What is Good Business Strategy? The case of SMEs.

Dr Simon Raby

What the research says

Our research shows that there is limited presence of strategy in Small and Medium-sized Enterprises (SMEs). Typically half of all SMEs we survey report not having a business strategy or plan. On closer inspection, when we speak with the business owner personally, we find that only 10% of those initially reporting existence of a strategy can produce the goods. So that’s only 1 out of 20 SMEs!

Why is strategy so important? Well, research tells us that the presence of strategy is related to organisational growth and long term survival. However, few SMEs get it right. Reactive decision making is the norm and this often leads to ineffective and inefficient resource usage, with effort expended on fulfilling the needs of today, rather than building for tomorrow.

What is ‘strategy’ anyway?

There are two eminent thinkers that are widely regarded as the leaders in strategy [2] – Michael Porter and Henry Mintzberg. We will briefly consider each of their perspectives in turn.

Michael Porter of Harvard Business School considers strategy as a competitive positon. This perspective argues that organisations can only achieve success if they establish a different and unique position in the marketplace, and sustain it. This can either be on the basis of a premium or differentiated service or quality offering or alternatively on the basis of a low cost or no-frills strategy. These are what Porter labels as ‘generic strategies’. In making such decisions Porter emphasises that strategy resides in activities and that

“The essence of strategy is choosing not what to do.” Michael Porter

To Henry Mintzberg, Professor of Management Studies at McGill University in Montreal, strategy can be understood in multiple ways as one or all of the 5Ps – a plan (where are we now and where are we going?), a ploy (disrupting, dissuading or discouraging others), a pattern (something that emerges from past behaviour), a position (where you are in relation to your environment/context) and a perspective (something that emerges from the way individuals in organisations think).

“Culture eats strategy for breakfast.” Peter Drucker

The difference that is typically picked up is that Porter’s approach appears more deliberate, planned and rigid whereas Mintzberg’s approach appears more emergent, allowing for learning and change

Strategy: a game of Roulette, or a game of Black Jack?

I will always remember a talk given by Professor David Storey OBE, a highly ranked scholar in Entrepreneurship. The thing that really struck me is the analogy he uses to explain how business owners typically run their businesses. He talks about running a business as no more than a game of Roulette. You place your bets, and you hope everything lands as it should. This type of game relies on optimism, chance and the depth of the business owners pockets [3]. Those business owners with deep pockets can effectively stay in the game for longer, whilst others may exit early on; whether a conscious decision or not.

The simple point I take from this is that David challenges the view of whether we are in control of our own destiny, and that of our business. Can we really believe that we can predict what will happen in our environment? The answer to this is of course a resounding ‘no’, although we can get better interpreting signals and cutting though the noise [4]. We do therefore have choices, about how we interpret information, which opportunities we take (i.e. where we place our chips) and those we don’t (i.e. when we choose to fold).  What this moves us to is that ‘good’ strategy is more than a simple gamble.

What is ‘good’ strategy?

So strategy is important. Those organisations that are strategic in their approach to doing business outperform those that are not. So what is ‘good’ strategy? How do we know when we are being strategic?

To help us answer this question we turned to Dr Brian Harney, an expert in Strategy at Dublin City University Business School and Deputy Director (Knowledge) of their LInK research centre. Brian’s work focuses on strategy and people issues in SMEs. Some would call him a ‘pracademic’, as he not only conducts the traditional academic research; he also facilitates workshops with young entrepreneurs and more established business owners across Dublin, most recently through the Enterprise Ireland initiative. He has also published a book ‘Strategy and Strategists’ [5], so we felt he would have something to say on the matter!

Brian explained that the way he views ‘good’ strategy is as a “comprehensive and cohesive response to a challenge” [6]. Brian highlighted that there are four strategic management challenges:

  1. Orientation: In essence this is your purpose and vision. What problem are you trying to solve? What was the burning reason why you established the business? What do you want to achieve?
  2. Relevance: What is your value proposition? What value do you deliver beyond others? What interest do your customers have in you?
  3. Trade-off: What is your core competence? Where do you excel? What is the essence of success? Are you fully exploiting what you are capable of?
  4. Execution challenge: How do you translate your vision into something that is actionable? How do you know you are doing well?

“However beautiful strategy, you should occasionally look at the results.” Winston Churchill

As we explored the above strategic challenges, Brian alluded to the fact that the fourth challenge, that of execution, is one often given the least amount of time. Envisioning exercises are widespread in organisations, and strategy is more than a set of post-it notes or a document. It is the ongoing commitment to spending time having strategic conversations.  The process of exploring, shaping and defining takes place with others. It is not safe to assume that everyone in the organisation knows what you’re aiming to achieve. Fundamentally, strategy is about articulating how you are going to get from where you are now (the reality) to where you want to get to (the vision), while staying true to your purpose (the reason why you exist) and your values (what’s important to you).

Leaving you with some strategic ‘top tips’

As we neared the end of the show, we considered those actions that we would recommend SME owner-managers take, and these were:

  • Make the time and the (right) space for strategic thinking. Ask yourself the question: When are you at your best?
  • Learning from when things go wrong is just as important as learning from when things go right. What conversations do you have within your organisation to review learning from your actions?
  • Strategy, and strategic thinking is not an annual process, it is something you are continually examining and evolving. What process do you have in place to update, evolve and review the strategic direction of the firm?
  • Involve others in the process. How do you involve those in your organisation in the direction of the business?
  • And…if you need some support, ask for it! Our research shows that two thirds of SME owner-managers run their firms without any form of strategic advice.

For further information

Click here for further information on the collaboration between the Kent Business School and the Business Bunker Radio Show. Should you have any questions in regard to this piece of the wider work please do not hesitate to get in touch with Dr Simon Raby S.O.Raby@kent.ac.uk or Paul Andrews businessbunker@yahoo.co.uk

References

[1] See page 26 of Gilman, M. Raby, S, and Turpin, J. 2012. The ‘BIG Ten’ Characteristics of Success. ISBN: 978-1-902671-76-5.

[2] Moore, Karl. 2011. Porter or Mintzberg: Whose View of Strategy Is the Most Relevant Today? Forbes Magazine.

[3] Storey, D. J. 2011. Optimism and Chance: The Elephants in the Entrepreneurship Room, International Small Business Journal, 29(4): 303-321.

[4] Silver, Nate. 2013. The Signal and the Noise: The Art of Prediction. Penguin.

[5] Cunningham, J. and Harney, B. 2012. Strategy and Strategists. Oxford University Press.

[6] Rumelt, R. 2012. Good Strategy/Bad Strategy: the difference and why it matters. Profile Books. ISBN: 978-1846684814.

[7] Harney, B. 2012. Book review and commentary: Good strategy/bad strategy, Irish Journal of Management, 31(2): 126-131.

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