Entrepreneurs are primarily concerned with recognizing
opportunities and seizing the initiative (Baron & Ensley, 2006).
However, once seized, the organization needs to be able to survive in a
competitive environment. For this follow-on survival, one needs
strategic management skills in addition to the entrepreneurial skills
already held (Ireland, 2007).
Strategic planning is beneficial to the small business. Studies
show that it is strongly related to small business financial success
(Katz & Green, 2007; Wheelen and Hunger, 2004). For example, Schwenk
and Shrader (1993) applied meta analysis to the result of previous
studies on formal strategic planning and the performance of small firms.
The researchers found that even though the size of the effects of
strategic planning for specific studies is not that large, the overall
relationship between formal planning and performance is significant and
Rue and Ibrahim (1998) found that greater planning sophistication
is positively related to growth in sales though there was no significant
relationship between planning and return on investment. Last, a study by
Baker, Lon and Davis (1993) of high growth INC firms showed that 86%
conducted strategic planning. Some 94% of these reported an improvement
in profits. Ibrahim, Angelidis & Parsa (2008) showed similar results
in small, family-owned businesses. In this article we intend to provide
entrepreneurs a practical primer to strategic management in a very easy
to understand format by following the process using a fictional
restaurant in an urban environment.
Entrepreneurs pour their hearts and souls into new ventures for
years until they finally start to pay off (Mitchell et al., 2002).
Perhaps they have heard of strategic planning but haven't really
had time to pursue it as a process. The problem is that few know much
about strategic management and have fewer still have ever participated
in the process. And, unlike in larger organizations that may have
strategic management departments, the onus for everything in smaller,
start-up organizations, falls to the owner/manager.
Therein lay the purpose of this article--to remove some of the
mystery associated with strategic management and to provide practical
guidance towards taking the next step in managing an on-going business.
A summary of the strategic planning process and a list of suggestions
for conducting the process are provided. We think you will find that the
process is pretty much common sense and easier to accomplish than
The importance of strategic management to a business can be summed
up with the old saying--"If you don't know where you are
going, any road will take you there". Prudent use of the
information contained in this article will help ensure that you and your
company will find the road to success and will continue to follow it
THE STRATEGIC MANAGEMENT PROCESS
Your first step in learning the strategic management process should
be to put yourself at ease. Although, the name itself invokes a
grandiose scheme that may seem bigger than life, strategic management
is, in fact, little more than an exercise in time management. It's
all about how to achieve what's important when faced with
conflicting demands and limited resources. Second, don't get caught
up in the hype of strategic management. Too many organizations go
through the motions but lose sight of the intent. These companies are
ridiculed in mainstream culture such as in the Dilbert comic strip.
Remember the intent of strategic management is to set your company up
for future success.
The following discussion includes descriptive steps in the
strategic planning process. The first phase of strategic management is
planning followed by implementation. We concentrate on the planning
process here by showing how things should progress while giving some
This is your starting point. Equally important as knowing where you
are going, you need to know where you are starting from--where you are
today (Collins & Porras, 1996). A good mission statement would
include your company's name, its major product/service offering,
its major customer(s), and its source of competitive advantage. It needs
to answer the question of "Why are we in business?"
For illustration, assume a fictitious restaurant, Mama's.
Mama's provides lunch service in an urban downtown setting. A good
mission statement would be:
"Mama's restaurant provides workers in the central
business district a home-cooked lunch. Our success rests on our unique,
relaxed, home-style atmosphere where you can "get away" from
the work environment, if just for a moment".
After reading this mission, one can easily picture what the
business does. It would be difficult to develop a similar understanding
if the mission was simply "To make money". In a capitalistic
economy, it's a goal of most businesses to make money. The issue at
hand is to structure and position your company so that it has the best
opportunity to make more money than the competitors.
We can all remember President John F. Kennedy's vision of
"A man on the moon by the end of the decade" and Martin Luther
King's vision of "I have a Dream". Both are simple yet
A good vision need not be as powerful as those above; but, it
should be useful. The business's vision should paint a clear
picture of the company in the distant--one that can easily be seen in
the mind. In general, Vision development should be easy for an
entrepreneur. After all, the vision is simply a representation of the
opportunity which was recognized and led to the formation of the
business in the first place.
In general a vision is often less defined than the mission and more
goal-oriented. Visions provide a unifying motivation. While flexible,
three to five years is a reasonable time frame. A good vision should
inspire and motivate the entire company. Building on Mama's
example, a decent vision could be, "When the harried workers think
of lunch, Mama's is the first choice that comes to mind". This
vision provides sufficient direction for managers at Mama's to use
when setting priorities.
Now that we know where we are (e.g., the mission) and where we want
to go (e.g., the vision), it's time for a reality check. The
owner/manager needs to evaluate his company relative to competitors to
see what he need to do in order to make sure that he can reach his
desired future. This issue is addressed in the next part of the process
and has two steps. We start by looking inside the business with an
internal evaluation of what the company has and then look outside at the
external environment to see how the company compares to competitors.
Internal evaluation involves some serious soul-searching. You need
to look around and take inventory of everything that you have at your
disposal. Put yourself in Mama's shoes and the inventory should
contain everything: people, buildings, desks, chairs, chicken roasters,
refrigerators, freezers, etc.--these are resources. Now look at what
you're doing with those resources: preparing meals, serving meals,
cleaning up after meals--these are activities.
The internal evaluation process should provide a very detailed
description of the business, what it has and what it does. The more
detail the better. In fact, the soul-searching session will be more
effective if you can remain objective and refrain from assigning
adjectives during the identification phase. To illustrate by building on
Mama's example, one resource could be the restaurant's
address/location. While the location may be a reason for success, avoid
any claims of 'prime' location for the moment. Simply list
everything; the list will be pared down and prioritized later.
Mama's resources would include: a chef with credentials from a
particular culinary institute; two hostesses; five wait staff; 1,000
square feet seating area with thirty tables; a lease on the property; a
kitchen capable of producing fifty meals per hour; etc. Mama's
activities would include: receiving the ingredients to the meals;
preparing the meals; serving the meals; cleaning up after the meals;
greeting incoming diners; seating the diners; taking orders; delivering
the meals; disposing of the waste; paying the employees; developing
The more detail is better because we have to evaluate each of these
activities to see where we rank relative to competitors. We want to find
out what Mama's does better than her competitors. Furthermore, why
should potential diners choose Mama's over her competitors:
Papa's, Uncle Joe's or Aunt Jane's? This is the question
we want to answer next, and the more activities we have in our
description, the more options we have in our next step--external
It is important research the trends in the industry in which you
are operating. In Mama's case, restaurant industry trends which may
impact her restaurant include eating habits, technology, regulations at
all levels of government and a rise in the cost of doing business, e.g.,
labor, utilities, insurance, and supplies. Information about the
restaurant industry may be obtained from the National Restaurant
Association or a state restaurant association.
The local economy and trends need to be considered by all small
businesses in the area. Mama needs to study changes in population,
demographics, consumer lifestyles, and economic development factors. An
assessment of the local economy and population changes in population may
be procured from the local economic development agency for her city,
county, etc. or the business research unit located in a nearby
university. Trade newspapers, attending area Chamber of Commerce
meetings, and in Mama's case, attending area restaurant association
meetings could be most informative.
You now need to identify your Industry; this is you and all the
competitors fighting for the same group of customers (Porter, 2008).
Your company's intent should be to attract those customers instead
of allowing them to freely seek out your competitors; this is critical
to your company's success. Simply, you need to determine what the
customers want. You then need to perform those internal activities which
are the bases for what the customers want; and, you need to do so better
than the competitors.
Of course, this is much easier said than done. You'll have to
rely on marketing research to identify what your target customers want
and how they decide among various competitors. In Mama's target
market, the potential diners come from occupants of the office buildings
in the central business district; this is consistent with her mission
statement. Mama hired a consultant to survey the potential customers to
see what criteria they use when deciding where to eat lunch. The
consultant identified three factors: within three blocks walking
distance; a relaxed atmosphere; and, good tasting food. Mama, being
familiar with the area around her restaurant, identified three other
restaurants that may be able to satisfy the above criteria: Papa's,
Uncle Joe's and Aunt Jane's.
The task at hand is to make sure that Mama's is better able to
provide the above three factors better than the other three restaurants
can. In other words, Mama wants to make sure she has a competitive
advantage. Therefore, we need to evaluate each of Mama's activities
relative to the corresponding activities of the other three competitors.
The initial intent is to see which activities Mama's performs
better (i.e., her strengths) and where Mama's doesn't perform
as well (i.e., her weaknesses) relative to her competitors'
We can now revisit Mama's activities and see if, and where,
she has a competitive advantage. Recall, the customers' first
decision criterion was convenience. After evaluating her location
relative to those of the three competitors, we can see if more potential
customers are within a three block radius or not. The second criterion
was atmosphere. After hiring an objective evaluator to visit all four
restaurants, Mama found that hers rated as the most relaxed. This
evaluation demands further measure since it is so critical. She really
needs to come up with objective measures for defining a 'relaxed
atmosphere'. The third criterion was quality food. Again, an
objective evaluator could be hired to taste the offerings. A simple
proxy measure for food quality could be the credentials of Mama's
chef relative to those of the chefs of the competitors.
Due to space constraints, we'll limit our coverage here. To be
really useful, you should evaluate all of your activities against very
specific measurement criteria in order to see where you rank relative to
your competitors or industry standards (Barney, 1997). You may find
other sources of competitive advantage as well as areas, not necessarily
linked to the competitive advantage but where you need to improve your
business such as reducing costs.
We'll now shift our focus to the longer term considerations.
What else is going on around your company that you haven't
considered yet? How will those events change the way you're
conducting the business in the long term?
Other External Considerations
Consider the price of gas. Mama's is not immune to rising gas
prices; it affects the cost of her ingredients. Mama is faced with two
choices; she can raise her menu prices or simply absorb cost increases
and not make as much profit. In Mama's marketing research report we
should have noted that price was not one of the major decision criteria
on the part of potential diners. Therefore, Mama could raise prices to
compensate for increased costs without losing customers. Of course,
there is some price level where the other criteria will start to play
less of a role; this needs to be considered during the marketing
In general, we refer to external factors that can have a positive
impact on businesses as opportunities and the negative ones as threats.
Since these opportunities and threats affect all businesses, your
company's specific competitive advantage will allow you to benefit
more than your competitors when all are faced with the same opportunity.
For instance, the increase in corporate downsizings has increased
stress and lowered the number of employees. On the positive side (from
Mama's perspective), increased personal stress also increases the
need for one to seek whatever relaxation one can find during the day. A
restaurant that provides an oasis of relaxation will enjoy a
correspondingly higher demand than those without such an atmosphere. On
the negative side, the corporate downsizings have reduced the total
population of potential diners. However, since Mama enjoys a higher
demand than the competitors, she will most likely lose fewer customers
than the other three.
The evaluation of the general environment is the least well defined
in strategic management. One must be very creative and insightful in
order to notice changes. In fact, it would really help if you could
predict the future. However, since that's impossible, your next
best bet is to stay alert to what's going on around you by scanning
the environment. By paying close attention to as much media as you can
afford, you become more sensitive to changes. Although you won't be
able to actually predict a change, you may be able to notice subtle
changes before your competitors. You can then take action before anyone
else and give yourself a competitive edge.
Putting it all together in a Plan
It's now time to put these pieces together into a coherent and
comprehensive strategic plan. The theme in any strategic plan is to fit
all the pieces together. Ask yourself the following questions and then
develop a to-do list of objectives that will set your company up for
* Do I have sufficient resources to accomplish my current mission
and achieve my future vision?
* Do I have sufficient strengths to ensure that I remain
* Do I have too many weaknesses such that they will overwhelm any
advantages I may have?
* Are there enough opportunities and not too many threats such that
I can achieve my future vision?
If you can answer all questions, yes, then your priority is to
simply monitor the situation and note if anything changes. If you answer
no to any of the questions, then you need to establish a detailed action
list to correct the situation. Based on your understanding of where each
of the pieces fit into the bigger picture, you can develop an action
plan to correct the situation.
Developing a plan may be difficult for Mama's management due
to the lack of time, unfamiliarity with strategic planning or planning
skills (Wheelen & Hunger, 2004). An excellent source of free help is
available from a nearby Small Business Development Center (SBDC). The
nearest SBDC to Mama's may be found on the Internet.
Actually accomplishing the necessary tasks is the basis for the
second phase of strategic management, the implementation phase. But,
until the actions are identified, the plan can't be carried out.
The entire process strategic management process becomes iterative and
enduring. It's easy to see that strategic management is a
philosophy or way of thinking.
Strategic management is all about positioning your company relative
to your competitors so that your performance will be better than theirs.
This process is accomplished through discrete but interconnected steps
where you identify resources and activities. You then compare your
activities against your competitors' activities to see whose are
better; these become strengths for the owner. Your strengths that
correspond to what the customers want become your competitive advantage.
You then use your competitive advantage, in the face of changing
environmental conditions, to outperform your competitors.
All too often we hear about: putting out the fires; crises
management; and, reactive vs. proactive. We 'know' that we
should plan; it's just too easy not to plan. Through the use of
this primer, we hope that you how have a better understanding of the
practical application of strategic management tools. Even more so, we
hope that you recognize how naturally strategic management fits with a
common sense perspective of running an on-going business. Finally,
combining an understanding that one should plan with the planning
structure that strategic management provides, we hope that many will
embrace the strategic management philosophy and enjoy a positive
influences on their bottom lines.
Baker, W.H., Lon, H. & Davis B. (1993, December). Business
planning in successful small firms. Long Range Planning, pp. 82-88.
Barney, J. B. (1997). Gaining and Sustaining Competitive Advantage.
Reading, MA: Addison-Wesley.
Baron, R. A., & Ensley, M. D. (2006). Opportunity Recognition
as the Detection of Meaningful Patterns: Evidence from Comparisons of
Novice and Experienced Entrepreneurs. Management Science, 52: 1331-1344.
Bracker, J. S. Keats, B.W. & Pearson, J.N. (1988). Planning and
financial performance among small firms in growth industry. Strategic
Management Journal, November-December, 591-603.
Collins, J. C. & Porras, J. I. (1996). Building your
company's vision. Harvard Business Review, 74: 65-77
Ibrahim, N. A., Angelidis, J. P, & Parsa, F. (2008). Strategic
management of family businesses: Current findings and directions for
future research. International Journal of Management, 25(1): 95-110.
Ireland, R. D. (2007). Strategy vs. Entrepreneurship. Strategic
Entrepreneurship Journal, 1(1-2): 7-10.
Katz, J. A. & Green, R. P. (2007). Entrepreneurial Small
Business. Boston, MA: McGraw-Hill
Mitchell, R. K., Busenitz, L., Lant, T., McDougall, P. P., Morse,
E. A., & Smith, J. B. (2002). Toward a Theory of Entrepreneurial
Cognition: Rethinking the People Side of Entrepreneurship Research.
Entrepreneurship: Theory & Practice, 27: 93.
Porter, M. (2008). The five competitive forces that shape strategy.
Harvard Business Review, 86: 78-93.
Rue, L. W. & Ibrahim, N.A. (1998, October). The relationship
between planning sophistication and performance in small businesses.
Journal of Small Business Management, 36 (4), 24-32.
Schwenk, C. R. & Shrader, C. B. (1993, Spring). Effects of
formal strategic planning on financial performance in small firms: A
meta-analysis. Entrepreneurship Theory and Practice, 17 (3), 53-64.
Wheelen, T. L. & Hunger, J. D. (2004). Strategic management and
business policy. Upper Saddle River, NJ: Pearson Prentice Hall.
Erich N. Brockmann, The University of New Orleans
Kenneth J. Lacho, The University of New Orleans