Today, businesses which carefully design their future plans based on strategies are said to out-rival their competitors and develop sustainability in the long-term. This article is aimed to outline an idea of the importance of strategic management and planning within small and medium-sized enterprises which commonly constitute the largest economic share by output.
Authors: Daria Torzhevskaia and Minna Porasmaa
The Meaning of Strategic Management
The function of strategic management is to formulate and put into practice the major company’s initiatives considering available resources and assessing the internal and external environments in which the organisation operates. It provides a general direction to the enterprise and involves specifying the organisation’s objectives, developing policies and plans to reach these objectives, and then allocating resources to implement the plans. Accurately executed strategic management navigate and orientate individuals within organisations, make them more mobilised, encouraged and following the same focus and direction. In order to achieve a successful strategic fit a company should be consistent in its external environment which includes relationships with its rivals, customers and suppliers and internal goals, capabilities and structures. (Hambrick & Chen 2007.)
Strategic Planning in Small and Medium-Sized Enterprises
Smaller firms are not simply the smaller versions of larger organisations, but they behave in the market very differently. The substantial body of research acknowledges a positive relationship between strategic orientation and firm success. (Jones & Sisay 2014.) However, due to insufficiency of market knowledge and capital, a limited access to research and personal intuitive management style, SMEs commonly ignore strategic orientation. Even though most of the research practices on strategic management are applied to large corporations, the relevance of strategy in small businesses does not diminish in comparison with bigger entities. Small firms can even display an explicit strategic competitive behaviour. (Lobontiu 2002.)
The opportunity exploration and reasonable resources exploitation directly affect small business performance. Virtually, SMEs cannot compete with larger firms in terms of investment in Research and Development (R&D), economies of scale or significant promotional expenditure (e.g. nation-wide marketing campaigns). (Hill & McGowan 1999.) Thus, given the advantages of flexibility within a small entity, the strategic concept has to be more flexible and adaptable for them.
Every globally recognised company started out small. A shared key to success of those organisations laid in their ability to see the goal and effectively plan their actions towards it. (TXM Lean Solutions 2017.) The conclusion from this is whenever an initiative to start up a business emerges, the first things for key long-term success is to establish a clear reason for existence (Mission), a big dream driving company’s operations (Vision) and fundamental principles that would guide its daily decision-making (Values). The objectives and goals have to be set out and communicated across the team to ensure the operational and human capabilities are aligned with the strategy execution requirements.
In order to display a practical application of the ideas above, the strategic planning significance can be underpinned by one particular construction industry example. The case company strategy turned out to be more intuitive than deliberate with a strong orientation towards operational rather than strategic issues.
The research has been undertaken within a small general contractor located in Sydney, Australia, – the market with an intense and tough competition – which provides design and construction services with a particular operational emphasis on project management. The company had been functioning well with a short-term project success orientation until it reached a certain point of maturity where it had to choose: either to reinvent its vision and devise a future survival strategy or accept the failure to grow. The empirical research by interviewing the company’s representatives has revealed that the main growth restricting factor was its inability to develop the fundamental principles and values which would guide its daily decision making. This in turn has disrupted the company’s ability to effectively develop in a more complex and profitable business model by using a proposed external opportunity to cooperate under Joint Venture. (Torzhevskaia 2017.)
Being strategically unprepared for future, the company was largely myopic at reaching out higher efficiency of its operations and taking advantage of market prospects at its full capacity. It has been observed how a strategically uncertain position of the case company has entailed troubles in project management, brand identification and relationships with stakeholders. (Torzhevskaia 2017.) This case is a bright example of how significant the potential losses may be if an entity is not given a purpose and a direction to move forward. Such position has a more or less predictable outcome which is likely a recession, stagnation or an end of development.
This case can teach us a few things. First, the strategic planning cannot be underestimated regardless of the type and scale of activity. Second, an ongoing reflection and environmental scanning are key for recognising opportunities in the external environment. Thirdly, all the above conclusions are especially applicable for the small businesses which success is strongly determined by the ability to scan the environment and adapt to changes considering its internal capacity. Finally, the more complex the business model becomes and the higher market expectations emerge, the more dynamic leadership and strategic orientation is required.
The strategic planning activities have to operate at the pace of business, providing real-time perspectives for management to quickly respond to market swings, reallocate resources and take advantage of emerging prospects. Companies that tend to integrate and develop their strategic planning techniques compete more effectively generating higher sales and profit margins, return on assets and employee growth being at the same time more innovative and nationally recognised.(Desai 2015.)
It has been a matter of disputes and extensive discussions whether strategic planning is necessary within businesses. However, the industry case described above adds to the significance of proper strategic management disregarding the scope and nature of operations. In parallel, a traveler without a final image of destination and a sense of direction is likely to get lost throughout a journey. It is hard to argue that every manager who is aiming at success has to be led by the strategic plan with clear goals as well as every intelligent traveller is guided with a map and a compass.
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Torzhevskaia, D. 2017. Strategic Management in Construction Industry. Case Company: Custom Design & Construction. [Online document]. Bachelor’s thesis. Lahti University of Applied Sciences, Faculty of Business and Hospitality Management. Lahti. [Cited 5 Oct 2017]. Available at: http://www.urn.fi/URN:NBN:fi:amk-2017101316038
TXM Lean Solutions 2017. Blog: Why do So Few Small Companies Become Big Companies? [Cited 5 Oct 2017]. Available at: http://txm.com.au/blog/small-companies-become-big-companies
Daria Torzhevskaia has studied International Business at Lahti University of Applied Sciences and will graduate and receive a BBA degree in October 2017.
DSc. (Econ. And Bus. Adm.) Minna Porasmaa works as a Senior Lecturer at Lahti University of Applied Sciences, Faculty of Business and Hospitality Management.