1. Copyright Atomic Dog Publishing, 2005 Small Business Management: A Planning Approach Joel Corman Suffolk University, Emeritus Robert Lussier Springfield College Lori Pennel Bunker Hill Community College

2. Copyright Atomic Dog Publishing, 2005 CHAPTER 6 Introduction and Strategy Formulation Sections of the Business Plan PART 2 Business Planning

3. Copyright Atomic Dog Publishing, 2005 6-1 Introduction Value of strategy formulation  Written clear strategies and mission statement helps increase performance  Important to define strategy clearly Myths about strategic planning  Complex and based on sophisticated quantitative methods  Not important for small businesses

4. Copyright Atomic Dog Publishing, 2005 6-2 The Interrelationship between Strategy and the Other Business Plan Components Strategy  Managerial game plan for directing and running the business To create the strategy, start from where you want the business to be in the future, and work backwards. Plans need to specify:  What is to be accomplished  How it is to be accomplished -Accounting -Marketing -Location -Layout -Production/operations -Personnel -Financing -Control

5. Copyright Atomic Dog Publishing, 2005 6-3 The Introduction Section of the Business Plan Background of the business  Includes name, address, telephone number, hours of operation, and history Management and organization  Lists the businesses, key managers, and their duties and responsibilities, with their qualifications (organization chart) Form of ownership  Type of ownership which affects the business plan  Sole proprietorship gives you total control  Partnership would need you to plan a mutually agreeable strategy and planned distribution of profits.  List the names and qualifications of investors, directors, and any consultants

6. Copyright Atomic Dog Publishing, 2005 6-4 The Internal Environment Factors that affect the firm’s performance from within its boundaries:  Management  Mission and objectives  Resources  Transaction formation process  Structure

7. Copyright Atomic Dog Publishing, 2005 6-4 The Internal Environment (contd.) Internal environment components

8. Copyright Atomic Dog Publishing, 2005 6-4a Management Managers main functions are:  Planning  Organizing  Staffing  Leading  Controlling Decisions made by managers affect the performance of the business. Selecting managers is critical.

9. Copyright Atomic Dog Publishing, 2005 6-4b Mission The mission statement is the foundation of the business and specifies the purpose of its existence. The mission specifies the nature of business  Product -Identify present and future products to be offered.  Target customers -Segmented group of potential buyers of products  Competitive advantage -How the business competes for customers  Philosophy of doing business -Specific way of conducting the business The mission should be relevant to all stakeholders. Concise enough to be committed to memory W. Edwards Deming states—“The major reason businesses fail is that management does not look ahead”.

10. Copyright Atomic Dog Publishing, 2005 6-4c Objectives Statements of what is to be accomplished within a given period of time Criteria for objectives:  Difficult but achievable  Observable and measurable  Specific, with a target date  Participatively set  Accepted Writing objectives  Means -Management, resources, transformation process, structure  Ends -Mission and objectives stating end

11. Copyright Atomic Dog Publishing, 2005 6-4c Objectives (contd.) Means and ends

12. Copyright Atomic Dog Publishing, 2005 6-4d Resources Human  The most important resource, as they are responsible for achieving objectives and coming up with creative ideas that result in new businesses and products/services. Physical  Land, buildings, machines, equipment, natural resources, inventory Intangible  Reputation, laws, patents, trademarks, copyrights, licenses, accreditation, contracts, tariffs, quotas, and even information Financial Marketing

13. Copyright Atomic Dog Publishing, 2005 6-4e The Transformation Process System for converting inputs to outputs:  Inputs  Outputs  Process  Feedback, influence, and control The transformation process

14. Copyright Atomic Dog Publishing, 2005 6-4f Structure An organization is a system  A system is a set of two or more interacting elements in which each part affects the whole, and each part is affected by at least one other part. Companies structure resources to transform inputs into outputs. Effective structuring is required to achieve the objectives.

15. Copyright Atomic Dog Publishing, 2005 6-5 The External Environment Factors that affect the firm’s performance from outside its boundaries:  Customers  Competitors  Suppliers  Labor force/unions  Shareholders  Society  Technology  Governments  Economy These can be the difference between success and failure.

16. Copyright Atomic Dog Publishing, 2005 6-5a Customers Major effect on the performance through purchasing its goods/services Effective managers know the importance of getting to know their customers, and offer them products/ services that meet their needs profitably. Knowing the target market is important in developing the mission statement.

17. Copyright Atomic Dog Publishing, 2005 6-5b Competitors Firms must compete for business. Competitor’s strategic moves affect the business. Competition increasing as the global economy expands Knowing competitors helps in developing missions with strategies that offer a unique advantage over the competition.

18. Copyright Atomic Dog Publishing, 2005 6-5c Suppliers Many business resources come from outside the firm:  Buy land, buildings, machines, equipment, natural resources  Patents  Financing  Marketing services like advertising and distribution Performance is partly based on suppliers. Effective managers develop close working relationships with suppliers. Reliable suppliers help in smoothly carrying out the transformation process.

19. Copyright Atomic Dog Publishing, 2005 6-5d Labor Force/Unions Employees have a direct effect on the performance of the organization. The mission, its structure, and its transformation process depend on the capability of the employees in meeting the objectives. Important to hire employees with appropriate capability levels Unions are third party to the business, but they carry out negotiations of an agreement instead of the employees. Unions have the power to strike and stop business operations.

20. Copyright Atomic Dog Publishing, 2005 6-5e Shareholders Are the owners of the corporation Vote for the board of directors who oversee the performance of the business. Generally not involved in the day-to-day operations in large corporations, but involved in small ones Directors hire top managers who report to them.

21. Copyright Atomic Dog Publishing, 2005 6-5f Society Members of the society may exert pressure on management of the business to change. Some instances:  Safety of products from the auto industry (Ralph Nader)  Pollution control  Prevention of abuse of natural resources

22. Copyright Atomic Dog Publishing, 2005 6-5g Technology Rate of technological change will continually increase. Computers have changed the way organizations of all sizes conduct and transact, and have become an essential part of operations in small business. Changes in technology create threats and opportunities for businesses.

23. Copyright Atomic Dog Publishing, 2005 6-5h Governments Set laws and regulations that businesses must obey Violations can result in fines or even closure. Governments create threats and opportunities for businesses.  Example, changing the legal drinking age

24. Copyright Atomic Dog Publishing, 2005 6-5i Economy Generally when the economy is growing, businesses do better than during the times of recession. Businesses themselves have no control over this factor, but it has a huge impact on their success or failure.

25. Copyright Atomic Dog Publishing, 2005 6-6 Environmental Analysis SWOT analysis  Strengths  Weaknesses  Opportunities  Threats

26. Copyright Atomic Dog Publishing, 2005 6-6a Strengths and Weaknesses Define the key success factors in the industry:  Quality  Service  Cost  Price  Reputation  Technology  Management  Manufacturing  Marketing  Financing  Location  Appearance of facilities Based on the analysis, develop strategy based on strengths and to minimize weaknesses

27. Copyright Atomic Dog Publishing, 2005 6-6a Strengths and Weaknesses (cont’d) Environmental analysis

28. Copyright Atomic Dog Publishing, 2005 6-6b Opportunities and Threats Foresee opportunities and threats:  Market growth/decline  Increasing/decreasing competition  Price and cost changes  Economic expansion/contraction  Government changes in regulations  Availability of supplies  Increasing/decreasing substitute products  Changing taste/needs of customers Based on the analysis, take advantage to increase profits and watch to remain successful

29. Copyright Atomic Dog Publishing, 2005 6-6b Opportunities and Threats (contd.) Environmental analysis

30. Copyright Atomic Dog Publishing, 2005 6-6c Interactive Management Design a desirable strategy and invent ways of bringing it about. Four principles of planning for an interactive manager:  Participative planning -Involves everyone who can be affected by it  Coordinated planning -All aspects simultaneously and interdependently  Integrated planning -All levels and time frames should be integrated  Continuous planning -Update, extend, and correct frequently

31. Copyright Atomic Dog Publishing, 2005 6-7 Strategy Formulation Strategy can be created after environmental analysis. Mintzberg says that the strategy must achieve an essential fit between external threat and opportunity and internal competitive advantage. Strategy should include:  Mission  Objectives  Environmental analysis