Strategic Planning for the Growing Business INTRODUCTION To many people, strategic planning is something meant only for big businesses, but it is equally applicable to small businesses. Strategic plan- ning is matching the strengths of your business to available opportunities. To do this effective- ly, you need to collect, screen and analyze in- formation about the business environment. You also need to have a clear understanding of your business - its strenghts and weaknesses - and de- velop a clear mission, goals an objectives. Ac- quiring this understanding often involves more work than expected. You must realistically as- sess the business you are convinced you know well. Familiarity can breed contempt for thorough analy- sis; you cannot properly evaluate your firm's strengths or shortcomings. THE BUSINESS ENVIRONMENT Strategic planning focuses largely on managing interaction with environmental forces, which include competitors, government, suppliers, customers, various interest groups and other factors that affect your business and its pro- spects. Your ability as a small business owner- manager to deal with these groups will vary widely depending on the group and on the timing. For example, you may enjoy greater influence with your local government than with the federal government. Also, you may be able to get more of what you want from a supplier than from a compe- titor (although size, distance, the percentage of the supplier's business you represent and your record of dependability as a customer can affect this relationship). How you manage these and other relationships is one of the decisions you will make during the strategic planning pro- cess. Because of major changes in the business environ- ment, your familiarity with strategic planning and your ability to implement it is critical. At one time, business owner-managers assessed the environment on a continuum that ran between very stable and very unstable. Businesses, such as the producers of automobiles, furniture and other con- sumer goods, operated in a relatively stable and predictable world. This also was true of many ser- vice firms, such as banks and savings and loans. Typically, the environment included competition that was limited to a stable group of competitors, loyal customers and a relatively slow transfer of information. Many small businesses could thrive in this environment. Other small investors entered fields such as xerography, computers and computer component production, software design and chemical research. Some of these grew rapidly, becoming names with which we all are familiar: Xerox, IBM, Apple and Microsoft. But many more failed. Today, experts agree that more businesses face an unstable business environment. Improvements in in- formation processing and telecommunications have made major changes in most industries. Along with this, improvements in transportation and the grow- th of foreign economies (specifically in Europe and Asia) have created a global marketplace and redefined certain industries. In addition, as con- sumers are exposed to more choices, loyalty has become less important than it once was; a slightly better deal or a temporary shortage of stock can easily result in the loss of customers. Competi- tors also can change rapidly, with new ones appear- ing from out of nowhere (often this means the other side of the globe). With the instability of the global market, it is important that you make stra- tegic planning part of your overall business stra- tegy. PROACTIVE VERSUS REACTIVE MANAGEMENT A few years ago, you could establish and maintain a business by reacting to and meeting changes in tastes, costs and prices. This reactive style of management was often enough to keep the business going. However, today changes happen fast and come from many directions. By the time a reactive mana- ger can make the necessary adjustments, he or she may lose many customers -- possibly for good. Proactive planning is the anticipation of future events. Decisions are based on predictions of fu- ture states of the environment as opposed to re- actions to various crises as they occur. Proac- tive planning in an unstable, technology-driven business environment is critical to continuing success in almost any endeavor. Rather than re- acting to the situation as it changes, proactive planning requires that you analyze environmental forces and make resource-allocation decisions. By doing this you will take your business where it needs to be in the next month, year and dec- ade. Barry Worth, a consultant speclalizing in small business management, puts it this way: Today's entrepreneur must be a business architect. Anything built in today's business environment must have a step- by-step blueprint or plan on how to achieve success (Worth December 1989). The blueprint for today's business owner is a business plan. THE NEED FOR A STRATEGIC PLAN Planning plays an important role in any business venture. It can make the difference between the success or failure of your business. You should plan carefully before investing your time and, especially, your money in any business venture. The need for a plan is best illustrated by the following scenario - "A Tale of Two Businesses." Two franchises (A and B) were started by individ- uals who had worked in management in much larger companies. While Franchise A provided a product and Franchise B a service, the output of both franchise systems had been sold exclusively in the United States before lhe current owners be- came involved. The output of both was readily available in other developed countries as well. The franchises opened about the same time and neither franchisee had a strong market presence, nor do they at present. Today Franchise B is bank- rupt. By contrast, Franchise A is selling products in the midwestern United States and in Europe. What was the deciding difference in the two fran- chises' success? You probably expect it to be that one had developed a strategic plan and the other hadn't; however, it isn't this simple. Many factors can influence the outcome of a business venture. There were many similarities between the franchises, but there also were many differences. Most notably, Franchise A sold a product and Fran- chise B a service (although this does not clearly limit options). Another difference was that Fran- chise A had a carefully thought-out plan. The in- vestors knew as they looked for a franchise part- ner that they wanted to find a product that could satisfy international markets and a franchisor who would support that kind of sales effort. These in- vestors were based in thc Midwest, but negotiated for exclusive rights to export lhc franchisor's product. Once they had obtained the franchise, and as they began to establish their business domestic- ally, they also began to contact government experts in the U.S. Department of Commerce and the U.S. Small Business Administration, as well as educators and local managers with international experience. Clear plans were developed outlining how they would position, market and distribute the product and which foreign markets would be targeted first. Even as they were building sales in one European market, they were attending trade shows and planning entry strategies in others. By contrast, the second investor (Franchisc B) started his business strictly because he wanted to leave a former employer. Of course many small businesses get started this way; however, in this case no investigation of franchising alter- natives was done. The business was located in an area that, as it turned out, contained virtually no consumers for the kind of service being offer- ed. When this mistake was realized, it was too late to move--the investor simply did not have the money or the desire to risk starting again. Other examples further show the need for strate- gic planning and for developing a clear business plan. The owner of a business that seemed to be doing quite well in two locations was about to open in a third. The authors were called in to develop a benefits policy and discovered cash- flow problems that could be found only after op- erations had begun in the new location. After analyzing the situation, an expansion and finan- cial plan was developed for the sound locations only. In another case, the authors determined that a business had purchased more equipment than was necessary to accomplish the current workload. After careful analysis, plans to make further pur- chases were put on hold, and the equipment avail- able was used effectively to meet immediate needs. A business enterprise is toog complex to assume that failure to develop a sound business plan will be the cause for problems Nevertheless, this failure often counts among thc factors con- tributing to busincss difficulties. As Worth has said, "Being a business entrepreneur today takes constant vigilance in order to be able to take advantage of new opportunities and the availabil- ity of new information and technology as they come into being." The first step in doing this is to have a plan. DEVELOPING A STRATEGIC PLAN Mission Statement The first step in the strategic planning process is an assessment of the market. Businesses depend on consumers for their existence. If you are fac- ing a rapidly growing consumer base, you probably will plan differently than if your clientele is stable or shrinking. If you are lucky enough to be in a business where brand loyalty still pre- vails, you may take risks that others cannot af- ford to take. Before you begin to assess the mar- ket, it is important that you complete a careful assessment of your own business and its goals. The outcome of this self-assessment process is known as the mission statement. According to Glueck and Jauch (1984, p 51), "The mission can be seen as a link between performing some social function and the more specific targets or objec- tives of the organization." Another definition states that the mission statement is a "term that refers to identifying an organization's current and future business. It is viewed as the primary objective of the organization" (Rue and Byars 1983, p. 99). Because these authors are writing for an audience of managers or would-be managers of larger busi- nesses, their definitions may sound a bit lofty. If, however, you go back to the earlier example of a successful small business, you can see it started with a clear direction--what was to be achieved and, in a broad sense, how best to a- chieve it. While your own goal may be to survive, make a profit, be your own boss or even be rich, your business must first perform a social func- tion, i.e., I must serve someone. Given this you must determine (1) the ultimate purpose and (2) the specific targets or objectives of your busi- ness. The investors of Franchise A discussed above clearly had determined they wanted a business with the potential for international sales. With this objective they were able to deter- mine the kind of franchise they wanted and the terms. They knew that some goods and ser- vices were more likely to be marketable over- seas than others. Early research helped them determine which areas of the world would be the best places to start. This, in turn, help- ed them to further narrow their list of poten- tial products. Also, they were able to assess the financial demands of various approaches to overseas markets. Their financial analysis enabled them to affirm that a franchise would be one of the alternatives with a high profit potential. All of these directions were derived from an initially vague desire to "go interna- tional." And, as the investors developed their ideas into a clearly defined business purpose, many issues were discovered that were critical to success. Defining Your Business A primary concern in defining a mission state- ment is addressing the question "What business are you in?" Answering this may seem fairly easy: however, it can be a complex task. Deter- mining the nature of your business should not be strictly tied to the specific product or ser- vice you currently produce. Rather, it must be tied to the result of your output--your social function--and the competencies you have develop- ed in producing that output. Management theorist Peter Drucker suggests that if the railroad companies of the early 1900s or the wagonmakers of the 1800s had defined their business purpose as that of developing a firm position in the transportation business, rather than limiting themselves strictly to the rail or wagon business, they might still enjoy the market positions they once did (Rue and Byars 1983, p. 101). The obvious concern here is to ensure that you do not define your busincss too narrowly, leaving yourself open to economic changes or competitive challenges that make you vulnerable. The primary reason the service com- pany mentioned earlier (Franchise B) failed was that it lacked a consumer base. These consumers were already being served by the current market. In another example, an entrepreneur developed a device to provide greater security for homes and vehicles. But, by focusing on the product rather than the service it was meant to provide, he failed to consider other services that already provided essentially the same level of protec- tion at lower costs. Your Firm's Philosophy Once you have defined your mission statement, the next step is to define the firm's basic philosophy. Such a statement will help explain to your employees and associates how you would like to see the firm operate. Are you a risk taker, or would you prefer to build your busi- ness slowly from a solid base? How will you relate to customers, suppliers and competitors? What type of community involvement do you plan for your business, e.g., participation in recyc- ling and volunteer activities? These questions, and many more, need clear answers to help your employees make operational decisions and conduct themselves in a manner consistent with your wishes. Much has been written about this concept in business literature under the term corporate culture. A clear explanation of your business's philosophy in the mission statement will provide a basis for the development of a consistent busi- ness culture. Your Firm's Goals The next step is to set clear goals to guide and maintain the business on a path consistent with its mission. Daniel Robey provides an excellent list of the key functions of business goals (Robey 1982). To summarize his comments, goals serve to - 1. Justify or legitimize the organization's activities. - 2. Focus attention and set constraints for member behavior. - 3. Identify the nature of the organization and elicit commitment. - 4. Reduce uncertainty by clarifying what the organization is pursuing. - 5. Help an organization to learn and adapt by showing discrepancies between goals and actual progress (providing feedback). - 6. Serve as a standard of assessment for organization members. - 7. Provide a rationale for organization de- sign. At one time, it was widely assumed that the owner of a company set that firm's goals. Glueck and Jauch refer to this as a "trickle- down" theory because it was assumed that others in the organization simply accepted these goals. Chester Barnard, believing that it was naive to assume such ready acceptance, suggested that or- ganizational objectives arose from a consensus of the employees (Gleuck and Jauch, pp. 78-79). This "trickle-up" theory, however, is also naive in assuming that an organization is simply the sum of individual perspectives, and that it can achieve direction from an unguided and usually disparate group of people. Modern theories spring from combinations of these two approaches, suggest- ing goal development is a complex goal-bargaining process that enjoys some advantages of both basic theories. Bargaining, while seeming a rather negative and poorly developed goal-setting approach, has the advantage of involving most, if not all, employ- ees in the process. As a result, it is more likely that key concerns, internal as well as external, will be taken into account. By involv- ing employees, you improve their understanding of and commitment to the firm. Pierce and Robinson captured the complexity of goal setting in this statement: Strategic choice is the simultaneous selection of long-range objectives and grand strategy.... When strategic planners study their opportuni- ties, they try to determine which are most likely to result in achieving various long- range objectives. Almost simultaneously, they try to forecast whether an available grand strategy can take advantage of preferred op- portunities so that the tentative objectives can be met. In essence then, three distinct but highly interdependent choices are being made at one time. Usually several triads or sets of possible decisions are considered (Pierce and Robinson 1985, p. 231). To improve the structure of this strategic ap- proach, most experts suggest that a repetitive method be used in developing goals. This begins with the owner and perhaps a few key employees agreeing on a long-term direction for the busi- ness and suggesting major goals in line with this direction. Then, other employees are asked to suggest specific objectives, which are then reviewed before being implemented. Goals become the shared purposes of the owner and employees and thus, it is much easier to get the support of employees and their clear understanding of what needs to be accomplished. Goals are defined as broad, ideal conditions. A possible goal could be "To become the leading small-package delivery service in the Kansas City metropolitan area." In defining goals it is impor- tant to understand (1) how the goal was derived and (2) how it provides guidance. Objectives to Achieve Goals Accomplishing a goal requires establishing and achieving several specific objectives, which must ù Be clear, concise and attainable. ù Be measurable. ù Have a target date for completion. ù Include responsibility for taking action. ù Be arranged according to priority. An objective to the above-stated goal could re- quire that the dispatcher develop a route struc- ture capable of providing three-hour service to any area within 20 miles of the city's center, with the service beginning within six months. An objective has to fit within a hierarchical network of other objectives that together con- tribute to the firm's ultimate goals and mis- sion. For example, a subsidiary objective to the one mentioned above may be "To purchase three new or late-model used delivery vans within five months." Another objective could specify expanding staff to drive the addition- al vehicles and to handle the expected increase in dispatching chores. This system of setting priorities is called a hierarchy of objectives. Anthony Raia provides a list of guidelines to help you avoid pitfalls in setting objectives (Rue and Byars, p. 107). Some of the most im- portant include ù Adapt your objectives directly to organiza- tional goals and strategic plans. Do not as- sume that they support higher level manage- ment objectives. ù Quantify and target the results whenever possible. Do not formulate objectives where attainment cannot be measured or at least verified. ù Test your objectives for challenge and achiev- ability. Do not build in cushions to hedge against accountability for results. ù Adjust the objectives to the available re- sources and the realities of organizational life. Do not keep your head either in the clouds or in the sand. ù Establish performance reports and milestones that measure progress toward the objective. Do not rely on instinct or crude benchmarks to ap- praise perfonnance. ù Put your objectives in writing and express them in clear, concise and unambiguous statements. Do not allow them to remain in loose or vague terms. ù Limit the number of statements of objectives to the key result areas (for your business). Do not obscure priorities by slating too many objectives. ù Review your statements with others to assure consistency and mutual support. Do not fall into the trap of setting your objectives in a vacuum. ù Modify your statements to meet changing condi- tions and priorities. ù Do not continue to pursue objectives that have become obsolete. The formulation of a mission, goals and objectives is a complex, repetitive and continual process. As a small business owner-manager, your first reaction may be that you don't have the time or the re- sources to accomplish this. This may be true; how- ever, you must develop a process that you can im- plement and be comfortable with. You will need to be aware of this process, the relationship of goals to ultimate performance and the need to be specific and consistent. A carefully thought-out set of goals provides the base on which the rest of stra- tegic planning will proceed. The time you put into carefully assessing what you hope to achieve and how you will measure it will reduce the time re- quired to assess and control performance. Environmental and Industry Analysis In determining appropriate goals, you will need to consider the position of your business within its industry and the broader business environment. Several trends may affect your business prospects. Examples may include shifts in population (e.g., the purchasing status of "baby boomers"), trends in the economy, technological developments, legis- lation (e.g., safety or antipollution regulation) and the activities of special interest groups. As you clarify your mission and goals, you will find that some factors are important while others may not require your attention. There are several approaches to dealing with fluc- tuation and change in your business environment. James Thompson presents a list of general strate- gies that provides a good "first cut" at the com- plicated process of making strategic choices re- lated to the business environment (Miner 1982, p. 147). He argues that most organizations search for certainty in an uncertain, fluctuating environ- ment. Depending on the business' resources and the specific situation, a business may adopt one of four approaches to the business environment. Buffering can be used when you have an abundance of resources, sometimes referred to as organiza- tional slack. However, this is a luxury few ef- ficiently run businesses enjoy. If, for example, you possess a technological edge, you may be able to relax your vigilance in the confidence that you have the resources to adapt to changes that may occur. You are then able to concentrate on other environmental factors that may affect areas of your business in which you don't have such an advantage. Smoothing is a useful approach when you enjoy sur- plus resources in one area but your ability to meet demand is overtaxed in others. A good example is a chimney cleaning service that was unable to meet demands for chimney repair and service during the winter months, but had to lay off employees during the spring and summer months. In an attempt to change the environment, the owner developed ad- vertising and pricing strategies aimed at attract- ing more business during slow times. In addition the owner assessed the skills of his employees. He found that by doing general masonry jobs in slow times, he could retain workers while actually in- creasing the size of his business. This example also provides a clear illustration of how a small business can manage, and even change, its environ- ment. Forecasting is something, that all businesses must do. When you don't have the resources to use a buf- fering strategy or when conditions make smoothing impossible, you must anticipate environmental changes. The immediate need of most businesses is to monitor the competition. Other events that you can anticipate with an effective forecasting system include - Technological breakthroughs. - New competitors (either a company "purchases in to" your industry or a new competitor en- ters from an overseas market). - Changes in the cost and availability of raw materials. - Changes in consumer taste. Effective forecasting is possible only when prob- abilities can be predicted; for example, you have a pretty good idea of what the odds are that short- ages will occur in a raw material, or what the chances are that a law will pass providing new sources of assistance to small businesses. Unfor- tunately, many trends and changes are very diffi- cult, if not impossible, to anticipate, even with the best forecasting system. As a result you may find that you must resort to Thompson's fourth approach - rationing. An unanti- cipated technological breakthrough or a sudden change in the spending habits of your customers may force you to reallocate resources. In this situation, goals may need to be delayed or fore- gone altogether, and parts of your business may need to be reduced. All needs of the business will not be completely met, but you will move to a base from which you will have the best chance to re- cover. With time you will rebuild to compensate for any losses incurred. Information Needs The most important consideration in developing an effective approach to forecasting and planning is the development of your information system. In the world of personal computers, you may equate infor- mation systems with microchips and programming, but the concept as used here is much broader, re- ferring to the way you gather, screen, analyze and use information that may affect your business. This publication is part of your information system. You are using it to inform yourself of modern approach- es to managing, improving and possibly enlarging your business. Too many businesses still have information systems that might be described as "shoebox" systems. In- formation about the business and its environment are collected in various documents that are stored in shoeboxes, or it is picked up through contacts between the owner and customers. The owner "analy- zes" this information and the results are used to make further decisions. The problems with this system are obvious. First, no effort has been made to determine what critical elements--internal or external to the business-- should be assessed. Second, assessment is based en- tirely on what strikes the owner as memorable or important. Unfortunately, what is remembered is not necessarily what is important. Memory is influenced by preconceptions and perceptions, and by how busy, tired or distracted the owner was at the time an event occurred. An additional problem with this in- formal approach is that, should the owner want to verify his or her impressions of some series of events, it would be time consuming--if not impossi- ble--to locate the records that would allow a full analysis. While "seat-of-the-pants" decision making based on this type of information system sometimes works remarkably well, much is left to chance. Setting up an effective information system is inte- grally related to your mission and goals and to the specific environmental factors defined in your stra- tegic purpose. Collect enough information, but don't collect too much-- this leads to information overload, where decision makers are so swamped they become incapable of making sense of the informa- tion, or of using it to make good decisions. Developing a good system is a dynamic process. It is easy to determine what information you need to collect and how to obtain it. However, as the en- vironment and your situation change, the informa- tion you need also changes. Items that were once important now are not. Other considerations, im- possible to anticipate at the time you developed your system, have become critical. Employees should be involved in determining what information is needed and where to obtain it. They are often the first line for data collection. They can provide insights and perspectives that you may not have considered. Together, you will be able to develop a reasonably thorough list of concerns that the information system should address. In any information system, a variety of sources should always be used. You already collect much information in the documents you use to conduct everyday business. Other sources may include peri- odicals (particularly those published specifically for your industry), newspapers (or clipping ser- vices), books and experts in areas of concern. Once you have collected the data, you will need to condense and analyze it. This is the information reporting system. You already produce reports for various government agencies and banks, which are nothing more than a presentation of the data you collect in a way that is useful to the particular agency. A good information system will provide in- formation to employees in your business in a form that they need to make effective decisions and carry out their jobs. It will provide enough infor- mation, but not more than is necessary and useful. As the type of data collected changes over time, so will the reports needed. As a result, report re- quirements must be periodically reassessed so time is not spent producing useless reports. Finally, information should be stored for easy re- trieval to accommodate new situations that may re- quire different analyses. In data processing, this system of storage is referred to as the company's data base. Whether you rely on an electronic or a manual system, storing information so it is easily retrievable requires considerable forethought. Much of the business software available today focuses on storing data in ways that allow it to be retrieved in many different forms and later com- bined for analyses that were not originally anti- cipatcd or nccessary. Internal Business Analysis Once you've begun to collect the necessary informa- tion about your external environment, you will be able to consider how to best fit your business in- to the situations that surface. To do this you must clearly understand the strengths and weaknesses of your firm. For a long time, people assumed that small businesses were always at a disadvantage be- cause they were small. Today, there are few com- mercial areas that don't have room for smaller com- petitors if they are focused and efficient. The primary task in the business analysis phase is to identify those factors that may give you a com- petitive advantage. If you hold a patent or an ex- clusive license on a particular product or service, you may enjoy a competitive advantage. Flexibility is a major advantage that small businesses often enjoy over larger rivals. You may be able to re- spond more quickly and with less cost to mood swings or taste changes in the market. Also, small businesses can often move into new product or ser- vice lines more quickly than larger firms. The nature of the technology used to make your product may often yield competitive advantages. If you employ individuals skilled in areas unique to your business, their skills will often yield cost advantages that may offset disadvantages in other areas. For example, your competitor may be further ahead in using computer-aided scheduling, but you are able to rely on specialists in your own firm and can market your product as a unique value while you move to minimize the technologi- cal differential. Once you are clear about the areas in which you are ahead, assess your weak- nesses. Having done this, you can develop a stra- tegy that has the best chance of succeeding. In- stead of simply trying to compete for customers on a single dimension, such as price, or to catch up in one area of technology, you are now able to consider alternatives derived from a combination of factors. You may, for example, see that a tra- ditional competitor has an apparently insurmount- able cost advantage from adopting a technology that yielded unforeseen benefits. An effort to compete strictly on thc basis of price while at- tempting to catch up technologically is probably doomed to failure. On the other hand, a move into other product lines that take advantage of the skills used by your firm may give you a better chance for survival. Eventually, this strategy may give you the time needed to acquire the tech- nology to compete in your original product area. Finalizing a Plan When you have a clear grasp of the competitors, customers, suppliers and situations you face, and you combine this with a realistic understand- ing of your own strengths and weaknesses, you can develop a strategic plan with a strong chance of success. You may decide that you have the strengths to compete with other businesses "head-to-head" in their best markets. You may choose to target a mar- ket that has not been touched by your competitors. You may see opportunities to influence local or state legislation in a way favorable to your needs. Or you may realize that you are constrained by a combination of circumstances that severely restrict your opportunities and leave you only limited chances for success. You should, however, under any of these scenarios, be able to make better choices. Before you develop a detailed plan to implement, attempt to identify several possible alternative approaches. Frequently, when an individual or or- ganization faces a problem or opportunity, solu- tions will appear to "pop up." You've faced simi- lar situations before, you have a "gut feeling that the way to solve the problem is to.... " While your first idea may, in fact, work, the odds are it won't be as effective as other possibili- ties. The reason that this obvious choice may not be the best option is that it is usually based on experiences that, while appearing similar, are actually very different. You may struggle a bit to identify other possible approaches. No alternative will be perfect. But once you have considered several and listed the advantages, disadvantages and overall chances of success for each alterna- tive, you will be in a better position to settle on a plan with greater potential. THE BUSINESS PLAN The business plan is a succinct document that specifies the components of a strategy with re- gard to the business mission, external and in- ternal environments and problems identified in earlier analyses. A business plan is not writ- ten each time a modification to a strategy is made. It should be written when you develop a new venture or launch a major new initiative. The business plan serves several important pur- poses: ù It helps determine the viability of the venture in a designated market. ù It provides guidance to the entrepreneur in organizing his or her planning activi- ties. ù It serves as an important tool in helping to obtain financing (Hisrich and Peters 1989, p. 126). A well-written business plan also will pro- vide broad parameters upon which progress toward goals can be assessed and control de- cisions made at a later time. A typical business plan begins with a brief introduction followed by an executive summary. The executive summary is prepared after the total plan has been written. Its purpose is to communicate the plan in a convincing way to important audiences, such as potential in- vestors, so they will read further. An industry analysis usually follows the execu- tive summary. This section communicates key in- formation--thc collection of which was discussed earlier--that puts the venture or plan into the proper context. The marketing plan is the first step in develop- ing any new strategy. It is developed within the context of the company's goals and should be based on a realistic assessment of the external environment, as discussed earlier. The marketing plan is written first because marketing decisions typically determine resource needs in other areas. Obviously, a decision to seek a large share of a market will require a significant commitment of resources of various kinds. How you choose to pro- mote and distribute your product or service will have clear ramifications for your organizational, production, human resource and financial plans. The organizational plan details how your business is to be configured to most effectively support the marketing objectives. What kinds of skills are needed to carry out your plan? What sorts of skills do you have among managers and employees? What tasks will be done by which employees? What tasks will be contracted out? Many businesses, for example, hire the services of an advertising firm to improve their product promotions but handle their customer relations internally. Roles and re- sponsibilities of each employee need to be clearly specified, as discussed in the section on goal set- ting. Develop the production plan and human resources plan along with the organizational plan. Again, you must decide whether or not you will handle all production internally or contract all or part of it to other firms. What equipment will you need to meet the marketing plan? What will be the costs of manufacturing the product? What will be the future capital needs of the enterprise? Human resource needs are clearly affected by de- cisions made in production planning. What human resources do you have? Will they be adequate to handle new or changed plans? What additional skills are needed? Will you seek employees who are already trained, or will you hire less skilled individuals and train them? If the lat- ter, what resources will be needed for training, and how long will it take to obtain the desired levels of productivity? The financial plan underpins this entire system of plans. Three financial areas are generally discussed (Hisrich and Peters, pp 126-7). First, forecasted sales and related expenses need to be summarized. Monthly figures generally need to be estimated for a period exceeding one year, al- though the appropriate period will vary depend- ing on the nature of the product and the stabil- ity of the market. Second, cash flow figures need to be estimated over the same period. A business needs to pay its bills in a timely fashion; many successful ventures end when suppliers refuse to extend additional credit to a business that hasn't paid its bills. Finally, a projected balance sheet that shows the financial condition of your busi- ness at a specific time needs to be prepared. Usually an appendix is included in a business plan. This generally contains supporting infor- mation, documents and details that would inter- fere with clear communiution in the body of the plan. Examples of this type of information in- clude price lists, economic forecasts, demo- graphic data and market analyses. IMPLEMENTING THE STRATEGY Implementation is usually thought of as something you do at the end of the strategic planning pro- cess. "Okay, now we have this strategic plan; let's do it." If you think about what has been discussed in this publication, it becomes apparent that you will be considering the practical problems of im- plementation throughout the planning process. Fre- quently, a suggested alternative will be rejected because it would be difficult to implement. Or a preferred approach to marketing or production would be beyond the financial means of you or your investors. The two primary issues that need to be considered in the final implementation process are communica- tion and scheduling. Successfully implementing a plan depends on effective communication. Employee resistance often can be reduced, if not elimina- ted, if plans are openly presented and concerns are dealt with up front. In addition, to carry out new policies and procedures effectively, em- ployees need to have a clear understanding of what is happening and what is expected of them. Better informed employees are more likely to do as you instruct them, thereby reducing the need for complex and costly control systems. One key element in effective communication is involving your employees--those who must carry out the plan--as much as possible in the actual planning process. People who are involved in planning will have a solid grasp of the plan and their part in it when it is implemented. If employees are genuinely involved in the pro- cess, they are more likely to accept the result as a plan they helped develop. This result is often referred to as "ownership." Successful implementation also depends on a realistic schedule for the transition. It is too easy to assume away the difficulties of a major change and to anticipate that every- thing will be on track and running smoothly. How many times have you seen a news report about schedule and cost overruns on a govern- ment project? This kind of error can be disas- trous if you are working within tight margins that can be quickly eradicated when costs and sales don't reach expectations on time. Real- istic schedules require that you factor in training time, periods of low productivity, increased error rates and slowdowns as you correct organizational oversights. Schedules also should include planned checkpoints for carefully assessing progress toward full im- plementation. Every business needs to develop systems for measuring and controlling progress toward stra- tegic goals; no matter how loyal your employees or how strong the camaraderie, individual and organizational goals are not always the same. Three features distinguish effective control systems from ineffective systems. ù Standards--These are your specific operative goals. The need to carefully set clear and measurable goals was emphasized earlier. (The processes of planning and controlling are most closely related for this reason.) Cautiously interpret how well your business performs rel- ative to your goals. It is too easy to assume that, if you are not meeting your goals, the business simply is falling short. You also must reassess your original goals. Are the goals reasonable? Is it possible that you overestimated the firm's capabilities? Has something changed in the environment--a new law, a new competitor, an economic downturn- that has completely changed the playing field? If, for whatever reason, your goals are now too high, your employees, if forced to continue to pursue them, will bccome ex- asperated rather than motivated. ù Measurement-control systems must include quan- tifiable measures for monitoring performance. The lack of effective measurement systems is where control systems often fail. If you can set performance standards for profits and units produced, if you can tie standards di- rectly to the goals of the plan, then build- ing an effective measurement system is less difficult. Unfortunately, there are many tasks, particularly in management, that are difficult to assess. The output of these tasks, while critical to the overall success of the plan, is not usually measurable in clear units. Pay- offs often only come after a long interval. ù Corrective measures-corrective actions must be carefully directed at the cause of discrepan- cies between planned and actual results, and the cause of problems is often very difficult to identify. It is fairly easy, for example, to blame an individual worker for goal fail- ures. However, in complex business systems, where labor and sophisticated technology inter- act, production systems require careful coordi- nation by managers who must deal with vast amounts of information. In the modern business world, it is becoming harder to identify the source of problems with one agent. In setting up an effective control system, you need to make five key design decisions: ù Will you use behavior or output controls? As noted earlier, output controls are easier to develop if they can be directly related to the goal. Unfortunately, for many jobs, out- put controls don't make sense because of the indirect link between day-to-day work and long-term output. ù Do you have adequate means of measuring pro- gress? Frequently, it is wise to use multiple measures of job and organization performance. Too many standards, however, can become cum- bersome and costly. ù Have you properly focused your controls? As noted earlier, interdependencies between various tasks, technologies and phases of the production system can be quite significant. If your target of control is too narrow (e.g., "The guy just isn't willing to make a reason- able effort."), you may be missing a more com- plex situation and find that your remedies don't really work. ù Have you determined proper intervals between assessments? You need to find a happy medium in this area. It might seem ideal to continu- ally monitor fulfillment of the plan--and in- formation technologies do, in fact, enable you to do this in some situations. The cost of frequent measurements can, nevertheless, become prohibitive. ù Should you reward or punish to correct dis- crepancies? Both of these usually are used. How- ever, overuse of punishment can lead to negative feelings and, eventually, failure to meet goals. Additionally, negative controls--punishment sys- tems--require much more time to administer. This is because you constantly need to watch for de- viations from desired behaviors if you are to catch and effectively punish offenders. A reward system, on the other hand, links appropriate actions to rewards, increasing the likelihood that you will observe positive contributions without the need for careful or frequent moni- toring of day-to-day activities. As you can see, control, like implementation, can- not be treated as an afterthought if you are to be successful in whatever strategy you choose. The standards are determined early in the strategic planning process as you set clear operative goals. Effective measurement and correction systems are crucial if you hope to encourage consistent per- formance that will lead to the realization of your strategic goals. SUMMARY Strategic planning has become more important to business managers because technology and competi- tion have made the business environment less stable and less predictable. If you are to sur- vive and prosper, you should take the time to identify the niches in which you are most likely to succeed and to identify the resource demands that must be met. In larger businesses the steps outlined in this publication may be carried out by teams of experts or may involve the interplay of ideas among hundreds, even thousands, of mana- gers. These guidelines are equally applicable to the entrepreneur sitting down with several key employees to discuss what can be achieved in the next two to three years, and what it will cost. The amount of time spent on each step and the resources devoted to this process will vary greatly from business to business, but it is vital to understand and employ these steps. The questions in Appendix A will help you recall the steps involved in developing a strategic plan. REFERENCES Glueck, William, and Lawrence Jauch. Business Policy and Strategic Management. New York: McGraw-Hill, 1984. Hisrich, Robert D., and Michael P. Peters. Entrepreneurship: Starting, Developing, and Managing a New Enterprise. Homewood, IL: BPI/Irwin, 1989. Miner, John B. Theories of Organizational Structure and Process. Chicago, IL: Dryden, 1982. Pierce, John A., and Richard B. Robinson, Jr. Strategic Management: Strategy Formulation and Implementation. Homewood, IL: Richard D. Irwin, 1985. Robey, Daniel. Designing Organizations: A Macro Perspective. Homewood, IL: Richard D. Irwin, 1982. Rue, Leslie, and Lloyd L. Byars. Management: Theory and Application. Homewood, IL: Richard D. Irwin, 1983. Worth, Barry. "Being an Entrepreneur in Today's Sophisticated Environment," St. Louis Business Journal (Dec. 25-31, 1989):5A. APPENDIX A: SELF-ASSESSMENT QUESTIONNAIRE --- Have you developed a clear sense of direction or mission? --- Have you clearly defined the nature of your business? --- Do you have a clear philosophy for conducting your business affairs? --- Are your business goals obtainable? --- Are your objectives logically related in a hierarchy that will lead to goal achievement? --- Are your objectives clear, measurable and tied to goal achievement? --- Do you periodically reevaluate your ob- jectives to be sure they have not grown obsolete? --- Have you developed a logical and planned ap- proach for collecting data on your environ- ment? --- Are data stored or filed in ways that allow easy retrieval of useful information? --- Are reports produced that are seldom or never used? --- Do you periodically review your information system to make certain it is useful and up- to-date? --- Can you list four or five key strengths of your business? --- Are you aware of key weaknesses in your business? --- In developing your final strategy, did you consider three or four possible alternatives? --- Are you involving your employees in planning decisions? --- Did you take time to communicate the final plan to employees and deal with their con- cerns? --- Is your timetable for implementation of the plan realistic? --- Have you scheduled definite checkpoints for assessing progress toward goals? --- Have you developed effective ways of measuring progress? APPENDIX B: HOW TO WRITE A BUSINESS PLAN The following pages provide a suggested outline of the material that should be included in your busi- ness plan. Your final plan may vary according to your needs or because of the individual require- ments of your lender. What Are the Benefits? Every business can benefit from the preparation of a carefully written plan. There are two main pur- poses for writing that plan: - 1. To serve as a guide during the lifetime of the business. It is the blueprint of your business and will provide you with the tools for analysis and change. - 2. A business plan is a requirement if you are planning to seek a loan. It will provide potential lenders with detailed information on all aspects of your company's past and current operations and provide future pro- jections. Business Plan Outline I. Cover sheet Serves as the title page of your business plan. It should contain the following: - Name of the company - Company address - Company phone number (include area code) - Logo (if you have one) - Names, titles, addresses, phone numbers (include area code) of owners - Month and year your plan was issued - Name of preparer II. Statement of purpose (Same as executive summary.) This is the thesis statement and includes business plan objectives. Use the key words (who, what, where, when, why, how, and how much) to briefly tell about the following: - What your company is (also who, what, where and when). - What your objectives are. - If you need a loan, why you need it. - How much you need. - Why you will be successful. - How and when you plan to repay your loan. III. Table of contents A page listing the major topics and references. IV. The business Covers the details of your business. In- clude inforrnation about your industry in general, and your business in partic- ular. Address the following: - Legal structure--Tell what legal struc- ture you have chosen and state reasons for your choice. - Description of the business--Detail your business. Tell about your history, present status and future projections. Outline your product or service in terms of market- ability. Project a sense of what you expect to accomplish in the next few years. - Products or services--give a detailed de- scription of your products from raw ma- terials to finished items. Tell about your manufacturing process. If you provide a service, tell what it is, how it is pro- vided and why it is unique. List future products or services you plan to provide. - Location--Describe site and why it was chosen. (If location is important to your marketing plan, focus on this in the mar- keting section below.) - Management--Describe who is behind the business. For each owner, tell about re- sponsibilities and abilities. Support with resumes. - Personnel--Who will be doing the work, why are they qualified, what is their wage, what are their responsibilities? - Methods of record keeping--What accounting system will you use? Who will do your record keeping? Do you have a plan to help you use your records in analyzing your business? - Insurance--What kinds of insurance will you need? What will these cost and who will you use for a carrier? - Security--Address security in terms of in- ventory control and theft of information. V. Marketing Covers the details of your marketing plan. Include information about the total market with emphasis on your target market. Iden- tify your customers and tell about the means to make your product or service available to them. - Target market--Identify characteristics of your customers. Tell how you arrived at your results. Back up information with demo- graphics, questionnaires and surveys. Pro- ject size of your market. - Competition--Evaluate indirect and direct competition. Show how you can compete. Eval- uate competition in terms of location, mar- ket and business history. - Methods of distribution--Tell about the man- ner in which products and services will be made available to the customer. Back up de- cisions with statistical reports, rate sheets, etc. - Advertising--How will your advertising be tailored to your target market? Include rate sheets, promotional material and time lines for your advertising campaign. - Pricing--Pricing will be determined as a re- sult of market research and costing your product or service. Tell how you arrived at your pricing structure and back it up with materials from your research. - Product design--Answer key questions regard- ing product design and packaging. Include graphics and proprietary rights information. - Timing of market entry--Tell when you plan to enter the market and how you arrived at your decision. - Location--If your choice of location is re- lated to target market, cover it in this section of your business plan. (See location in the business section of this outline.) - Industry trends--give current trends, pro- ject how the market may change and what you plan to do to keep up. VI. Financial documents These are the records used to show past, cur- rent and projected finances. The following are the major documents you will want to include in your business plan. The work is easier if these are done in the order presented. - Summary of financial needs--This is an out- line indicating why you are applying for a loan and how much you need. - Sources and uses of funds statement--It will be necessary for you to tell how you intend to disperse the loan funds. Back up your statement with supporting data. - Cashflow statement (budget)--This document projects what your business plan means in terms of dollars. It shows cash inflow and outflow over a period of time and is used for internal planning. Cash flow statements show both how much and when cash must flow in and out of your business. - Three-year income projection--A pro forma income statement showing your projections for your company for the next three years. Use the pro forma cash flow statement for the first year's figures and project the next according to economic and industry trends. - Break-even analysis--The break-even point is when a company's expenses exactly match the sales or service volume. It can be ex- pressed in total dollars or revenue exactly offset by total expenses or total units of production (cost of which exactly equals the income derived by their sales). This analysis can be done either mathematically or graphically. NOTE: The following are actual performance state- ments reflecting the activity of your busi- ness in the past. If you are a new business owner, your financial section will end here and you will add a personal financial his- tory. If you are an established business, you will include the actual performance statements that follow. - Balance sheet--Shows the condition of the business as of a fixed date. It is a pic- ture of your firm's financial condition at a particular moment and will show you whether your financial position is strong or weak. It is usually done at the close of an accounting period, and contains as- sets, liabilities and net worth. - Income (profit and loss) statement--Shows your business financial activity over a period of time (monthly, annually). It is a moving picture showing what has happened in your business and is an excellent tool for assessing your business. Your ledger is closed and balanced and the revenue and expense totals transferred to this statement. - Business financial history--This is a sum- mary of financial information about your company from its start to the present. The business financial history and loan appli- cation are usually the same. If you have completed the rest of the financial sec- tion, you should be able to transfer all the needed information to this doeument. VII. Supporting documents These are the records that back up the statements and decisions made in the three main parts of your business plan. Those most commonly included are as follows: - Personal resumes--should be limited to one page and include work history, educational background, professional affiliations and honors and special skills. - Personal financial statement--A statement of personal assets and liabilities. For a new business owner, this will be part of your financial section. - Credit reports--Business and personal from suppliers or wholesalers, credit bureaus and banks. - Copies of leases--All agreements currently in force between your company and a leasing agency. - Letters of reference--letters recommending you as being a reputable and reliable busi- nessperson worthy of being considered a good risk. (Include both business and per- sonal references.) - Contracts--Include all business contracts, both completed and currently in force. - Legal documents--All legal papers pertain- ing to your legal structure, proprietary rights, insurance, titles, etc. - Miscellaneous documents--All other docu- ments that have been referred to, but are not included in the main body of the plan (e.g., location plans, demographies, adver- tising plan, etc.). Putting Your Plan Together When you are finished: Your business plan should look professional, but the lender needs to know that it was done by you. A business plan will be the best indicator he or she has to judge your potential for success. It should be no more than 30 to 40 pages long. Include only the supporting documents that will be of immediate interest to your potential lender. Keep the others in your own copy where they will be available on short notice. Have copies of your plan bound at your local print shop, or with a blue, black or brown cover purchased from the stationery store. Make copies for yourself and each lender you wish to approach. Do not give out too many copies at once, and keep track of each copy. If your loan is refused, be sure to retrieve your business plan. For a more detailed explanation of each section of the business plan outline, see SBA's publication, How To Write a Business Plan, which includes step-by-step directions and sample sec- tions of actual business plans. Also available from the SBA is a VHS videotape and workbook, "The Business Plan: Your Roadmap for Success." APPENDIX C: INFORMATION RESOURCES U.S. Small Business Administration (SBA) The SBA offers an extensive selection of information on most business management topics, from how to start a business to exporting your products. This information is listed in The Small Business Directory. For a free copy con- tact your nearest SBA office. SBA has offices throughout the country. Consult the U.S. Government section in your telephone directory for the office nearest you. SBA offers a number of pro- grams and services, including training and educational programs, counseling services, financial programs and con- tract assistance. Ask about - Service Corps of Retired Executives (SCORE),a national organization spon- sored by SBA of over 13,000 volunteer business executives who provide free counseling, workshops and seminars to prospective and existing small busi- ness people. - Small Business Development Centers (SBDCs),sponsored by the SBA in part- nership with state and local govern- ments, the educational community and the private sector. They provide as- sistance, counseling and training to prospective and existing business people. - Small Business Institutes (SBIs), or- ganized through SBA on more than 500 college campuses nationwide. The in- stitutes provide counseling by stu- dents and faculty to small business clients. For more information about SBA business development programs and services call the SBA Small Business Answer Desk at 1-800-8-ASK-SBA (827-5722). Other U.S. Government Resources Many publications on business management and other related topics are available from the Government Printing Office (GPO). GPO bookstores are located in 24 major cities and are listed in the Yellow Pages under the bookstore heading. You can re- quest a Subject Bibliography by writing to Government Printing Office, Superin- tendent of Documents, Washington, DC 20402-9328. Many federal agencies offer publications of interest to small businesses. There is a nominal fee for some, but most are free. Below is a selected list of government agencies that provide publications and other services targeted to small busines- ses. To get their publications, contact the regional offices listed in the tele- phone directory or write to the addresses below: Consumer Information Center (CIC) P.O. Box 100 Pueblo, CO 81002 The CIC offers a consumer information catalog of federal publications. Consumer Product Safety Commission (CPSC) Publications Request Washington, DC 20207 The CPSC offers guidelines for product safety requirements. U.S. Department of Agriculture (USDA) 12th Street and Independence Avenue, SW Washington, DC 20250 The USDA offers publications on selling to the USDA. Publications and programs on entrepreneurship are also available through county extension offices nationwide. U.S. Department of Commerce (DOC) Office of Business Liaison 14th Street and Constitution Avenue, NW Room 5898C Washington, DC 20230 DOC's Business Assistance Center provides listings of business opportunities avail- able in the federal government. This ser- vice also will refer businesses to differ- ent programs and services in the DOC and other federal agencies. U.S. Department of Health and Human Services (HHS) Public Health Service Alcohol, Drug Abuse and Mental Health Administration 5600 Fishers Lane Rockville, MD 20857 Drug Free Workplace Helpline: 1-800-843-4971. Provides information on Employee Assistance Programs. National Institute for Drug Abuse Hotline: 1-800-662-4357. Provides information on preventing substance abuse in the workplace. The National Clearinghouse for Alcohol and Drug Information: 1-800-729-6686 toll-free. Provides pamphlets and resource materials on substance abuse. U.S. Department of Labor (DOL) Employment Standards Administration 200 Constitution Avenue, NW Washington, DC 20210 The DOL offers publications on compliance with labor laws. U.S. Department of Treasury Internal Revenue Service (IRS) P.O. Box 25866 Richmond, VA 23260 1-800-424-3676 The IRS offers information on tax require- ments for small businesses. U.S. Environmental Protection Agency (EPA) Small Business Ombudsman 401 M Street, SW (A-149C) Washington, DC 20460 1-800-368-5888 except DC and VA 703-557-1938 in DC and VA The EPA offers more than 100 publications designed to help small businesses under- stand how they can comply with EPA regula- tions. U.S. Food and Drug Administration (FDA) FDA Center for Food Safety and Applied Nutrition 200 Charles Street, SW Washington, DC 20402 The FDA offers information on packaging and labeling requirements for food and food- related products. For More Information A librarian can help you locate the specific information you need in reference books. Most libraries have a variety of directories, indexes and encyclopedias that cover many business topics. They also have other resources, such as - Trade association information - Ask the li- brarian to show you a directory of trade associations. Associations provide a valuable network of resources to their members through publications and services such as newsletters, conferences and seminars. - Books - Many guidebooks, textbooks and manuals on small business are published annually. To find the names of books not in your local li- brary check Books In Print, a directory of books currently available from publishers. - Magazine and newspaper articles - Business and professional magazines provide information that is more current than that found in books and textbooks. There are a number of indexes to help you find specific articles in periodi- cals. In addition to books and magazines, many libraries offer free workshops, lend skill-building tapes and have catalogues and brochures describing con- tinuing education opportunities. ---------- End of Document