FOR small- to medium-sized firms there are only three generic strategic options and each requires careful and considered attention in order to get the strategy right.
FOR small- to medium-sized firms there are only three generic strategic options and each requires careful and considered attention in order to get the strategy right.
Setting strategic goals is a difficult challenge for many managers. Knowing what strategic options you have available and the implications of choosing between them is a dilemma facing businesses from all industries. For small to mid-sized firms (e.g. those with fewer than 200 employees) there are really only three generic strategic options available.
The first of these options is what I call ‘stasis’, or business as usual. While it might appear to be a do-nothing strategy at first glance, it is actually a very challenging environment for a manager or business owner.
My research suggests that small firms that chose this strategic option are not passive. Most of these firms were well managed and had recently experienced a steady period of growth before choosing to consolidate. For owner-managers who chose stasis for a secure or comfortable lifestyle, there is still no room for complacency. Attention needs to be given to improving the efficiency of the business to boost profitability through enhanced processes. It is a fairly inward-looking strategy, but not an idle one.
The second option is ‘exit’, which can take one of two forms. The first is the abandonment of the business and closure, while the second is the transfer of ownership or control to a new management team. The abandonment of a business is not always a disaster; research into small business failure suggests that most owner-managers simply wind-up their operations in an orderly manner and move on. This can be forced on them by adverse economic conditions, or a personal decision to give up the business and to do something else with their time.
For owner-managers who are planning to exit by transfer of ownership or control there is a need to get the business ready for trade sale, or to groom a successor. Whatever exit strategy is chosen there is much work to do. The business must be prepared for sale, succession or orderly wind-up. This may involve valuations of the firm, systems and team building, training successors and tidying up the balance sheet.
The final option is ‘growth’. To grow a business requires attention to either a new product or service that can be sold to existing customers, or moving into new markets with existing products and services. In some cases it might involve trying to launch new products in new markets. Each of these strategic directions will impose different levels of risk and possible return. The more change that the business has to face the higher the risk is likely to be. Taking a new product to a new market is potentially a big risk as it moves the business into unknown territory on both product and market levels. Setting a growth strategy needs careful planning with a robust business model and tight controls over cash flow and operations.
Whatever strategic option you choose will require careful planning and a good deal of effort. Growth is not always the most desirable option and exit should be an orderly process. Even stasis is an option that will keep you busy as you tidy up the books, tighten up the operations and ensure that you can sleep soundly knowing that everything is under control.
In summary each of the three options requires attention to the following.
• The growth option – focus on innovation, new products or new markets, setting a clear vision for the future, strengthening your balance sheet and working capital, enhancing your strategic networks and stress testing your business model.
• The stasis option – fine tune your business, review efficiency and contribution margins of existing products and services, tidy up the balance sheet and boost profitability, strengthen your existing customer and supplier relationships and look for ways to enhance loyalty across the supply chain.
• The exit option – focus on valuation and building systems and teams, tidy up the balance sheet and trim away waste through efficient financial control and reporting, groom a successor.
