opportunity areas could help managers focus on business aspects that matters the most. Besides, managers should also include the use of non-financial metrics to measure the effectiveness of strategy, such as the number of sales representatives instead of just the number of sales, which would put the focus on recruiting and training employees. Talent retention is crucial to businesses, especially SMEs with an already smaller workforce to start. If owners focus too much on financial metrics in performance evaluation and neglect other organisational factors, this could become a downfall for the business in the long term.

The strategic planning process is cyclical and should be reviewed on an on-going basis, taking into account of the results as well as the environmental changes. This involves long-term thinking as well as systemic screening of opportunities, and it also means that tangible goals that connect to the long-term strategies has to be set for short-term strategies.

SME owners should view strategic planning not as a rigid box-checking process, but a non-linear journey that embodies inspiring discussions and engagements. Even though planning activities may incur expenditure in the short-term, these costs would ultimately lead the business to a market-winning position. Knowing when and where to invest within the business is the hallmark of a forward-looking entrepreneur, and moving a business forward can be a herculean task when there is neither a clear line of sight nor a solid plan to measure progress against. That is why implementing modern tools like online business banking, cloud infrastructure, and digital automation processes can aid you in streamlining tedious tasks and operations so, as the owner, you can focus on more important avenues and plan ahead for the future. With these measures in place, whether it is done in a lavish conference room equipped with Herman Miller, or in a shared working space filled with refurbished second-hand furniture, instead of being a source of anxiety, the strategic planning process can become a value-increasing activity worth the hours.


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