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
- Be clear, concise and attainable.
- Be measurable.
- Have a target date for completion.
- Include responsibility for taking action.
- 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
- Adapt your objectives directly to organiza-
tional goals and strategic plans. Do not as-
sume that they support higher level manage-
ment objectives.
- Quantify and target the results whenever
possible. Do not formulate objectives where
attainment cannot be measured or at least
verified.
- Test your objectives for challenge and achiev-
ability. Do not build in cushions to hedge
against accountability for results.
- 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.
- Establish performance reports and milestones
that measure progress toward the objective. Do
not rely on instinct or crude benchmarks to ap-
praise perfonnance.
- 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.
- Limit the number of statements of objectives
to the key result areas (for your business).
Do not obscure priorities by slating too many
objectives.
- Review your statements with others to assure
consistency and mutual support. Do not fall
into the trap of setting your objectives in a
vacuum.
- Modify your statements to meet changing condi-
tions and priorities.
- 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:
- It helps determine the viability of the
venture in a designated market.
- It provides guidance to the entrepreneur
in organizing his or her planning activi-
ties.
- 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.
- 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.
- 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.
- 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:
- 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.
- 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.
- 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.
- 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.
- 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."

You can use this article in your blog or website given that you include this link - http://smlbusiness.blogspot.com