The analysis of the global environment of a company is called global environmental analysis. This analysis is part of a company's analysis-system, which also comprises various other analyses, like the industry analysis, the market analysis and the analyses of companies, clients and competitors. This system can be divided into a macro and micro level. Except for the global environmental analysis, all other analyses can be found on the micro level. Though, the global environmental analysis describes the macro environment of a company.[1] A company is influenced by its environment. Many environmental factors, especially economical or social factors, play a big role in a company's decisions, because the analysis and the monitoring of those factors reveal chances and risks for the company's business. This environmental framework also gives information about location issues. A company is thereby able to determine its location sites. Furthermore, many other strategic decisions are based on this analysis. One may also apply the BBW model. In addition, the factors are analyzed to evaluate external business developments. It is finally the task of the management to adapt the firm to its environment or to influence the environment in an adequate way. The latter is mostly the more difficult option. There are different instruments to analyze the company's environment which are going to be explained afterwards.
PESTLE analysis-
One instrument to analyse the company's external environment is the PEST analysis. PEST stands for political, economical, social and technological factors. Two more factors, the legal and environmental factor, are defined within the PESTLE analysis. To explain these environmental factors, it is necessary to say that most of the factors depend on each other and that they change over the years. Consequently, when one factor changes it also affects the others. The equality for every company is the main characteristic of the factors in an environmental analysis.The different environmental factors are covered below.
Political and legal factors-
Political and legal factors are here regarded as a unit. They refer to framework given by politics. The exist regulatory or legal frameworks, which can be binding for regions, nations or on an international basis. The frameworks deal with economical issues or issues concerning the labor market.Subsidies for instance fall in the category of economical issues. According to the degree of support through subsidies, a country can be more or less attractive for a company. With respect to the labour law of a country, it can highly influence location decisions, too. If e.g. the dismissal protection in a country is very good, a firm may tend to choose a country with a more flexible hire-and-fire-system. Furthermore, the stability of a political system is a real important aspect for most firms. A social market economy with rights for co-determination, regulations for patents, the company's investment and environment protection are main characteristics for a political stable system.
Economical factors
Economical factors deal with national or international economical developments and have a direct influence on supplier and consumer markets. Examples of economical factors that play a big role are: the GDP, the rate of inflation, interests, the change rate, employment or the situation of money markets. These economical factors influence demand, competition intensity, cost pressure and the will to invest. For instance, if the gross domestic product of a country is fairly low, the demand is in general lower than in countries with a higher GDP.
Social factors
Social factors deal with social issues regarding the values, ideas, opinions and the culture of market participants. Market participants can be employees, customers or suppliers. Through their contact with the company, they influence it due to their opinions. The company needs to follow the market participant's change of value and adapt its strategies. Nowadays, a change of values concerning environmental protection is on the move.
Technological environmental factors
Technological environmental factors are meanwhile of a great importance, especially for industrial companies, which underlie a fast technological change. The increasing speed of technological changes, like in microelectronics or robotics indicate risks chances for a company. Particularly producing companies are affected of that fast evolution.
Environmental factors
At last, environmental factors are becoming more and more important nowadays. They regard natural resources and the basis of human life. Among those, the availability of raw materials and energy is the main topic. As the availability of fossil fuels, like oil or coal, gets worse within the next decades, the dependency on those fuels stays pretty risky. Moreover, to show an ecological responsibility, companies should assess and reduce their ecological damage. Through rare raw materials and increasing pollution, an environmentally friendly management gets spotlighted more and more by the public interest. Consequently, Eco-friendly products or technologies can even signify a competitive advantage.[7]
A competitive analysis is a critical part of your company marketing plan. With this evaluation, you can establish what makes your product or service unique--and therefore what attributes you play up in order to attract your target market.
Evaluate your competitors by placing them in strategic groups according to how directly they compete for a share of the customer's dollar. For each competitor or strategic group, list their product or service, its profitability, growth pattern, marketing objectives and assumptions, current and past strategies, organizational and cost structure, strengths and weaknesses, and size (in sales) of the competitor's business. Answer questions such as:
Who are your competitors?
What products or services do they sell?
What is each competitor's market share?
What are their past strategies?
What are their current strategies?
What type of media are used to market their products or services?
How many hours per week do they purchase to advertise through the media used in this market?
What are each competitor's strengths and weaknesses?
What potential threats do your competitors pose?
What potential opportunities do they make available for you?
A quick and easy way to compare your product or service with similar ones on the market is to make a competition grid. Down the left side of a piece of paper, write the names of four or five products or services that compete with yours. To help you generate this list, think of what your customers would buy if they didn't buy your product or service.
Across the top of the paper, list the main features and characteristics of each product or service. Include such things as target market, price, size, method of distribution, and extent of customer service for a product. For a service, list prospective buyers, where the service is available, price, website, toll-free phone number, and other features that are relevant. A glance at the competition grid will help you see where your product fits in the overall market
Economic factors discuss about the influence of economic that will affect the profitability of companies. From the case, the economic downturn had affected Best Buy’s profit. During economic recessions, consumers have less disposable income. Therefore, their purchasing power is lower. Their consumption pattern will change and prefer to buy necessities goods than discretionary goods. So, it will become a problem for Best Buy that sell discretionary products.
Social factors
Social factors is discussing about belief, value, lifestyle of persons. Cultural is an important element to analyze in social factors. From the case, Best Buy had used customer centricity model to conduct their business. They had study the customer needs and behaviors. Best Buy had focused on certain customer groups such as affluent suburban families and trend-setting urban dwellers. Nowadays, internet purchasing had become a trend and lifestyle among consumers. They intent to spend their time shop around the internet than visit the retail store.
Technological factors
Technological factors discuss how technology change will influence the business. From the case, technology improved will shorten the product life cycles and decrease the prices. As shown as the case, when shorter product life cycle, training cost will increase.
Technological factor also pose a threat to the Best Buy. Online marketplace had become a threat for retail industry. Consumer can buy goods from internet rather than visiting retail store like Best Buy. Furthermore, the consumers are able to compare the product price, quality and getting more information by using the internet.
Ecological factors
Ecological factor always discuss about the relationship between business and the ecology. Best Buy had encourage their customers to recycling their appliances and electronics by launch a recycling program. It is used to reduce waste and reduce the pollution to the ecology. Furthermore, Best Buy also had earn the LEED certification because their store’s design is green and achieved LEED standard (Cheeseman 2009).
Industry analysis is a tool that facilitates a company's understanding of its position relative to other companies that produce similar products or services. Understanding the forces at work in the overall industry is an important component of effective strategic planning. Industry analysis enables small business owners to identify the threats and opportunities facing their businesses, and to focus their resources on developing unique capabilities that could lead to a competitive advantage.
"Many small business owners and executives consider themselves at worst victims, and at best observers of what goes on in their industry. They sometimes fail to perceive that understanding your industry directly impacts your ability to succeed. Understanding your industry and anticipating its future trends and directions gives you the knowledge you need to react and control your portion of that industry," Kenneth J. Cook wrote in his book The AMA Complete Guide to Strategic Planning for Small Business. "However, your analysis of this is significant only in a relative sense. Since both you and your competitors are in the same industry, the key is in finding the differing abilities between you and the competition in dealing with the industry forces that impact you. If you can identify abilities you have that are superior to competitors, you can use that ability to establish a competitive advantage."
An industry analysis consists of three major elements: the underlying forces at work in the industry; the overall attractiveness of the industry; and the critical factors that determine a company's success within the industry.
One way in which to compare a particular business with the average of all participants in the industry is through the use of ratio analysis and comparisons. Ratios are calculated by dividing one measurable business factor by another, total sales divided by number of employees, for example. Many of these ratios may be calculated for an entire industry with data available from many reports and papers published by the U.S. Departments of Commerce and Labor.
By comparing a particular ratio for one company with that of the industry as a whole, a business owner can learn much about where her business stands in comparison with the industry average. For example, a small nursing home business can compare its "payroll per employee" ratio with the average for all residential care operators in the U.S. in order to determine if it is within a competitive range. If her business's "payroll per employee" figure is higher than the industry average, she may wish to investigate further. Checking the "employees per establishment" ratio would be a logical place to look next. If this ratio is lower than the industry average it may justifying the higher per-employee payroll figure. This sort of comparative analysis is one important way in which to assess how one's business compares with all others involved in the same line of work. There are various sources for the industry average ratios, among them is the industry analysis series published by Thomson Gale as the USA series.
Another premier model for analyzing the structure of industries was developed by Michael E. Porter in his classic 1980 book Competitive Strategy: Techniques for Analyzing Industries and Competitors. Porter's model shows that rivalry among firms in industry depends upon five forces: 1) the potential for new competitors to enter the market; 2) the bargaining power of buyers; 3) the bargaining power of suppliers; 4) the availability of substitute goods; and 5) the competitors and nature of competition. These factors are outlined below.
INDUSTRY FORCES
The first step in performing an industry analysis is to assess the impact of Porter's five forces. "The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long term return on invested capital," Porter stated. "The goal of competitive strategy for a business unit in an industry is to find a position in the industry where the company can best defend itself against these competitive forces or can influence them in its favor." Understanding the underlying forces determining the structure of the industry can highlight the strengths and weaknesses of a small business, show where strategic changes can make the greatest difference, and illuminate areas where industry trends may turn into opportunities or threats.
Ease of Entry
Ease of entry refers to how easy or difficult it is for a new firm to begin competing in the industry. The ease of entry into an industry is important because it determines the likelihood that a company will face new competitors. In industries that are easy to enter, sources of competitive advantage tend to wane quickly. On the other hand, in industries that are difficult to enter, sources of competitive advantage last longer, and firms also tend to benefit from having a constant set of competitors.
The ease of entry into an industry depends upon two factors: the reaction of existing competitors to new entrants; and the barriers to market entry that prevail in the industry. Existing competitors are most likely to react strongly against new entrants when there is a history of such behavior, when the competitors have invested substantial resources in the industry, and when the industry is characterized by slow growth. Some of the major barriers to market entry include economies of scale, high capital requirements, switching costs for the customer, limited access to the channels of distribution, a high degree of product differentiation, and restrictive government policies.
Power of Suppliers
Suppliers can gain bargaining power within an industry through a number of different situations. For example, suppliers gain power when an industry relies on just a few suppliers, when there are no substitutes available for the suppliers' product, when there are switching costs associated with changing suppliers, when each purchaser accounts for just a small portion of the suppliers' business, and when suppliers have the resources to move forward in the chain of distribution and take on the role of their customers. Supplier power can affect the relationship between a small business and its customers by influencing the quality and price of the final product. "All of these factors combined will affect your ability to compete," Cook noted. "They will impact your ability to use your supplier relationship to establish competitive advantages with your customers."
Power of Buyers
The reverse situation occurs when bargaining power rests in the hands of buyers. Powerful buyers can exert pressure on small businesses by demanding lower prices, higher quality, or additional services, or by playing competitors off one another. The power of buyers tends to increase when single customers account for large volumes of the business's product, when a substitutes are available for the product, when the costs associated with switching suppliers are low, and when buyers possess the resources to move backward in the chain of distribution.
Availability of Substitutes
"All firms in an industry are competing, in a broad sense, with industries producing substitute products. Substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge," Porter explained. Product substitution occurs when a small business's customer comes to believe that a similar product can perform the same function at a better price. Substitution can be subtle—for example, insurance agents have gradually moved into the investment field formerly controlled by financial planners—or sudden—for example, compact disc technology has taken the place of vinyl record albums. The main defense available against substitution is product differentiation. By forming a deep understanding of the customer, some companies are able to create demand specifically for their products.
Competitors
"The battle you wage against competitors is one of the strongest industry forces with which you contend," according to Cook. Competitive battles can take the form of price wars, advertising campaigns, new product introductions, or expanded service offerings—all of which can reduce the profitability of firms within an industry. The intensity of competition tends to increase when an industry is characterized by a number of well-balanced competitors, a slow rate of industry growth, high fixed costs, or a lack of differentiation between products. Another factor increasing the intensity of competition is high exit barriers—including specialized assets, emotional ties, government or social restrictions, strategic interrelationships with other business units, labor agreements, or other fixed costs—which make competitors stay and fight even when they find the industry unprofitable.
To know where you’re heading, you have to know where you are right now. So before you start looking ahead, you should review the past performance, or the current situation. Look at each area of the business and determine what worked well, what could have been better and what opportunities lie ahead.
There are many tools and techniques available to help with this process, such as SWOT (Strength, Weakness, Opportunities and Threats) analysis.
You should look internally at your strengths and weaknesses. And for the opportunities and threats you should look at external factors. A great framework for looking at external factors is PESTLE (Political, Economic, Social, Technological, Legal and Environmental). So, for your big idea or plan you would ask: what threats and opportunities could arise under each category?
The most important part of this process is involving the right people to make sure you’re collecting the most relevant information.
2. Develop a vision statement
This statement should describe the future direction of the business and its aims in the medium to long term. It’s about describing the organisation’s purpose and values. Business gurus have debated long and hard about what comes first – the vision, or the mission statement (see step 3). But, in practice, you could develop both at the same time.
3. Develop a mission statement
Like the vision statement, this defines the organisation’s purpose, but it also outlines its primary objectives. This focuses on what needs done in the short term to realise the long term vision. So, for the vision statement, you may want to answer the question: “Where do we want to be in 5 years?”. For the mission statement, you’ll want to ask the questions:
What do we do?
How do we do it?
Whom do we do it for?
What value do we bring?
4. Identify strategic objectives
At this stage, the aim is to develop a set of high-level objectives for all areas of the business. They need to highlight the priorities and inform the plans that will ensure delivery of the company’s vision and mission.
By taking a look back at your review in step one, in particular the SWOT and PESTLE analysis, you can incorporate any identified strengths and weaknesses into your objectives.
Crucially, your objectives must be SMART (Specific, Measurable, Achievable, Realistic and Time-related). Your objectives must also include factors such as KPI’s, resource allocation and budget requirements.
5. Tactical Plans
Now is the time to put some meat on the bones of your strategy by translating the strategic objectives into more detailed short-term plans. These plans will contain actions for departments and functions in your organisation. You may even want to include suppliers.
You’re now focusing on measurable results and communicating to stakeholders what they need to do and when. You can even think of these tactical plans as short sprints to execute the strategy in practice.
6. Performance Management
All the planning and hard work may have been done, but it’s vital to continually review all objectives and action plans to make sure you’re still on track to achieve that overall goal. Managing and monitoring a whole strategy is a complex task, which is why many directors, managers and business leaders are looking to alternative methods of handling strategies. Creating, managing and reviewing a strategy requires you to capture the relevant information, break down large chunks of information, plan, prioritise, capture the relevant information and have a clear strategic vision
It is at the top in the hierarchy of strategic intent. It is what the firm would ultimately like to become. A few definitions are as follows:
KOTTER description of something (an organization, corporate culture, a business, a technology, an activity) in the future. The definition itself is comprehensive and states clearly the futuristic position.
MILLER and DESS defined vision as the “category of intentions that are broad, all-inclusive and forward-thinking”
The definition lays stress on the following:
(1)broad and all inclusion intentions
(2)vision is a forward-thinking process.
A few important aspects of vision are as follows:
·It is more of a dream than an articulated idea
·It is an aspiration of the organization. The organization has to strive and exert to achieve it.
·It is a powerful motivator to action.
·Vision articulates the position of an organization that it may attain in the distant future.
Envisioning
This is the process of creating a vision. It is a difficult and complex task. A well-conceived vision must have
·Core Ideology
·Envisioned Future
Core Ideology will remain unchanged. It has an enduring character. It consists of core values and core purpose. Core values are essential tenets of an organization. The core purpose is related to the reasoning of the existence of organization.
Envisioned Future will basically deal with the following:
·The long term objectives of the organization.
·Clear description of articulated future.
Advantages of Having a Vision
A few benefits accruing to an organization having a vision are as follows:
·They foster experimentation.
·Vision promotes long term thinking
·Visions foster risk-taking.
·They can be used for the benefit of people.
·They make organizations competitive, original, and unique.
·Good vision represent integrity.
·They are inspiring and motivating to people working in an organization.
CORE VALUES AND CORE PURPOSE
The initial reference of these two terms was given in section 3.3. These concepts are very important in the process of envisioning. COLLINS and PORRAS have developed this concept for a better philosophical perspective. As has already been discussed, a well-conceived vision consists of core ideology and envisioned future. Core ideology rests on core values and core purpose.
Core Values are the essential and enduring tenants of an organization. They may be beliefs of top management regarding employee welfare, customer interest, and shareholder wealth. The beliefs may have an economic orientation or social orientation. The evidence clearly indicates that the core values of Tata’s are different from the core values of Birla’s or Reliance. The entire organization structure revolves around the philosophy coming out of core values.
Core Purpose is the reason for the existence of the organization. Its reasoning needs to be spelled.
A few characteristics of core purpose as follows:
(i) It is the overall reason for the existence of an organization.
(ii) It is the why of the organization.
(iii) This mainly addresses the issue which organization desires to achieve internally.
(iv) It is the broad philosophical long term rationale.
(v) It is the linkage of an organization with its own people.
MISSION
The mission statements stage the role that the organization plays in society. It is one of the popular philosophical issues which is being looked into business mangers for last two decades.
Definition
A few definitions of mission are as follows:
HYNGER and Wheelen “ purpose or reason for the organization’s existence.
DAVID F. Harvey states “ A mission provides the basis of awareness of a sense of purpose, the competitive environment, degree to which the firm’s mission fits its capabilities and the opportunities which the government offers.
Thompson states mission as the “ essential purpose of the organization, concerning particularly why it is in existence, the nature of the business it is in, and the customers it seeks to serve and satisfy.
The above definition reveals the following:
(i) It is the essential purpose of organization
(ii) It answers “ why the organization is in existence”.
(iii) It is the basis of awareness of a sense of purpose.
(iv) It fits its capabilities and the opportunities which government offers.
Nature
A few points regarding nature of mission statement are as follows.
·It gives social reasoning. It specifies the role which the organization plays in society. It is the basic reason for existence.
·It is philosophical and visionary. It relates to top management values. It has long term perspective.
·It legitimises societal existence.
·It is stylistic objectives. It reflects corporate philosophy, identify, character and image of organization.
Characteristics
In order to be effective, a mission statement should posses the following characteristics.
(i) A mission statement should be realistic and achievable. Impossible statements do not motivate people. Aims should be developed in such a way so that may become feasible.
(ii) It should neither be too broad not be too narrow. If it is broad, it will become meaningless. A narrower mission statement restricts the activities of organization. The mission statement should be precise.
(iii) A mission statement should not be ambiguous. It must be clear for action. Highly philosophical statements do not give clarity.
(iv) A mission statement should be distinct. If it is not distinct, it will not have any impact. Copied mission statements do not create any impression.
(v) It should have societal linkage. Linking the organization to society will build long term perspective in a better way.
(vi) It should not be static. To cope up with ever changing environment, dynamic aspects be looked into.
(vii) It should be motivating for members of the organization and of society. The employees of the organization may enthuse themselves with mission statement.
(viii) The mission statement should indicate the process of accomplishing objectives. The clues to achieve the mission will be guiding force.
Examples of Mission Statement
A few examples of mission statement ( academically not accepted) are as follows:
India Today “ The complete new magazine”
Bajaj Auto, “Value for Money for Years”
HCL, “ To be a world class Competitor”
HMT, “Timekeepers of the Nation”
Some experts argue that these are the publicity slogans. They are not mission statements. A few other examples are as follows:
Ranbaxy Industries “ To become a research based international Pharmaceuticals Company”.
Eicher Consultancy “ To make India an economic power in the lifetime, about 10 to 15 years, of its founding senior managers.”
Formulation of Mission Statements
The mission statements are formulated from the following sources:
(i) National Priorities projected in plan documents and industrial policy statements.
(ii) Corporate philosophy as developed over the years.
(iii) Major strategists have vision to develop mission statements.
(iv) The services of consultants may be hired.
Mission vs Purpose
The term purpose was used by some strategists. At some places, it was used as synonymous with the mission. A few major points of distinction are as follows:
(i) The mission is societal reasoning while the purpose is the overall reason.
(ii) The mission is external reasoning and relates to the external environment. The purpose is internal reasoning and relates to the internal environment.
(iii) The mission is for outsiders while the purpose is for its own employees.
BUSINESS DEFINITION
It explains the business of an organization in terms of customer needs, customer groups and alternative technologies.
Oerik Abell suggests defining business along the three dimension of customer groups. Customer functions and alternative technologies. They are developed as follows:
(i) Customer groups are created according to the identity of the customers.
(ii) Customer functions are based on provision of goods/services to customers.
(iii) Alternative Technologies describe how a particular function can be performed for a customer.
For a watchmaking business, these dimensions may be outlined as follows:
·Customer groups are individual customers, commercial organizations, sports organizations, educational institutions etc.
·Customer functions are record time, finding time, alarm service etc. It may be a gift item also.
·Alternative technologies are manual, mechanical and automatic.
A clear business definition helps identify several strategic choices. The choices regarding various customer groups, various customer functions and alternative technologies give the strategists various strategic alternatives. The diversification, mergers and turnaround depend upon the business definition. Customer oriented approach of business makes the organization competitive. On the same lines, product/ service concept could also give strategic alternatives from a different angle. Business can be defined at the corporate or SBU levels. At the corporate level, it will concern itself with the wider meaning of customer groups, customer functions and alternative technologies. If strategic alternatives are linked through a business definition, it results in considerable amount of synergic advantage.
OBJECTIVES AND GOALS
Objectives refer to the ultimate end results which are to be accomplished by the overall plan over a specified period of time. The vision, mission and business definition determine the business philosophy to be adopted in the long run. The goals and objectives are set to achieve them.
Meaning
Objectives are openended attributes denoting a future state or out come and are stated in general terms.
When the objectives are stated in specific terms, they become goals to be attained.
In strategic management, sometimes, a different viewpoint is taken.
Goals denote a broad category of financial and non-financial issues that a firm sets for it self.
Objectives are the ends that state specifically how the goals shall be achieved.
It is to be noted that objectives are the manifestation of goals whether specifically stated or not.
Difference between objectives and goals.
The points of difference between the two are as follows:
·The goals are broad while objectives are specific.
·The goals are set for a relatively longer period of time.
·Goals are more influenced by external environment.
·Goals are not quantified while objectives are quantified.
Strategic decision-making is the process of charting a course based on long-term goals and a longer-term vision. By clarifying your company's big picture aims, you'll have the opportunity to align your shorter-term plans with this deeper, broader mission – giving your operations clarity and consistency.
Tip
Strategic decision making aligns short-term objectives with long-term goals and a mission that defines your company's big picture purpose. Shorter-term goals are expressed in quantifiable milestones that give you the capacity to measure your success and your adherence to your vision.
Mission and Vision
Strategic decision-making should start with a clear idea of your company's mission and vision – the reasons you exist as a business. Your business may be dedicated to providing environmental solutions, or you may simply want to make as much money as possible. Either way, if you know what you want over the long term, you'll be better positioned to infuse these aims and principles into your daily decisions. Start by writing your mission and your vision.
This statement can be as simple or complex as you wish, depending on the degree of formality you use in your everyday business decisions as you run your company. Even if your mission is only one sentence – the act of thinking about and articulating this sentence will help you develop a better idea of what you want. Having this written statement will also enable you to communicate your long-term vision to your employees and to other stakeholders, to get them on board with the strategic decisions you make.
Long-Term Goals
Long-term goals are the concrete embodiment of your mission and vision. A vision is an idea, and long-term goals are expressions of how these ideas play out – with milestones and real-world objectives. These goals are critical to the strategic decision-making process, because they guide your choices, and provide measurable and quantifiable ways to assess whether you are successfully aligning your company's direction with the values you've articulated to guide your business.
If your business designs environmentally friendly technologies, you might create a long-term goal of wanting to be carbon-neutral within five years. With this goal in mind, you'll then make strategic decisions aimed at reducing your carbon footprint during that time.
Short-Term Goals
It's easy to lose sight of the strategic decision-making process when you're focusing on short-term goals and decisions that concern day-to-day activities and issues. Short-term goals and decisions usually relate to immediate needs, such as improving cash flow so that you can cover outstanding bills. Despite the immediacy and urgency of these goals, your strategic decision-making process should still enable you to proceed with an eye toward both your vision and your longer-term objectives.
Strategic planning is the process of documenting and establishing the direction of your small business—by assessing both where you are and where you’re going. The strategic plan gives you a place to record your mission, vision, and values, as well as your long-term goals and the action, plans you’ll use to reach them. A well-written strategic plan can play a pivotal role in your small business’s growth and success because it tells you and your employees how best to respond to opportunities and challenges.
Despite the benefits of having a strategic plan in place, a growing number of small business owners aren’t focusing on the long-term strategies of their businesses. In a 2018 Constant Contact survey of 1,005 small business owners, 63% said they plan only a year (or less) in advance.
f you’re one of these small business owners, it’s not too late to think differently. Your future success depends on effective strategic planning. It’s a process of looking ahead that should involve your entire business, and the discussions can lead to meaningful changes in your business. Strategic planning consists of analyzing the business and setting realistic goals and objectives. This leads to the creation of a formal document that lays out the company’s views and goals for the future.
Benefits of Strategic Planning
The strategic planning process can take some time, but it’s beneficial for everyone involved. As the small business owner, you’ll have a better idea of the goals and objectives you want to accomplish and a path to do that. For your employees, the process can foster an increase in productivity—contributing to the success of the business.
Communicating Your Strategic Plan
The strategic planning process should involve your employees. Your employees are involved in the day-to-day operations and can provide you with a unique view of the company. Employees can share with you what they think is and isn’t working with the business today, which can inform your planning for the future.
In addition to your employees, it’s beneficial to reach out to people outside of your company to get their opinions. Like your employees, vendors have a unique perspective on your industry. Talk to them about the business, and get their thoughts on how they think the business landscape can change in the future.
The U.S. Small Business Administration recommends that the strategic planning process be a flexible one. When you meet with your employees and any people outside of the company, remember that the discussions should encourage new ideas and thoughts.
Increase Productivity
Involving your employees in the strategic planning process also means they receive a sense of accountability that can increase productivity. Whether they contributed in the process or were informed of the business’s goals and objectives after the strategic plan was created, they’ll be more likely to want to help you achieve those targets.
Identifying Strengths and Weaknesses
As part of the strategic planning process, you’ll examine and analyze your entire business. You’ll take a look at what your business does well and the areas where it still needs to improve. By identifying your business’s current strengths and weaknesses, the process gives you and your employees an opportunity to improve in the future and become a durable business by minimizing risks.
Although you may have a good idea about what your business excels at and areas that need to be improved upon, don’t forget to involve your employees. They may tell you something you didn’t think of.
Setting the Direction of the Business and Fostering a Proactive Business
By the end of the strategic planning process, you and your employees should have a clear direction of where you want the business to go in the future. These discussions and the planning process itself help put the business in the best position to succeed in the future.
Strategic planning gives you and your business time to figure out how to grow over the next few years and how to address new opportunities and challenges. Think about the challenges or issues your business may face in four or five years and plan accordingly, so your business doesn’t stumble down the road.
