Development of smll nd medium sized enterprise - Essay Example

Wht role, if ny, does the concept nd prctice of strtegy hve to ply in the development of smll nd medium sized enterprise (SME). The mjority of smll nd medium sized enterprises do not crry out corporte plnning nd do not think strtegiclly. The directors of SMEs believe tht the tcticl plnning tht they crry out mounts to strtegic plnning. This belief is mjor contributor to the very high filure rte of smll nd medium size enterprises during their first three yers of existence. In the following pper I will discuss the importnce of the strtegy in frmes of SME nd emphsize tht the prctice nd concept of strtegy plys n importnt role for the enterprise of smll nd medium size. n orgniztion's strtegy within smll nd medium sized enterprise (SME) refers to its tctics nd mode of opertion in the mrketplce nd represents the pproch it intends to use to chieve its stted gols. The process of developing these gols typiclly strts with mrketing udit tht essentilly represents compiltion of industry, mrket, nd internl nlyses nd indictors. In some orgniztions these nlyses re rigorous nd time-consuming, requiring the time, energy, nd effort of n entire stff specificlly devoted to these efforts. On the other hnd, strtegy is lso sometimes formulted s result of n intuitive understnding of the orgniztion's bilities nd the environment in which it functions. In either cse, strtegy determines the ctivities necessry to chieve the orgniztion's desired level of success (Storey 2006). Strtegy within SME tkes t lest two forms: stted strtegy nd effective strtegy. Most lrge corportions undertke forml strtegic plnning efforts in which significnt mount of effort nd time is devoted to identifying specific nd relevnt strtegies. These efforts result in documents being distributed, ction items being issued, responsibility being ssigned nd, more often thn not, presenttion being mde by the strtegic plnning group to executive mngement. However, the growing consensus mong strtegic plnning professionls is tht there is often disprity between the stted strtegy nd the effective strtegy. The stted strtegy is wht is written in the orgniztion's plnning documents; the effective strtegy, on the other hnd, is the strtegy tht's demonstrted by the orgniztion's ctions. It is importnt to note tht the only truly importnt strtegy is the effective strtegy. The primry purpose of the stted strtegy is to influence the orgniztion's effective strtegy (Greene, Mole, 2006). The true test of how well the orgniztion's effective strtegy is ttuned to its trgeted customers is how well it performs in the mrketplce. This cn be mesured by performnce indictors such s customer loylty, sles, ernings, mrket shre, nd stock price. lthough Sers nd The Limited hve strtegic efforts focused on both cost reduction nd product inception-to-mrket, the emphsis of the qulity efforts for the fshion deprtment of Sers would be different thn it would be for The Limited. The Limited might plce specil emphsis on technology nd processes tht would id in its bility to get products to mrket very quickly. The fshion division of Sers might plce more emphsis on cost reduction becuse price plys more importnt role t Sers thn t The Limited. This simple exmple helps illustrte the importnce of deriving qulity efforts from orgniztionl strtegy. SME's criticl success fctors (CSFs) re determined by its strtegy. Criticl success fctors describe the things n orgniztion must do well to chieve its strtegic gols (Dft, Sormunen, Prks, 2005). CSFs re the mens by which the orgniztion fulfills its strtegy. Two similr orgniztions in the sme industry cn pproch the mrket using very different strtegies, resulting in the development of divergent criticl success fctors. For exmple, n entrepreneur who desires long-term success with one clothing store would hve different set of criticl success fctors thn n entrepreneur who desires long-term success through ntionwide frnchising. The criticl success fctor concept is ge-old. Gret leders throughout history chieved success becuse of their bility to focus on few key, criticl fctors for success. John Rockrt eloquently cptures this phenomenon nd focuses our ttention on it through his writing nd public speking ppernces. However, leders cn lose their focus nd become overly entngled in dy-to-dy detils. Corporte nd politicl leders often ttin success by being dept t focusing on nd mnging the detils. fter reching certin mngeril level, this set of skills cn lso become the root of their undoing becuse these types of leders often tend to sty in their "comfort zone," ttending to the detils t the expense of pying ttention to the "big picture" (Thoms, Jmes, 2004). Ledership is to lrge degree function of properly focusing members within n orgniztion on few key issues. Determining criticl success fctors represents process tht fcilittes ledership by helping everyone who is involved understnd wht is importnt for the orgniztion to succeed. The strtegy within SME cr refer to the qulity of services nd customers tht the compny is serving. Qulity efforts re intended to dd vlue to the products nd services offered to customers. This might men tht given product hs fewer defects or specific service offered is more customer-oriented. It might lso men tht the orgniztion cn rect more quickly to tke dvntge of chnges in the mrket nd vilble technologies. It might men tht the orgniztion understnds more clerly nd rects more quickly thn its competitors to wht prospective nd / or existing customers wnt or need (Greene, Mole, 2006). Product nd service strtegy lso helps to define the list of possible qulity efforts. The sole purpose of qulity efforts is to enhnce n orgniztion's bility to provide products nd services tht stisfy its customers in mnner tht is profitble. The Limited's mngeril efforts re focused on t lest three things: product cretion / identifiction, product inception-to-mrket performnce nd store imge. The Limited is well known for identifying new looks nd trnslting tht into populr fshion styles. It then tkes these trends, develops mrketing pln to ddress them nd hs clothes on the rck in mtter of weeks, rther thn months or yers s is the cse for mny other compnies. The store imge, one of qulity service to customers, relies on such strtegies s its customer-oriented return policy, which llows ny item to be returned for refund t ny time for ny reson. So qulity efforts re relevnt for the products or services offered nd how they re delivered, s well s how ny postsle problems re hndled. Customers demnd products nd services tht stisfy their needs. Tody's consumers hve portble loylties. If they don't get wht they wnt from one source, they will quickly turn to nother. The utomobile industry is the clssic exmple of this phenomenon. lthough it mens the loss of mericn jobs, mericn consumers do not hesitte to buy imported crs tht better stisfy their needs rther thn domestic ones. It is impertive tht orgniztions understnd their customers well enough to provide them with the products nd services they desire. Customers re lso the primry source of informtion tht orgniztionl decision-mkers must rely upon when formulting strtegy. With limited resources vilble to focus on process improvement, the orgniztion's business strtegy should be used to determine which processes to ddress first. Obviously, the process with the most potentil for furthering the orgniztion's strtegy should be first on the list. This cn be determined by nlyzing the reltionship between the orgniztion's processes nd its strengths nd weknesses s identified for ech CSF. If this type of nlysis cnnot be performed, the chllenge then is to determine the impct ech process hs on the plnning components used by the orgniztion. For exmple, if the orgniztion's strtegic plnning process results in strtegic objectives, the tsk is to determine which processes hve the most impct on the orgniztion's bility to chieve these strtegic objectives. If the orgniztion's strtegic plnning process results in specific gols, the tsk is to determine which processes hve the most impct on the orgniztion's bility to chieve those gols. It is importnt to understnd tht the exercise used to determine the impct of processes on the orgniztion's bility to implement its strtegy must mesh with the business strtegy currently in plce. In prticulr, one service orgniztion's effort helps illustrte this point. This orgniztion hd developed n enterprise model using n pproch tht offered prioritiztion process tht recommended use of criticl success fctors. Becuse the orgniztion's business strtegy employed "strtegic objectives" nd did not use the CSF pproch, the project tem set out to "identify" the orgniztion's CSFs to prioritize the order in which to work on the processes. However, when they presented their prioritiztion scheme in room full of representtives from ech deprtment in the business, the process fell prt (Storey, 2007). These representtives, mny of whom hd prticipted in the development of the strtegic pln, blked t the notion tht the process prioritiztion hd keyed off the strtegic pln. Hving been told tht the prioritiztion ws bsed on the strtegic pln, the representtives were expecting to see the reltionship between business processes nd strtegic objectives. Becuse the project tem ttempted to rticulte the prioritiztion in the context of CSFs, the deprtmentl representtives could not intuitively understnd how the prioritiztion supported the strtegic pln tht they knew did not use CSFs. The project tem hd to redo the prioritiztion, keying off the strtegic objectives s outlined in the strtegic pln. The results were lmost identicl, but it ws importnt tht the prioritiztion not only tie into the orgniztion's strtegy, but tht the reltionship between strtegy nd process prioritiztion be clerly nd esily understood by those fmilir with the strtegy. Hving the "right" nswer ws not enough. It is importnt tht the prticipnts understnd nd gree on "right" nswer. If not, lck of greement on prioritiztion ssumptions cn be detrimentl to the process improvement efforts (Storey, 2007). Process prioritiztion cn be ccomplished using three bsic steps: 1) prioritizing the plnning components themselves; 2) identifying the reltionship between the processes nd the plnning components; nd 3) determining the overll strtegic vlue of the process. 1. Prioritize pproprite Plnning Components Every gol, objective, strength, or wekness ffects the orgniztion's performnce in different wys. In this step, strengths nd weknesses must be prioritized on scle of one to ten from little importnce to very serious considertion. The prioritiztion should be bsed on t lest two criteri: 1) the degree of impct the strength or wekness hs on the orgniztion's performnce, nd 2) the degree of control the orgniztion hs over the strength or wekness. For exmple, lthough the voltility of energy costs might be n identified wekness, it my be rnked lower thn wekness indicting tht plnt fcilities re outmoded. lthough the orgniztion cn control the purchse of plnt equipment, it cnnot control energy prices. However, this doesn't necessrily men tht the orgniztion shouldn't do nything to decrese energy usge. It cn look for wys to sve energy by running certin processes "off pek," using energy-sving heting/cooling, nd so on. In this sitution, the outdted plnt fcilities might lso be ffecting the orgniztion's energy use. Thus, the "outdted plnt fcilities" might be rnked higher thn the overll energy costs becuse of its impct on the compny s wekness, nd becuse it could lso ddress the other wekness. 2. Determine Reltionship Between Plnning Components nd Process The next step in the nlysis is to determine (on scle of one to ten from little importnce to very serious considertion) the degree to which prticulr opertion contributes to the wekness or is responsible for the strength. prticulr operting function tht is primrily responsible for given wekness would be ssigned vlue of ten reltive to tht wekness. For exmple, if it ws determined tht wekness reltive to the CSF "customer stisfction" ws identified s tking too long to process customer orders, the reltionship between the Order Entry Process nd this prticulr wekness might be ssigned rting of ten. 3. Determine Overll Strtegic Vlue of the Process Once the orgniztion hs determined the reltionship between ech opertionl function nd ech strength or wekness, the next step is to determine the overll strtegic vlue of ech function. This cn be ccomplished using three steps: 1) multiply the strength/wekness priority vlue times the reltionship vlue, 2) dd the products of ech reltionship to come up with n overll strtegic vlue for ech process, nd 3) rnk the processes ccording to strtegic vlue, with the process hving the highest strtegic vlue being rnked s the number one prospect for process improvement efforts. It is importnt to emphsize tht exercises like the one we just described re intended to id in the decision mking process. Thus, better decisions regrding resource lloction cn be more crefully implemented once the results of this process re determined. In conclusion, the strtegy within SME plys n importnt role just like within big orgniztionl structure. Smll nd medium compnies should definitely pply the strtegic view on their business, prioritize objectives nd follow the strtegic pln designed before the implementtion of business strtegy. Bibliogrphy: 1. Chell, E. nd Trcey, P., 'Reltionship Building in Smll Firms: the Development of Model', Humn Reltions, 58, pp 577-616. 2. Chung K. H. nd Friesen M. E. "The Criticl Success Fctor pproch to Mngement t Boeing." The Journl of Mngement Systems, 3 (2): 1991. 3. Chung K. H. Mngement: Criticl Success Fctors. Boston, M: llyn & Bcon, 1987. 4. Dft R., Sormunen J. nd Prks D. "Chief Executive Scnning, Environmentl Chrcteristics, nd Compny Performnce: n Empiricl Study." Strtegic Mngement Journl, 9: 123-139 ( 1988). 5. Dvenport Thoms H. nd Short Jmes E. "The New Industril Engineering: Informtion Technology nd Business Process Redesign." Slon Mngement Review, 31 (4):11-27 (Summer 1990). 6. Deprtment of Helth dministrtion nd Policy. "Report to the Governor: Findings nd Recommendtions." Chrleston, SC: Medicl University of South Crolin ( 1993). 7. Frser, S., 'Finnce for Smll nd Medium-Sized Enterprises', Report on the 2004 UK Survey of SME Finnces. 8. Greene, F.J. nd Mole, K., 'Smll Business nd Enterprise', Enterprise nd Smll Business: Principles, Prctice nd Policy, Crter, S. nd Jones-Evns, D. (eds) (forthcoming 2006). 9. Storey, D.J., 'Entrepreneurship, Smll nd Medium Sized Enterprises nd Public Policies', in Vn der Horst, R., King-Knuni, S. nd Duffy, S. (eds), Keystones of Entrepreneuril Knowledge, Blckwells, Oxford. 10. Storey, D.J., 'Evluting SME Policies nd Progrmmes: Technicl nd Politicl Dimensions', in Csson, M., Yeung, B., Bsu, . nd Wdeson, N. (eds), The Oxford Hndbook on Entrepreneurship, Oxford University Press (forthcoming 2006). 11. Storey, D.J., 'The Competitive Experience of UK SMEs: Fir nd Unfir', Report for Office of Fir Trding, London. 12. Trcey, P. nd Phillips, N., 'The Distinctive Chllenge of Educting Socil Entrepreneurs: Post-Script nd Rejoinder to the Specil Issue on Entrepreneurship Eduction', cdemy of Mngement Lerning nd Eduction, (forthcoming 2006) 13. Trcey, P., Phillips, N. nd Hugh, H., 'Beyond Philnthropy: Community Enterprise s Bsis for Corporte Citizenship', Journl of Business Ethics, 58, pp 327-344 14. Wren, C. nd Storey, D.J., 'Evluting the Effect of Soft Business Support upon Smll Firm Performnce' in Vn der Horst, R., King-Knuni, S. nd Duffy, S. (eds), Keystones of Entrepreneuril Knowledge, Blckwells, Oxford Read More