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1. Strategy for small business
July 2013

2. Most people’s view of strategy
Strengths Weaknesses
Opportunities Threats
SWOT

3. Strategy
What is strategy
• Likely to be involved with the long term direction of the organisation,
i.e. 3-5 years
• Likely to involve all the activities of an organisation
• Usually the decisions are about trying to gain an advantage over the
competition.
• They normally attempt to match the activities of an organisation to its
external operating environment
• They can be affected by the values and expectations of the
organisations stakeholders. (Individuals or organisations that are
affected by the organisations decisions, i.e. customers)

4. Strategy
Strategy Defined
“Strategy is the direction and scope of an organisation over the long
term, which achieves advantage in a changing environment
through its configuration of resources and competences with the
aim of fulfilling stakeholder expectations”
Johnson and Scholes (2005)
Lost Boy: “Injuns! Let’s go get em!”
John Darling: “Hold on a minute. First we must have a strategy”
Lost Boy: “Uhh? What’s a strategy?”
John Darling: “Its, er…. It’s a plan of attack.”
Walt Disney’s Peter Pan
In Grant (2002)

5. External
Macro
Environment
Micro
Environment
Opportunities /
Threats
Resources
Capabilities
Competences
Internal
Strengths /
Weaknesses
Organisation

6. Small Business Strategic Route MapSmall Business Strategic Route Map
Internal AssessmentInternal Assessment External AssessmentExternal Assessment
PhysicalPhysical FinancialFinancial HumanHuman IntangibleIntangible MicroMicro MacroMacro
PortersPorters BenchmarkBenchmark PESTLEPESTLEVRIOVRIO
Strengths / WeaknessesStrengths / Weaknesses Opportunities / ThreatsOpportunities / Threats
SWOTSWOT
TOWSTOWS
SuitabilitySuitability AcceptabilityAcceptability FeasibilityFeasibility
Strategy for GrowthStrategy for Growth

7. External
Macro Environment - PESTLE analysis
• Political
• Economic
• Social
• Technological
• Legal
• Environmental

8. External
• Political future
− Political parties and alignments at a local, national level and European level
− Legislation – i.e. taxation and employment law
− Relations between the government and the organisation
− Government attitude towards monopolies and competition

9. External
• Economic future
− Inflation
− Consumer expenditure and disposable income
− Interest rates
− Currency fluctuations and exchange rates
− Public and private sector investment
− Energy, transport and communication costs

10. External
• Social Future
− Shifts in values and culture
− Changes in lifestyle
− Attitudes to work and leisure
− Demographic changes – for example changes in age variations of the population

11. External
• Technological Future
− Local, regional and national government investment policy
− New patents and products
− Research initiatives
− Speed of change and adaptation to new technologies
− Level of R+D expenditure

12. External
• Environmental future
− Green issues and policies that effect the environment
− Renewable energies
− Rubbish, waste and its disposal

13. External
• Legal future
− Competition law and government policy
− Employment and safety law
− Product safety issues

14. External
• Micro environment
− Five Forces model helps identify the changes in another sources of competition
within an industry
− Each force is not independent of each other. Pressures from one can cause
Competitive
Rivalry
Potential
Entrants
Buyers
Substitutes
Suppliers
Threat of
Entrants
Bargaining
Power
Threat of
Substitutes
Bargaining
Power

15. • Threat of entry
− Dependent upon the ability to overcome the barriers to entry
− These factors need to be overcome to compete successfully
− They can be viewed as providing only delays and not permanent barriers to
entry
− Economies of scale
− Capital requirement of entry
− Access to distribution channels
− Experience
− Expected retaliation
− Legislation or government action
− Differentiation

16. • Threat of substitutes
− Substitution reduces demand for a particular class of products or services, e.g.
email reducing the demand for postal services
− This depends on whether the substitute provides a higher perceived benefit or
value
− Substitution may take different forms
− Product for product substitution – email vs postal service
− Substitution of need – more reliable appliances require less maintenance
− Generic substitution – indirect competition

17. • Power of buyers and suppliers
− Buyer power high when
− Few buyers
− Alternative sources of supply
− Component or material cost is high percentage of total cost
− Switching cost is low

18. • Power of buyers and suppliers
− Supplier power high when:
− Few suppliers
− Switching costs are high
− The brand of the supplier is powerful

19. • Competitive rivalry
− Market growth rates affect rivalry

20. Development Growth Shakeout Maturity Decline
Few early adopters Growing adopters Growing selectivity of
purchase
Saturation of users
Repeat purchase
alliance
Drop off in usage
Few competitors Entry of competitors
Fight for share
Undifferentiated
product / services
Many competitors
Likely price cutting for
volume
Shakeout of weakest
competitors
Fight to maintain
market share
Difficulties in gaining
new share
Emphasis on efficiency
/ low cost
Exit of some
competitors

21. Internal
Internal Resource Audit
• Tangibles
− Physical – i.e. office space, production space
− Finances – i.e. available budget / finances
− Human – i.e. the skills and experiences of the staff
• Intangibles
– i.e. brand awareness, service quality

22. Internal
Typical Audit Questions
• Physical
− What physical space is there?
− Is there room for expansion?
− Is there any unique / specialist space?
− Is there any specific / unique equipment?

23. Internal
• Financial
− How strong is the financial position of the organisation?
− How is the organisation funded?
− Is there a reliance on public sector funding?
− Is there free capital for expansion / development?

24. Internal
• Human
− Have the staff got specific / unique skills and experiences?
− How strong is the contact base for each member of staff?
− What are the recruitment strategies?
− How are the staff motivated?
− What is the turnover of staff?

25. Internal
• Intangible resources
− How strong is the brand of the organisation?
− How loyal are the customers?
− What relationships have the staff built?
− What is the reputation of the company?
− What are the perceived levels of service?

26. Resources, competences and competitive advantage
Same as
competitors’
or easy to
imitate
Better than
competitors’
and difficult to
imitate
Resources
Competences
Threshold
Resources
Threshold
Competences
Unique
Resources
Core
Competences

27. • Translating resources to competences
− Competences develop over time within an organisation
− Some are so difficult to imitate that they become a competitive advantage.
− These are known as “core competences”
− It is the identification of these that is important within the internal analysis.

28. Resources to competences
V Valuable
R Rareness
I Imitable
O Organisation

29. • Derived SWOT and TOWS
− Once we have the five factors for each aspect of the SWOT
− Now investigate the relationships and implications of the factors.
−How can strengths be used to take advantage of opportunities?
−How can strengths be used to avoid or defuse threats?
−How can weaknesses be overcome to take advantage of
opportunities?
−How can weaknesses be overcome to counteract or minimise
threats?
TOWS matrix investigates these relationships

30. Strengths (S) Weaknesses
(W)
Opportunities
(O)
Threats (T)
SO Strategies WO Strategies
ST Strategies WT Strategies
TOWS Matrix

31. • SO Strategies:
− Generate strategies that use strengths to take advantage of opportunities
• ST Strategies
− consider a business’ strengths as a way to avoid threats
• WO Strategies
− Attempt to take advantage of opportunities by overcoming weaknesses
• WT Strategies
− Are basically defensive and primarily act to minimise weaknesses and avoid
threats

32. • Success Criteria
How to evaluate the strategies formed from the TOWS exercise
− Suitability
The extent to which new strategies would fit with future trends and changes in
the environment and how the strategy might stretch and exploit the core
competences
− Acceptability
Concerned with the expected performance outcomes. Will the strategy deliver
what is expected?
− Feasibility
Can the strategy be made to work in practice?

33. • Suitability
Do the strategies:
− Exploit opportunities in the environment and avoid threats
− Capitalise on an organisations strengths and avoid or remedy weaknesses
− Address stakeholder expectations
• The relative suitability of strategic options can be understood by:
− Ranking
− Decision trees
− Scenarios

34. • Acceptability
− Some criteria for understanding acceptability of strategic options:
−Profitability
−Cost Benefit analysis
−Sensitivity analysis
−Stakeholder reactions
• Feasibility
− Financial feasibility
− Resource deployment

35. Summary
• Environmental influences in two ways
−Macro environment – general influences
−Micro environment – specific to the industry / sector
• Basis of all effects from the environment are dynamic, e.g. changes over
time, changes to competitors
• Therefore organisations need to continually review and address these
environmental changes
• Strategic capability is the ability to provide products or services with
features that are valued by customers.
• Competitive advantage is therefore achieved by organisations that are able
to do this better that their competitors in ways that are difficult to imitate

36. • Strategic capability starts with resources. Some resources may be unique
to an organisation and be the basis of competitive advantage.
• Some activities or processes may be core competencies that underpin an
organisations competitive advantage
• Strategic competitive advantage can be obtained by matching external
factors with an organisations core competences.
• Once a series of strategies have been derived from the TOWS matrix each
one should be assessed.
• The one strategy that “fits” across the suitability, acceptability and
feasibility measurements can be implemented
• Implementation can be difficult but for small businesses it can be much
easier than larger businesses – speed boat vs oil tanker!